Credit Management and Liquidity of Listed Deposit Money Banks in Nigeria

Abstract

Effective credit management is essential to maintaining liquidity and financial stability in deposit money banks (DMBs). This study examined the effect of credit management on the liquidity of listed DMBs in Nigeria over the 11-year period from 2014 to 2024. Liquidity, the dependent variable, was proxied by credit risk, whereas credit management was represented by the loan-to-deposit ratio, non-performing loan ratio, capital adequacy ratio, and loan loss provision. An ex post facto research design and census sampling were employed, covering all 12 DMBs listed on the Nigerian Exchange Group. Secondary data were obtained from the banks’ audited annual reports and accounts and analyzed using descriptive statistics, Pearson’s correlation, regression analysis, and robustness tests in Stata 14. The findings indicate that the loan-to-deposit ratio had a negative but statistically insignificant effect on liquidity, whereas the non-performing loan ratio had a positive but insignificant effect. Capital adequacy had a positive and significant effect on liquidity, while loan loss provision had a negative and significant effect. Regarding the control variables, firm age had a negative and significant effect, whereas firm size had a positive but insignificant effect. These findings demonstrate the importance of capital adequacy and loan loss provisioning in shaping bank liquidity. The study provides empirical insights for bank management and regulation in Nigeria and recommends that banks engage with the Central Bank of Nigeria regarding cash reserve requirements and loan-to-deposit ratio thresholds to prevent regulatory debits from constraining productive financial intermediation.