STRUCTURAL EQUATION MODELLING TO EVALUATE THE EFFECTS OF BANK LIQUIDITY AND FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA
Keywords:
Earnings per share, Net Interest Margin, Loan-to-deposit ratio, Liquidity ratio, PerformanceAbstract
The developmental responsibility of deposit money banks in channeling funds from the surplus sector to the deficit sector is reliant of the liquidity volume of the banks which aid the bank’s profitability and overall performance. The study examined the effects of bank liquidity on bank performance that was anchored on the liquidity management theory and profitability Trade-off of Liquidity. It employed the Structural Equation modelling technique on ten selected and listed deposit money banks in Nigeria. Panel data were sourced from financial statements of selected deposit money banks from 2018 to 2024. Bank size and loan-to-deposit ratio have positive significant effects on earnings per share. Larger banks are able to leverage their scale, widen market coverage and resource base to improve efficiency and profitability, ultimately enhancing shareholder returns. Banks that effectively transform deposits into loans are better positioned to generate interest income and sustain profitability. The findings emphasize the importance of growth strategies and prudent lending practices in driving shareholder wealth maximization. It is recommended that banks pursue deliberate expansion strategies that strengthen their asset base and enhance operational efficiency, thereby improving their overall performance and market competitiveness.
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