The Effect of Liquidity Management on Profitability: A Comparative Analysis of Public and Private Sector Banks in India (original) (raw)
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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.
IAEME Publications, 2021
In the corporate finance literature liquidity and profitability is the main issue. Every firm tries to maximize its profits. If the firm pays too much attention on profitability, it may overlook the liquidity. In this way, the study is conducted to know the impact and relationship between liquidity and profitability. The study covered 5 listed Banks of Pakistan over a period of past 10 years from Jan 2008 to Dec 2017. Regression, Correlation analysis and descriptive statistics were used in the analysis and results shows the liquidity and Return on assets has significant relationship, but the liquidity and Return on Equity shows insignificant relationship among the listed banks of Pakistan. Banks are suggested to work on their strategies, to enhance the usage of assets and improve yields on shareholders.
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.
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...
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.
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
Influence of Liquidity on Profitability: Evidence from Nepalese Banks
International Journal of Multidisciplinary and Current Research, 2018
This study seeks to examine the relationship between the liquidity and the profitability of commercial Banks in Nepal. In this connection, 14 Nepalese commercial banks were selected as study samples and their financial data were gathered from the annual reports of concerned banks for the period of 2008-2017. In this study, Return on assets and net profit margin were used as indicator of profitability while liquidity ratio, investment ratio and capital ratio were used as a proxy of liquidity measures. This study used inferential statistics to explain the main features of a collection of data in quantitative terms while correlation and linear regression analysis are used for analyzing the data. Results showed that more than 49 percent bank profitability measured by return on assets and net profit margin is predicted by the liquidity variables. This empirical analysis reveals that there is insignificant positive relationship between liquidity ratio and return on assets. Similarly, there is insignificant negative relationship between investment ratio and capital ratio with return on assets. It is also found that there is insignificant positive relationship of net profit margin with liquidity ratio and investment ratio. However the net profit margin is significantly negatively related with capital ratio. Based on the results it is concluded that the liquidity measure are not statistically significant in determining the profitability of commercial banks in Nepal except the capital ratio.
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.
Impact of Bank Liquidity on The Profitability of Jordanian Commercial Banks
Yarmouk University , 2020
The main purpose of this study is to inspect the effect of bank liquidity on its profitability, and to know if there is a significant impact on banks for holding liquidity, in addition to directing banks to good management by clarifying the effect of maintaining a high percentage of liquidity and what are the risks involved in not maintaining a sufficient liquidity ratio. 3 Bank productivity is an influential factor due to the intense competition between different banks. This study searches for other models for evaluating performance to benefit decision makers in the banking sector in which would enable them to acquire capabilities for survival and continuity, which will be examined on the pattern of the relationship between profitability and liquidity. It also aims to develop and improve Jordanian banks productivity by keeping an accurate and appropriate balance for liquidity and understand the benefits of the risk management system. This study will benefit many parties, first the upper management of Jordanian banks for decision making concerning liquidity, second depositors who would want to make sure that their withdrawals are met readily anytime they want, third are stockholders and investees in banks as liquidity affects profitability they would want to check if the bank is profitable or not and if the management is having an accurate balance for liquidity.