Liquidity and Risk Asset Management of Deposit Money Banks in Nigeria: The Digital Transformation Experience

to the digital transformation experience currently invoke in the Nigerian banking industry. JAFM 2.0 Concept of Bank Liquidity Monia (2025) defines bank liquidity as meeting the immediate banks obligations without realizing the assets. It is ability of a deposit money bank to make fund available to meet customers’ demand by financing increase in assets with the aim of avoiding financial difficulty (Emefena & Augustine, 2024). In the view of Kapur, Banajee and Malik (2022), bank liquidity implies meeting debt maturities and credit in a given time frame. The potential of a deposit money bank to fulfill the immediate cash need with minimum or no loss is referred to as bank liquidity by (Kayode, Ajayi and Awosusi, 2021). Effective bank liquidity management minimizes financial crises ad instill customers’ confidence on the bank. Natacha, Beatrice and Muriel (n.d) noticed that liquidity management involves ensuring availability of low-cost fund in the shortest period. It may involve the disposal of assets that are easily realizable, stabilizing liabilities or having credit with other financial institutions. It must also be aimed at making profit. Liquidity management should be made in a way that will increase the profit tendency of the financial institution. Bank liquidity is measured as the ability of deposit money banks to meet their short-term obligations and can be determined through indices such as: Liquid Coverage Ratio , Net Stable Funding Ratio for long- term stability, cash to deposit ratio and the Loan-to- Deposit Ratio. This study adopts Loan-to-deposit ratio in measuring liquidity as given below: LDR = Total Loans Total Deposits x 100 where LDR is loan to deposit ratio CDR = Cash in the vault Total Deposits x 100 where CDR is the cash to deposit ratio 2.1.1 The Concept of risk asset management An asset whose monetary value cannot be realized with precision is referred to as risky asset (Amakwe, et al., 2025). This implies assets bearing risk inherent in either its volume or nature. Risk assets are assets such as equities, high profile bonds, foreign currencies and real estate which experience constant variation in value and price. When the tenets of management is applied to risk assets with a view to obtain the expected outcome, it is called risk assets management according to (Amakwe, et al., 2025). Management of risk assets poses a great degree of task in determining its value to customers who are creditworthy and intending to settle their obligations on due dates. Banking crisis since inception has been consistently traced to the poor risk asset management (Apochi, & Baffa, 2022). According to Fidelis, Yua and Temitope, (2025) it is the process of coordinating credit in the form of advancement and loan, which are granted to customers in order to reduce associated losses. In other words, risk assets management involves identifying, assessing, coordinating, prioritizing various risks in connection with risk assets of a deposit money banks, it is called risk assets management (Buffa, Vayanos, & Woolley, 2022). Loans and other facilities involving an established criterion extended by banks to willing customers which are refundable at a given period and with possibility of default is called risk assets (Jones, Ohiagu, Ekwonye & Ubali, 2022). Effective management of risk assets promote deposit money banks’ profitability because, these assets are the cash cow that generate returns for the financial institutions (Hamisu, Ibrahim & Zango, 2021). All possible efforts made to identify, measure and prevent risk associated with risk assets to avoid or minimize the possibilities of negative outcome is called risk assets management (Amakwe, 2016). Risk assets within the context of this study is basically loan & advances (non- performing loans) granted to customers and treasury bills. 2.1.2 Digital Transformation Digital transformation involves the employment of technology and man power (executives and employees) to make a radical change in the performance of an innovative organization (Jose ́, JAFM Jose ́ & Tiago, 2024). It is defined by Mashamba and Gani, (2023) has the process of incorporating digital technology to various facet of a business with the sole aim of providing value to the clients. This transformation has greatly influenced the modern banking system by providing unimagined solutions to aging banking problems through the use of mobile banking, agent banking and digital wallet that has impacted the economy through provision of job and access to credit by a large number of the populace (Cunha, Soja, & Themistocleous, 2021). Digital transformation