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Re-estimating the impact of liquidity on bank profitability in Nigeria

In respond to the heightened banking operational risk linked to the liquidity crunch, the Basel Committee for Bank Supervision has continued to advocate for banks holding a considerable liquid asset and also operating profitably. The dilemma thus, is in finding a balance between liquidity and pro...

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Main Authors: Adesina-Uthman, Ganiyat A., Shitile, Tersoo Shimonkabir
Format: Conference or Workshop Item
Language:English
Published: 2019
Subjects:
HG Finance
Online Access:http://repo.uum.edu.my/26686/1/ZAWED%202019%20657%20665.pdf
http://repo.uum.edu.my/26686/
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spelling my.uum.repo.266862020-01-02T06:38:02Z http://repo.uum.edu.my/26686/ Re-estimating the impact of liquidity on bank profitability in Nigeria Adesina-Uthman, Ganiyat A. Shitile, Tersoo Shimonkabir HG Finance In respond to the heightened banking operational risk linked to the liquidity crunch, the Basel Committee for Bank Supervision has continued to advocate for banks holding a considerable liquid asset and also operating profitably. The dilemma thus, is in finding a balance between liquidity and profitability as they are generally specified to be inversely related, when banks’ liquidity increases profitability decreases and vice versa. Theoretically, the Liquidity Profitability Trade-Off theory proposes that banks cannot pursue the two objectives simultaneously without trade-off hence the need for optimal regulation and supervision by the monetary authority to maintain safety and soundness of the banking system. This paper therefore re-assesses the trade-off between liquidity and profitability for Nigerian banks drawing on new data available from the official sources. It founds an insignificant relationship between liquidity and bank profitability. It also finds that real interest rate (first lag) is significant and negatively related to return on assets (ROA) while real GDP grow rate has a negative and insignificant relationship with ROA of banks. The puzzling result is an indication that Nigerian banks continue to generate profits even when there is a slowdown in domestic economy, and this may have something to with the banks’ business model and the funding market environment. 2019-12-01 Conference or Workshop Item PeerReviewed application/pdf en http://repo.uum.edu.my/26686/1/ZAWED%202019%20657%20665.pdf Adesina-Uthman, Ganiyat A. and Shitile, Tersoo Shimonkabir (2019) Re-estimating the impact of liquidity on bank profitability in Nigeria. In: International Conference on Zakat, Tax, Waqf And Economic Development (ZAWED), 1st – 2nd December 2019, Adya Hotel Langkawi, Malaysia.
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutional Repository
url_provider http://repo.uum.edu.my/
language English
topic HG Finance
spellingShingle HG Finance
Adesina-Uthman, Ganiyat A.
Shitile, Tersoo Shimonkabir
Re-estimating the impact of liquidity on bank profitability in Nigeria
description In respond to the heightened banking operational risk linked to the liquidity crunch, the Basel Committee for Bank Supervision has continued to advocate for banks holding a considerable liquid asset and also operating profitably. The dilemma thus, is in finding a balance between liquidity and profitability as they are generally specified to be inversely related, when banks’ liquidity increases profitability decreases and vice versa. Theoretically, the Liquidity Profitability Trade-Off theory proposes that banks cannot pursue the two objectives simultaneously without trade-off hence the need for optimal regulation and supervision by the monetary authority to maintain safety and soundness of the banking system. This paper therefore re-assesses the trade-off between liquidity and profitability for Nigerian banks drawing on new data available from the official sources. It founds an insignificant relationship between liquidity and bank profitability. It also finds that real interest rate (first lag) is significant and negatively related to return on assets (ROA) while real GDP grow rate has a negative and insignificant relationship with ROA of banks. The puzzling result is an indication that Nigerian banks continue to generate profits even when there is a slowdown in domestic economy, and this may have something to with the banks’ business model and the funding market environment.
format Conference or Workshop Item
author Adesina-Uthman, Ganiyat A.
Shitile, Tersoo Shimonkabir
author_facet Adesina-Uthman, Ganiyat A.
Shitile, Tersoo Shimonkabir
author_sort Adesina-Uthman, Ganiyat A.
title Re-estimating the impact of liquidity on bank profitability in Nigeria
title_short Re-estimating the impact of liquidity on bank profitability in Nigeria
title_full Re-estimating the impact of liquidity on bank profitability in Nigeria
title_fullStr Re-estimating the impact of liquidity on bank profitability in Nigeria
title_full_unstemmed Re-estimating the impact of liquidity on bank profitability in Nigeria
title_sort re-estimating the impact of liquidity on bank profitability in nigeria
publishDate 2019
url http://repo.uum.edu.my/26686/1/ZAWED%202019%20657%20665.pdf
http://repo.uum.edu.my/26686/
_version_ 1657490373652512768
score 13.211869

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