EFFECT OF LIQUIDITY MANAGEMENT ON BANK’S PROFITABILITY - A STUDY ON PRIVATE COMMERCIAL BANKS IN PAKISTAN (original) (raw)

Exploring the Impact of Liquidity on Profitability: Evidence from Banking Sector of Pakistan

This purpose of the research was directed to review the trade-off among liquidity and profitability in the banking sector. The research was applied to all listed banks of Pakistan Stock Exchange during the time period of 2010-2015. Document investigation was the key research method adopted to gather secondary data for the research. Six research models were stated and valued via Ordinary Least Squares (OLS) method. The observed outcomes exposed significant connection among bank liquidity ratios and return on assets, return on equity, net profit margin, and Tobin Q. However, return on

The Causative Impact of Liquidity Management on Profitability of Banks in Pakistan: An Empirical Investigation

International Journal of Academic Research in Economics and Management Sciences, 2017

In the corporate finance, liquidity management and profitability are widely debated areas. Liquidity management plays a dynamic role in determining the effectiveness of the banking sector with potential influence in smooth functioning. The objective of the study is to scrutinize the impact of liquidity management on the profitability of Pakistani banks, covering period of 2006-2016. The secondary financial data obtained from audited annual financial reports were analyzed using descriptive and inferential statistics. Return on assets (ROA) and Return on equity (ROE) have been used as measures of bank's profitability while as, Current Ratio (CR) advances to deposit ratio (ADR), Cash deposit ratio (CDR) and Deposit Assets Ratio (DAR) represented liquidity management. The result demonstrates that ADR, CDR and DAR

Liquidity Management and Its Impact on Banks Profitability: A Perspective of Pakistan

2017

Purpose:-The basic aim of this research is to examine liquidity management impact on profitability in banking sector of Pakistan. Methodology: The secondary data used for this study and taking from publish annual report of ten banks (2006-2015). The data was analyzed by using correlation, descriptive statistics and regression techniques run on E-views. The quick, current, cash, interest coverage and capital adequacy ratios are taken as dimension of liquidity and return on asset, return on equity, and earning per share as dimension of profitability. Findings: The research finding shows that quick and capital adequacy ratio has positive impact on banks profitability determinants earnings per share and return on assets. The cash and current ratio has a negative relationship with return on assets. While interest coverage ratio is positively associated with return equity and earnings per share and is negatively associated with return on equity. Therefore overall empirical results show th...

Impact of Liquidity on Profitability: A Comprehensive Case of Pakistan’s Private Banking Sector

International Journal of Economics and Finance, 2016

The subject of liquidity-profitability interchange is well recognized in the literature. This study was conducted to inspect the trade-off between liquidity and profitability in private sector banks of Pakistan. The study was carried on twenty two private sector banks registered under State bank of Pakistan during the time period of 2009-2013. Three models were specified and estimated using Ordinary Least Squares (OLS) technique. The empirical results revealed that there is a statistically significant relationship between bank liquidity measures and return on assets. However, when return on equity and return on investment was used as proxy for profitability, the relationship became statistically insignificant. It has been recommended that the banks should assess and restructure their strategies for managing liquidity. This will not only improve yields on shareholders equity but will also enhance the use of the assets of the bank.

The Effect of Liquidity Management on Profitability: A Comparative Analysis of Public and Private Sector Banks in India

Social Science Research Network, 2018

This paper seeks at investigating the effect of liquidity management on profitability in the Jordanian commercial banks during the time period (2005-2012). Thirteen banks have been chosen to express on the whole Jordanian commercial banks. The liquidity indicators are investment ratio, Quick ratio, capital ratio, net credit facilities/ total assets and liquid assets ratio, while return on equity (ROE) and return on assets (ROA) were the proxies for profitability. Augmented Dickey Fuller (ADF) stationary test model was used to test for a unit root in a time series of the research variables and then testing hypothesis by using regression analysis. The empirical results show that an increase in the quick ratio and the investment ratio of the available funds leads to an increase in the profitability, while an increase in the capital ratio and the liquid assets ratio leads to decrease in the profitability of the Jordanian commercial banks. The researcher recommends that there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the banks' profitability, and banks should adopt a general framework of liquidity management to assure sufficient liquidity for executing their operations more efficiently, and they should initiate an analytical study of the evolution rates of liquidity and their ability to achieve a balance between sources and uses of funds.

