Abstract:
The successful management of liquidity is essential to ensure the survival of
the banking industry and to inspire public confidence. In this study, the impact
of liquidity management on the financial performance of Zabzugu Rural Bank
in the Northern Region was investigated, using data from 2017 to 2021.
Specifically, the study analyzed the effects of liquidity and liability
management on the bank's financial performance, measured through returns
on assets, returns on equity, profit margin, and net interest margin. The study
utilized the liquidity preference theory and employed an explanatory design
and quantitative approach, analyzing the objectives of the study with a least
square regression model. The study discovered that the liability of the bank
did not directly affect the bank's financial performance. However, during the
sample period, the bank employed reasonable liquidity management, investing
more assets and a portion of deposits in risky investments. As a result, the
decreasing levels of the bank's liquidity were found to positively affect the
returns on assets, returns on equity, and profit margin of Zabzugu Rural Bank
in the Northern Region. The study recommended that the bank's management
align its liabilities with short-term assets such as short-term loans to
creditworthy customers. This will enable the bank to generate sufficient
revenue to match its liabilities and mitigate the risk of a mismatch in the
timing of the creation of assets and revenue. Additionally, bank is encouraged
to adopts a realistic strategy for increasing the amount of liquid cash in its
assets through reinvestment. However, the potential impact of this technique
on the bank's financial performance should be carefully monitored and
managed.