is one of the responses to contemporary banking challenges of leadership, electronic trend, modification skill and various strategies for implementing customer centered technology that will improve the organizational performance (Diener, & Špaˇcek, 2021). It is also known as digital entrepreneurship which involves the appreciation of the interrelationship between technology, culture and the proposed change with in ambit of the business regulation. It is often associated with beneficial innovation in business model, revenue generation, cost cutting and value added through the use of electronic device and familiarizing with an uncommon business terrain through modern equipment (Francis, Hasan, Küllü, & Mingming, 2018). Digitalization is the process of renewing the organization through the use of information and communication technology. This is a process of changing from archaic approach through the use of social and mobile devices to a modern and sophisticated means of getting things done (Terrar, 2015). 2.2 Theoretical Review 2.2.1 Commercial loan theory This theory propounded by Adam Smith in 18th theory focused on the maintenance of working capital. It emphasized that deposit money banks should concentrate on the provision of loan less than one year that would facilitate working capital funding of business enterprise. The theory further stipulated that such loan should be self-liquidating as it is expected that customer should make good the loan before the expiration of the loan period. The essence of commercial loan theory is to ensure banks’ liquidity since customers will pay on time, which will facilitate extension of loan to other needing customers. The theory has been criticized on the ground that it is limited to short term loan and hence the stability theory of liquidity is considered suitable for this study. 2.2.2 Shiftability Theory of liquidity This theory states was developed by Harold Moulton in the year 1915 and it states that liquidity of a bank can be enhanced through trading in high profile marketable security such as treasury bills and government bonds that can be transferred to another bank which can be redeemed from them any time without any loss. The theory relies on liquidity through realizing some specific forms of assets even when they are yet to mature (Olofin, et al., 2024). The theory further emphasizes the role of the apex financial institution to come to the aid of the financial institutions when dire need for cash arises. This theory improves on the existing commercial loan theory because its focus transcends short term assets of less than one-year maturity, it is also better than anticipated income theory because, anticipated income theory forecast income yet to be realized (Efemena & Augustine, 2024). The theory also against holding idle cash by deposit money banks hence reduces bank reserves. This work thus hinges on shiftability theory of liquidity because it supports the availability of cash whether or not there is financial crisis. 2.3 Empirical Review Francisco, Población, and Nuria (2025) conducted a study on study how capital and liquidity determines liquidity of deposit money banks. Data was collected from a sample of 16,061 JAFM banks selected across 27 countries of the world for 11 years period ending in 2023. It was discovered that capital and liquidity positively influence stability of banks. The joint effect of both variables provides substitution effect. Monia (2025) x-rayed various factors affecting liquidity of European deposit money banks in the period of economic crisis using a sample of 196 banks and collected data from 2005 to 2022. Panel data regression method was employed for data analysis, the outcome of the research indicated a positive effect of market risk on liquidity during the crisis period. In the same vein, bank size has an inverse relationship with liquidity while diversification promotes liquidity. Liquidity is influenced by inflation in the short run while it promotes liquidity on the short run. GDP promotes short term liquidity. Emena and Augustine (2024) examined the effect of bank liquidity on financial performance of deposit money banks in Nigeria using static panel regression analysis and discovered that there exists inverse relationship between liquidity ratio, bank size, loan to deposit ratio and net interest margin. The study of Kyar, Adamu and Ali (2023) examined through empirical means, how liquidity affect financial performance of deposit money bank. The study discovered through secondary data that there is an insignificant effect of current ratio on returns on capital employed. The effect of liquidity on performance of deposit money banks in Kenya was explored by (Nwokoro, Ironkwe, & Nwaiwu,, 2023). The study adopted anticipated income theory as its theoretical framework, it was concluded after subjecting data to panel data regression analysis that liquidity significantly impact the performance of Kenya deposit money banks but, liquidity negative impact on returns on equity of deposit money banks when loan is classified as non- performing. Olofin et al., (2023) investigated the effect of liquidity risk on profitability of listed deposit money banks in Nigeria through ordinary least square method and the study revealed that there is negative an insignificant relationship between liquidity and profitability of deposit money banks in Nigeria while, cash reserve demonstrate a significant and positive relationship with profitability of commercial banks in Nigeria. Through ex-post facto research design, Salami (2023) examined how liquidity management affect the performance of the deposit money banks within 11 years period after analyzing the data with the aid of Autoregressive Distribution Lag . The result identified a positive but insignificant effect of liquidity ratio on performance of the Nigerian deposit money banks, on the other hand, loan to deposit ratio significantly impact financial development positively. Ayinuola and Gumel, (2023) examined the relationship between liquidity and credit risk and they both impacted on stability of Nigeria banking system using generalized method of moment for data collected from 12 banks for a period of 11 years. The outcome of the research are as follows: there is causality between liquidity and credit risk, other factors such as equity, bank size, and adequacy of capital has a significant positive effect on the performance of the financial institutions. The effect of inflation on bank stability is negatively insignificant in Nigeria. Kapur et. al. (2022) investigated various factors determining liquidity of banking sector in the United Arabs Emirate through empirical study analyzing with the help of regression analysis. Using 10 banks from the UAE as the sample of the study, data collected was analyzed with the aid of linear regression model. The outcome identified GDP, inflation, unemployment and oil prices as major indicators of liquidity of the selected banking institutions. Kayode et. al (2021) inquired through empirical means into whether financial deepening is responsible for bank liquidity problem in Nigeria. The financial deepening variable used include: broad money, credit to private sector, financial sector contribution as well as ratio of market capitalization all expressed as a ratio to the GDP, with loan deposit ratio as indicator of bank liquidity. The research discovered through Vector autoregressive in the short run and vector error correction for the long run that a statistical insignificant positive relationship exist between bank liquidity and financial deepening. JAFM Amakwe et al (2025) examined the effect of risk asset management on financial performance of deposit money banks in Nigeria using a sample of 12 banks. Data collected for the period covered were analyzed through Generalized Method of the Moment . The research discovered a significant effect of risk asset management on financial performance of deposit money banks in Nigeria. Fidelis et al (2025) empirically explored the impact of risk assets management on financial performance of listed money banks in Nigeria. Ex-post facto research design was employed for the study and data collected for 10 years were analyzed through Ordinary Least Square regression analysis. Findings revealed that risk assets management exhibited both positive and negative effect and has insignificant effect on the performance of deposit money banks listed in Nigeria. With the aid of Ordinary Least Square method of regression, Adeyinka and Henry (2024) discovered that loss provision has an insignificant effect on income of two deposit money banks selected for the study. A similar study conducted by Kwashe, Baidoo and Ayesu (2022) on 10 Nepalese banks for 10 years indicated a negative effect of non-performing loan on profitability of the sampled financial institutions, however, capital adequacy, size of the bank and loan to deposit ratio impact performance positively. In the same vein, Hermuningsih, Sari, and Rahmawati (2023) studied how financial technology and liquidity affect performance of deposit money bank for a period of 10 years and find out that there is a positive effect of financial technology and liquidity on performance of indonesia commercial banks. Jones et al (2022) studied the impact of risk asset management on profitability of deposit money banks in Nigeria. Data was analyzed through panel data regression analysis, the