THE IMPACT OF LIQUIDITY MANAGEMENT ON FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN WEST AFRICA

Abstract

This study investigates the effect of liquidity management on financial performance of deposit money banks (DMBs) by considering the banking sector of selected countries of the West African Monetary Zone (WAMZ). Aggregate banking sector data for the four selected economies were used from 1991 to 2020. The panel data regression analysis is also adopted for the empirical analysis after a statistical evaluation of the datasets are performed. The results from the empirical analysis reveal that reducing the cash to deposit ratio is the most efficient liquidity management strategy that may deliver enhanced performance for the DMBs among the sampled countries. Moreover, it was found that loans and advances to total assets have significant impact on financial performance of DMBs in West African countries. The ratio of loans and advances to total assets is limited to return on equity. There is also evidence that the ratio of loans and advances to deposit does not have a significant effect on financial performance of DMBs in West African countries. There is need for banks in the selected countries to monitor their deposit mobilization capacity since it has shown to have major implications on the liquidity management strategies in the banking sectors for the selected countries.