EFFECT OF LIQUIDITY RISK ON THE PROFITABILITY OF UBA COMMERCIAL BANK IN NIGERIA

Abstract

This study assessed the effect of Liquidity risk on profitability of commercial Banks in Nigeria. The issue of liquidity and profitability management is a paramount one in the banking industry, profitability is improved for banks that hold some liquid assets, however, there is a point beyond which holding further liquid assets diminishes a banks’ profitability which may cause a fire sale of the assets of the bank and may spill over into an impairment of banks capital base. This study was carried out on UBA Plc between 2019 and 2021, using linear regression technique. Data were analyzed using descriptive and inferential statistics. The descriptive statistics was used to compute the mean and standard errors of the variables under study while inferential statistics (multiple regression and simple linear regression analysis) was used to test the hypotheses. The results were presented in tables and discussed according to the research hypotheses. The study revealed a significant effect of liquidity risk on the profitability of UBA Plc in Nigeria with the probability coefficient of (P 0.03 <0.05 Based on the findings, the study recommend that UBA Plc should maintain adequate degree of liquidity in the banking system, because the registration of a liquidity crisis at a single bank can have negative repercussions over the whole banking system courtesy the risk of contagion through interbank settlements. UBA Plc should also invest part of their funds in loan portfolio and securities that are in secondary market so that when liquidity need arises, the said asset can be sold in that market.