result indicated that risk asset ratio has a positive effect on profitability while, loan deposit ratio has a negative effect. The study concluded that risk asset management has a significant effect on profitability of commercial banks in Nigeria. Adegbie and Dada (2018) examined the joint effect of risk assets and liquidity management on sustainable performance in deposit money banks in Nigeria. Ex-post facto design was employed for the study and data collected was analyzed with the use of both descriptive and inferential statistics. The study discovered a strong relationship between risk assets management, liquidity management and sustainable performance of the deposit money banks in Nigeria. The impact of non-performing loan on asset of deposit money banks is negative and insignificant. 2.4 Conceptual Framework A model was developed for this study to clearly explain the objectives of the study. This model explains the relationship between the predictor variable (liquidity) and the measured variable (risk assets management). From the model, liquidity implies loan to deposit ratio and cash to deposit ratio while risk assets include non-performing loan and corporate bonds. The model identifies a relationship between both liquidity ratio and the risk assets management of the deposit money banks in Nigeria. JAFM Fig 1: Independent Variables Dependent Variables Source: Researchers’ Conceptual Model, 2026 3.0 Methodology The research design for studying the effect of liquidity on risk asset management of deposit money banks in Nigeria is ex-post facto. It is necessary to adopt this design because liquidity and risk assets are obtained from the historical financial statements of the Nigerian deposit money banks. Deposit money banks, being a highly regulated sector of the economy publish their financial statements following the requirements of Companies and Allied Matters Act (CAMA, 2020), Banking and Other Financial Institution Act (2020), Prudential Guidelines and various Circulars from the Central Bank of Nigeria as well audited by firms of qualified Accountants. The population of the study is all the 26 deposit money banks listed on the Nigeria Stock exchange markets under various Licenses in line with (Punch, 8th May 2024). With the use of purposive sampling technique, 10 banks were selected considering the proximity to their annual financial statements and availability of these financial statements on the internet. The selected banks across various categories of Licenses include: Access Bank, Fidelity Bank, Guaranteed Trust Bank, Zenith Bank, Polaris Bank, Stanbic IBTC Bank, Sterling Bank, Union Bank, Wema Bank and Jaiz Bank. A 5% degree of freedom was specified for data analysis purpose, this implies that data was analyzed based on the 95% confidence level. The secondary data was collected from published annual report of the selected banks and analyzed on yearly basis, information relating to liquidity was obtained through total loan to deposit ratio and cash to deposit ratio while risk assets was analyzed as loan and advances to customers for the period (2015 to 2024). The data was analyzed using simple regression analysis technique to determine how liquidity impact risk asset management of the deposit money banks selected for the study. The validity of the data was premised on the fact that the financial statement from which the data was obtained was prepared in line with the provision of relevant regulatory requirements. The collected data was adjudged reliable because, it was attested to as showing true and fair view of the state of affairs of the deposit money banks in line with section 401 to 404 of the Companies and Allied Matter Act (2020) as amended. 4.0 Data Analysis and Interpretation Test of hypothesis One Objective 1: to determine the effect of liquidity on non-performing loan of deposit money banks in Nigeria. Liquidity Ratio Risk Assets Management Loan to Deposit Ratio Cash to Deposit Ratio Non-Performing Loan Treasury Bills H01 H02 JAFM Research Question 1: What is the effect of liquidity on non-performing loan of deposit money banks in Nigeria? H01: liquidity has no significant effect on non-performing loan of deposit money banks in Nigeria. Table 1: Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .087a .008 -.011 1.374920199226111 a. Predictors: (Constant), CDR, LDR Source: Researchers’ Computation, 2026 From the Table 1 above, R = 0.087 which implies that there exist a positive but lower relationship between non-performing loan, cash to deposit ratio and loan to deposit ratio. R- Square which is the coefficient of determination gives 0.8% which implies that less than 1% of changes in non-performing loan is accounted for by combined