EFFECT OF BANK LIQUIDITY MANAGEMENT ON FINANCIAL SECTOR DEVELOPMENT IN NIGERIA

SALAMI KHADIJAT

Abstract


An understanding of the factors that influence the level of bank liquidity management is crucial for the risk management function of banks and for national bank supervisors responsible for banking stability. Therefore, this paper seeks to examine the impact of bank liquidity management on financial sector development in Nigeria from 1990 to 2021. The paper employed the ex-post facto research design in obtaining, analyzing and interpreting the data and adopted the secondary method of data collection and the data were sourced from the Central Bank of Nigeria (CBN). Autoregressive Distributed Lagged (ARDL) was used for the estimation. The long-run results revealed that the liquidity ratio of commercial banks has a positive and insignificant impact on the financial development in Nigeria at a 5 percent significant level. Similarly, the loan-to-deposit ratio of commercial banks has a positive and significant impact on financial development in Nigeria at a 5 percent significant level. On the other hand, the interest rate in Nigeria has a negative and significant impact on financial development in Nigeria at a 5 percent significant level. Therefore, the paper recommended that banks should have robust credit risk management policies in place to assess the creditworthiness of borrowers and manage risks associated with loan defaults and banks should ensure that they have sufficient liquidity to meet the demands of depositors and borrowers, which helps maintain confidence in the bank's ability to fulfil its obligations.

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