The Role of Liquidity Management in Profitability: Case Study of Five Selected Commercial Banks of Iraq Stock Exchange over the Period (2006 – 2016)

Academic Journal of Nawroz University, 2019

The purpose of this paper is to examine the role of liquidity management in the profitability of commercial banks listed on the Iraq Stock Exchange during the period 2006-2016. Data were collected from the annual financial statements of the banks. In order to analyze data, the current ratio (CR) was used as a proxy for liquidity as an independent variable while the return on assets (ROA) and the return on equity (ROE) were used as proxies for banks' profitability as dependent variables. The results of the study indicate that all of the variables under study are stationary at first differenced by utilizing Panel Unit Root Tests (Levin-Lin Chu and Hadri LM Methods). The outcomes of panel cointegration test showed that there is no long-term relationship among variables. In addition, the paper revealed that, in short term, the liquidity of banks plays an insignificant negative role in banks' profitability for both ROA and ROE by employing pooled regression model, Fixed Effect and Random Effect models. Therefore, this study recommended that banks' managers should take the advantage of investing their liquidity in various projects to obtain more profitability and then help governments to decrease their unemployment and recession in economy.

Investigating Relationship Between Liquidity and Profitability Ratios in Banks

International Journal of Social Science Research and Review

There is no doubt that with the intensification of the financial and political crisis in recent years in Afghanistan, many banks faced a severe financial and profitability crisis, in general, among many registered and official banks in the Central Bank of Afghanistan, a large number it suffers from liquidity problem and lack of profitability. Liquidity refers to how assets can be converted into cash at the earliest time or at the lowest cost, which is called an asset with high liquidity. In terms of liquidity, the asset's liquidity is high, so it can be converted into cash at a very low cost and quickly. The higher the liquidity of an asset, the more useful it will be. Also, profitability shows the bank's ability to earn income from its assets. After examining variables such as (benefit or profitability, return on capital and liquid assets), this research examines the relationship between banks' liquidity ratios and profitability using multivariable linear regression dur...

Impact of Liquidity Management on Profitability: An Empirical Analysis in Private Sector Banks of India

2019

This paper makes an attempt to explain the impact of liquidity management on the profitability of private sector banks in India. For this purpose, 10 private sector banks have been considered for the period from 2013 to 2017. Cash-Deposit Ratio (CDR), Credit-Deposit Ratio (CRDR) and Investment-Deposit Ratio (IDR) have been used as independent variables to denote the liquidity management of the banks, while Return on Assets (ROA) and Return on Equity (ROE) have been used as dependent variables for the profitability of the banks. It is found that there is a significant negative effect of CDR and IDR on ROA. However, in the case of ROE, it is found that there is no significant relationship between banks’ profitability and liquidity taking all the variables into consideration with respect to all the selected commercial banks in India. This leads to the conclusion that the commercial banks can focus on increasing their profitability without affecting their liquidity and vice versa.

The Effect of the Liquidity Management on Profitability in the Jordanian Commercial Banks

International Journal of Business and Management, 2014

This paper seeks at investigating the effect of liquidity management on profitability in the Jordanian commercial banks during the time period (2005-2012). Thirteen banks have been chosen to express on the whole Jordanian commercial banks. The liquidity indicators are investment ratio, Quick ratio, capital ratio, net credit facilities/ total assets and liquid assets ratio, while return on equity (ROE) and return on assets (ROA) were the proxies for profitability. Augmented Dickey Fuller (ADF) stationary test model was used to test for a unit root in a time series of the research variables and then testing hypothesis by using regression analysis. The empirical results show that an increase in the quick ratio and the investment ratio of the available funds leads to an increase in the profitability, while an increase in the capital ratio and the liquid assets ratio leads to decrease in the profitability of the Jordanian commercial banks. The researcher recommends that there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the banks' profitability, and banks should adopt a general framework of liquidity management to assure sufficient liquidity for executing their operations more efficiently, and they should initiate an analytical study of the evolution rates of liquidity and their ability to achieve a balance between sources and uses of funds.

Assessing the Impact of Liquidity on Profitability: Specific to the Banking Industry of Bangladesh

The present study investigates whether liquidity positively or negatively stimulates the profitability of commercial banks of Bangladesh. Methodology: The analysis has been performed on 5 randomly selected banks over a period of 10 years (2011-2020). The respective banks' annual reports were the sources of secondary data based on which the study has been performed. For study purpose, dominant profitability ratios are studied along with the calculation of liquidity. ROA served profitability measures being considered as dependent variables whereas Loan-Deposit, Deposit-Assets, & Cash-Deposit ratios served liquidity measures being considered as independent variables. Ordinary Least Square Models have been made use of testing how liquidity affects the banking sector's profitability. Findings: From the analysis, it is founded that a rise in the banks' aforementioned liquidity ratio would escalate the Return on Assets i.e. profitability. Practical Implications: The study has evident that commercial banks of Bangladesh might have a better balance between the profitability and liquidity. Originality: The impact of liquidity on profitability has been stated in this paper which considered data from randomly selected 5 banks. The outcomes of the paper will demonstrate valuable addition to the existing research work in the related field. Research Limitations: Only 5 randomly selected commercial banks among 61 scheduled banks of Bangladesh were the study samples for which the overall financial scenario is difficult to know. It is also quite impossible to comment on the liquidity and profitability position as well as their relationship by considering only 5 banks.