effect of cash deposit ratio and loan to deposit ratio. The adjusted R-square of -0.011 explained the fitness of the model. Table 2 Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 7.350 .257 28.646 .000 LDR .001 .002 .065 .660 .510 CDR -.003 .006 -.049 -.501 .617 a. Dependent Variable: logLoan Source: Researchers’ Computation, 2026 Table 2 above shows the coefficients of the independent variables. The coefficient of loan to deposit ratio is (β = .001, t = 0.510, t > 0.05). This implies that there is positive linear relationship between the Loan to deposit ratio and non-performing loan of deposit money banks listed in Nigeria. It can also be inferred from the result that a unit increase in loan to deposit ratio will result into 0.1% increase in non-performing loan of the deposit money banks listed in Nigeria. Also, (β = -0.001, t = 0.617, t > 0.05), the coefficient of cash to deposit ratio is inversely related to non-performing loan of deposit money banks in Nigeria. It means, that as cash to deposit ratio increases by 1 unit, it results to 0.3% reduction in non-performing loan of the deposit money banks listed in Nigeria. The inferential statistics further provide evidence that both Loan to deposit ratio and Cash to deposit ratio are not significant factors determining the management of non-performing loan in Nigeria. The model to be formulated from the Table is given as: LogLoan = β0 + β1LDR + β2CDR + μ LogLoan = 7.35 + 0.001LDR – 0.003CDR ........................ (i) Table 3 ANOVAa Model Sum of Squares df Mean Square F Sig. 1 Regression 1.519 2 .760 .402 .670b Residual 200.383 106 1.890 Total 201.902 108 a. Dependent Variable: logLoan JAFM b. Predictors: (Constant), CDR, LDR Source: Researchers’ Computation, 2026 On the basis of F-Stat, (0.402. 0.67, F > 0.05), we do not reject the null hypothesis that liquidity has no significant effect on non-performing loan of deposit money banks in Nigeria. Therefore, Liquidity has no significant effect on non-performing loan of deposit money banks in Nigeria. Test of hypothesis Two Objective 2: to determine the impact of liquidity on Treasury bill management by deposit money banks in Nigeria. Research Question 2: How does liquidity affect Treasury bill management by deposit money banks in Nigeria? Hypothesis 2: Liquidity does not significantly affect the Treasury bill management by deposit money banks in Nigeria. Table 4: Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .091a .008 -.010 1.857192097523655 a. Predictors: (Constant), CDR, LDR Source: Researchers’ Computation, 2026 From the Table 4 above, R = 0.091 which implies that there exist a positive but lower relationship between Treasury Bill, cash to deposit ratio and loan to deposit ratio. R- Square which is the coefficient of determination gives 0.8% which indicates that 0.8% of changes in Treasury Bill is accounted for by joint effect of cash deposit ratio and loan to deposit ratio. The adjusted R-square of -0.010 explained the fitness of the model. Table 5: Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 6.470 .347 18.669 .000 LDR -.002 .002 -.081 -.825 .411 CDR -.005 .008 -.056 -.567 .572 a. Dependent Variable: logTB Source: Researchers’ Computation, 2026 Table 5 above shows the coefficients of the independent variables. The coefficient of loan to deposit ratio is (β = -0.002, t = 0.411, t > 0.05). This implies that there is positive linear relationship between Treasury bill, Loan to deposit ratio and non-performing loan of deposit money banks listed in Nigeria. It can also be inferred from the result that a unit increase in loan to deposit ratio will result into 0.2% reduction in Treasury bill of the deposit money banks listed in Nigeria. Also, (β = -0.005, t = 0.572, t > 0.005), the coefficient of cash to deposit ratio is inversely related to Treasury bill of deposit money banks in Nigeria. It means, that as cash to deposit ratio increases by 1 unit, it results to 0.5% reduction in Treasury Bill of the deposit money banks listed in Nigeria. The inferential statistics further provide evidence that both Loan to deposit ratio and Cash to deposit ratio are not significant factors determining the management of non-performing loan in Nigeria. The model to be formulated from the Table is given as: JAFM LogTB = β0 + β1LDR + β2CDR + μ LogTB = 6.47 - 0.002LDR – 0.005CDR ........................ (ii) Table 6: ANOVAa Model Sum of Squares df Mean Square F Sig. 1 Regression 3.044 2 1.522 .441 .644b Residual 365.611 106 3.449 Total 368.655 108 a. Dependent Variable: logTB b. Predictors: (Constant), CDR, LDR Source: Researchers’ Computation, 2026 On the basis of F-Stat, (0.441. 