IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 11 NO. 4 2025
DOI: 10.56201/ijbfr.vol.11.no4.2025.pg1.11

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Impact of Liquidity Management on Profitability of Listed Deposit Money Banks in Nigeria: The Moderating Effect of Leverage.

ALI Dalha Haruna PhD, URUM Rimamnugyaen Garba

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Abstract

This study investigates the effect of liquidity management on the profitability of listed Deposit Money Banks (DMBs) in Nigeria, with particular emphasis on the moderating role of leverage. The primary aim is to evaluate how key liquidity ratios—current ratio, acid test ratio, cash ratio, and operating cash flow ratio—influence profitability, and how leverage alters these relationships. The study employed an ex-post facto research design, drawing from a population of twenty-two (22) DMBs listed on the Nigerian Exchange Group (NEG) as of December 31, 2023. A stratified random sampling technique was used to select ten (10) banks. Secondary data were sourced from the audited annual reports of the selected banks over the study period. Data analysis was conducted using descriptive statistics, Pearson correlation, and multiple regression models. The study is anchored on three relevant theories: the Shiftability Theory (Nwankwo, 1991), which focuses on managing liabilities to enhance liquidity; the Liquidity Preference Theory (Bibow, 2005), which highlights the transactional and speculative demand for money; and the Liquidity Creation Theory (Berger & Bouwman, 2009), which underscores banks' role in transforming liabilities into productive credit. Findings reveal that the current ratio and cash ratio have significant positive effects on profitability, while the acid test ratio is negative and insignificant. The operating cash flow ratio negatively affects profitability but is statistically significant. Leverage significantly moderates these relationships. The study concludes that liquidity management substantially influences profitability, and leverage is a key moderating factor. It recommends effective liquidity strategies and cautious debt management to optimize financial performance.

keywords:

Liquidity Management, Profitability, Deposit Money Banks, Leverage

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