Effect of Liquidity Management on the Financial Performance of Banks Listed on the Ghana Stock Exchange

Abstract

Effective liquidity management is instrumental in enhancing the very survival of the banking industry and instilling public confidence. The study examined the effect of liquidity management on the financial performance of listed banks in Ghana by employing data on nine listed banks from 2014 to 2018. The specific objective of the study was in respect of analysing the effect of liquidity and liability management on financial performance of listed banks. Financial performance was mainly measured by using returns on assets, returns on equity, profit margin and net interest margin. The study was based on the liquidity preference theory, and the explanatory design and the quantitative approach was also employed. The objectives of the study were analysed using least square regression model. The study found that the excessive increase in banks’ liquidity and the conservative approach to managing liquidity by holding more of banks deposits and assets in liquid form negatively affects financial performance. The study further found that liability management of banks by way of accumulating more debts and deposits and investing them in long term assets or holding them in liquid form negatively affect short term profits. The study among other things recommended that management of listed banks should maintain liquidity ratios up to the estimated liquidity requirements of their firms and avoid the excessive pile up of liquidity and liquidity which reduce the economic value of their assets, returns and profitability.