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The impact of liquidity management on commercial bank profitability was investigated in this paper using a case study of Oceanic Bank International Plc. in Effurun, Delta State.

According to the findings of this study, commercial banks must balance two competing objectives: liquidity optimisation and profitability optimisation.

The study also demonstrated that the problem of these two competing objectives has become overly complex in today’s competitive banking subsector.

Based on this challenge, a research of the influence of liquidity management on commercial bank profitability was conducted to discover strategies of overcoming the issues connected with these competing aims.

In terms of technique, simple percentage statistics were employed to analyse responses from a questionnaire distributed to Oceanic Bank International plc bank workers and executives. Finally, the researcher made recommendations on how to overcome these issues.



There are major components in every system that are critical to the system’s survival. This is also true of the financial system. Financial institutions have made significant contributions to the overall evolution of the financial system by providing an effective institutional technique for mobilising and redirecting resources from less productive to more productive uses.

In executing these financial roles, financial institutions have proven to be an effective link between savers and borrowers. Commercial banks are among the financial organisations that have taken on these crucial financial roles.

The functions of commercial banks have created a solid foundation for the two fundamental activities of commercial banks, which are deposit mobilisation and loan extension.

Commercial banks have become an extremely significant institution in the financial system because they facilitate the flow of less desirable financial assets to the more desirable public who required the financial assets.

Because of the importance and activities that commercial banks play in society, the commercial bank has been chosen as the primary topic of this study.

Adequate financial intermediation necessitates the attention and concentration of bank management on profitability and liquidity, the two competing goals of commercial banks. These goals are parallel in the sense that a bank’s attempt to increase profitability would eventually erode its liquidity and solvency situation, and vice versa.

Profitability and liquidity are effective indicators of corporate wealth and success of all profit-oriented ventures, not only commercial banks. These performance metrics are critical to a bank’s shareholders and depositors, who are its most significant customers.

As shareholders want the bank to boost lending in order to maximise their return on investment, depositors expect the bank to preserve a large amount of idle cash in order to meet their demand.

With profitability objectives competing with liquidity objectives, and shareholder interests competing with depositor interests, there is a need to reconcile and harmonise these competing positions through effective liquidity management in order to ensure commercial banks’ survival and growth.


Through these financial functions, commercial banks put idle cash borrowed from lenders to work by investing them in other types of financial assets. These bank business activities are not without difficulty, because the deposits that have been invested by the banks for profit maximisation can be demanded at any time.

When a bank fails to pay its financial responsibilities, the public loses trust, resulting in increased competition in the financial sector. With the increased competition in the banking business, every commercial bank should endeavour to operate profitably while also meeting the financial demands of its depositors through adequate liquidity.

The difficulty therefore becomes determining the optimal point at which a commercial bank can keep its assets in order to maximise these two goals.

These issues are exacerbated because a huge number of banks are primarily concerned with profit maximisation and often overlook the need of liquidity management, which can lead to technical and legal insolvency.

This research will also address other issues such as the effect of excess liquidity and the problem of estimating the proportion of deposits that can be demanded at any given time, the selection of factors that will affect or influence the bank’s liquidity level,

and finally the problem of simultaneously satisfying the two major publics of the commercial bank. These remedies will be prescribed, and recommendations will be made as needed.


The financial institution rivalry environment is so harsh that any commercial bank that wants to continue must be conscious of the problems of its liquidity and profitability obligations, since these variables can make or break its destiny.

This study is largely focused on liquidity objectives and ensuring its ability to meet depositor demand, thereby maximising its value.

There are also uncertainties in commercial bank asset management as new deposits do not correspond with customer withdrawals, because demand is made at short notice. As a result, the following objectives are pursued in this study:

– To understand how liquidity management will deal with these uncertainties and the impact on profitability.

– Identifying particular aspects that can help commercial banks improve their profitability and liquidity situation.

– To investigate the impact of liquidity costs and illiquidity levels on commercial bank performance, as well as the length of time that this liquidity can be employed as a competitive instrument.

– To examine the commercial banks’ adopted liquidity measures critically and to determine how they were achieved.

– Determine the impact of changes in liquidity levels on profitability.

– Aims to learn about commercial banks’ credit and portfolio policies.

– Finally, it will aim to identify the root causes of liquidity problems in Nigerian commercial banks and offer effective solutions.


The following research issues are posed in light of the study:

– What elements can help improve profitability and liquidity position?

– How can liquidity management contribute to profitability?

– What effect would changes in liquidity levels have on profitability?

– Is there a link between the degree of liquidity and the level of profitability?


The following hypotheses are formulated based on the problem statement, purpose of investigation, and research questions of the study:

i. Null Hypothesis (Ho): There is no substantial association between liquidity and deposit levels.

Alternative Hypothesis (HI): There is a substantial relationship between the degree of liquidity and the level of deposits.

ii. Null Hypothesis (HO): The number of loans and advances issued to consumers has no significant impact on profit level.

Alternative Hypothesis (HI): The amount of loans and advances issued to consumers has a major impact on earnings.

iii. Null Hypothesis (HO): There is no statistically significant association between liquidity and profitability.

Alternative Hypothesis (HI): There is a link between liquidity and profitability.

iv. Null Hypothesis (HO): Commercial banks in Nigeria do not maintain the CBN’s minimum liquidity ratio.

Alternative Hypothesis (HI): Nigerian commercial banks maintain the minimal liquidity ratio stipulated by the CBN.


This study on the influence of liquidity management on commercial bank profitability is being conducted to investigate the possibilities of liquidity management providing a wide range of profits to the commercial bank.

Its scope is Oceanic Bank International Plc Effurun Delta State, and it is carried out throughout a four-year period from 2007 to 2010.


Because commercial banks function on liquidity and profitability motivations in order to please their major publics, shareholders and depositors, the need arises for them to bring these two motives into agreement with the goal of pleasing these two publics concurrently.

With this, commercial banks require effective and efficient liquidity management methodologies and concepts to assist them achieve these goals. The findings of this study will reveal the level of attachment of commercial banks to the government’s monetary policies (liquidity ratios),

which will assist the government in setting appropriate liquidity ratios and cash ratios that will not be detrimental to the operation and survival of commercial banks.

It will also assist bank operators in evaluating how effective liquidity management and credit policy guidelines will affect profitability levels, as well as the impact bank credit will have on bank liquidity, allowing them to minimise the effect of illiquidity and provide effective liquidity formulations.


This study, like any other research project, has encountered a number of challenges, beginning with bank executives’ unwillingness to disclose necessary documents and information for this study because they believed the information or documents were confidential to them and that disclosing them would be detrimental to their business.

This study is intended to include all commercial banks in Nigeria because each has a distinct policy in terms of threats and possibilities. However, due to time constraints and a lack of funds, the investigation is limited to just one bank.

Essentially, school activities as such have been a significant difficulty to this research, since they have consumed the majority of the time required for this research. Despite all of these obstacles, the researcher attempted to conduct a reliable study.

1.9 Definitions of Terms

a) Liquidity: The ability of an asset to be easily changed into cash. It also assesses a company’s capacity to satisfy its short-term obligations.

b) Liquidity Management: The planning and control required to guarantee that an organisation maintains sufficient liquid assets to meet its customer obligations.

c. Profitability: Profit is the excess of income over costs and is the ultimate measure of total success.

d. Commercial bank: The business of accepting money from outside sources as deposits, regardless of interest payment, and granting money loans and accepting credit or purchasing and selling securities for the account of others or incurring obligations to acquire claims in respect of loans prior to maturity.

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