0.644, F > 0.05), we do not reject the null hypothesis that Liquidity does not significantly affect the Treasury bill management by deposit money banks in Nigeria. Therefore, Liquidity does not significantly affect the Treasury bill management by deposit money banks in Nigeria. Discussion of Findings The result of hypothesis one testing revealed a positive correlation of non-performing loan with loan deposit ratio and cash deposit ratio, it also confirmed that both loan to deposit ratio and cash to deposit ratio account for a very minute change (R2 =0.008) in the non-performing loan of deposit money banks listed in Nigeria. It was equally inferred that a unit increase in loan to deposit and cash to deposit ratio will account for 0.1% and 0.3% changes in non-performing loan respectively. The result confirms the a priori expectation of positive relationship between loan deposit ratio and nonperforming loan, while it negates a priori expectation of positive relationship between cash deposit ratio and non-performing loan. On the overall, F-Statistic (F=0.670, P>0.05) indicated we do not reject the null hypothesis that liquidity has no significant effect on non-performing loan of deposit money banks in Nigeria. The result upholds commercial loan theory which emphasized that short term loan should be self-liquidating as it is expected that customer should make good the loan before the expiration of the loan period. The result is also consistent with the views of Emena and Augustine (2024); Olofin et al., (2023) and Salami (2023) that there is an insignificant effect of liquidity on returns on capital employed, profitability and performance of deposit money banks in Nigeria. On the contrary, it negates the summation of (Francisco, et al., 2025; Monia, 2025; and Ayinuola & Gumel, 2023) that capital and liquidity influence stability, and causality between liquidity and credit risk. Test of hypothesis two also confirm the existence of very low positive relationship between loan deposit ratio, cash deposit ratio and Treasury bill. The result also indicated that loan deposit ratio and cash deposit ratio are not significant determinants of treasury bills management in the deposit money banks listed in the Nigeria stock exchange market, as the combination of both accounted for a micro change in the level of treasury bill management (R2 =0.008). It was also confirmed from the research that a unit increase in loan deposit ratio and cash deposit ratio will respectively resulted into 0.2% and 0.5% reduction in the Treasury bill management in the deposit money banks in Nigeria. The result negates the a priori expectation of positive relationship among loan deposit ratio, cash deposit ratio and Treasury bill management. In the same vein, the study uphold the shiftability theory of liquidity that a bank can enhanced its liquidity through trading in high profile marketable security such as treasury bills and government bonds that can be transferred to another bank which can be redeemed from them any time without any loss. On the basis of F-Statistic, (F= 0.644b, P >0.05), we do not reject the null hypothesis that Liquidity does not significantly affect the Treasury bill management by deposit money banks in Nigeria. JAFM The outcome is consistent with the view of Fidelis et al (2025) that risk assets management exhibited both positive and negative effect and has insignificant effect on the performance of deposit money banks listed in Nigeria. It also confirms the result of Kwashe, et al (2022) that there is a negative effect of non-performing loan on profitability. The outcome of the research negates the outcome of Jones et al (2022) that risk asset management has a significant effect on profitability of commercial banks in Nigeria. 5.0 Summary, Conclusion and Recommendation The findings of this research is obtained from inferential statistics. The result for the hypotheses testing indicated that loan deposit ratio and cash deposit ratio jointly accounted for only 0.8% of changes in both non-performing loan and treasury bill management (R2 =0.008). The result of hypothesis one revealed that (F=0.670, P>0.05) Liquidity has no significant effect on non- performing loan of deposit money banks in Nigeria. While that of hypothesis two also confirmed that (F= 0.644b, P >0.05) Liquidity does not significantly affect the Treasury bill management by deposit money banks in Nigeria. The study therefore conclude that liquidity has no significant effect on risk assets management of deposit money banks in Nigeria in the digital transformation era. The study recommends as follows: Deposit money banks should be proactive in reducing their non-performing loan in order to enhance their efficiency in risk assets management. 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