Liquidity Management and Financial Performance: Evidence From Commercial Banks in Botswana

Abstract

The study examined the impact of liquidity management on the financial performance of commercial banks in Botswana. The study used Return on Assets and Return on Equity to measure financial performance. Cash and cash equivalents to total assets ratio, Cash to deposits ratio, Loans to deposits ratio, Loans to total assets ratio, Liquid assets to total assets ratio, and Liquid assets to deposits ratio were used as proxies for liquidity management. The research population was all the 9 commercial banks in Botswana and the study covered a period of 9 years from 2011 to 2019. This descriptive study sourced monthly secondary data from Bank of Botswana Financial Statistics database. Descriptive statistics, correlation and regression analyses were applied to analyse the data. The results from regression analysis show statistically significant positive relationships for Loans to total assets ratio and Liquid assets to total assets ratio with return on assets and return on equity. Loans to deposits ratio and Liquid assets to deposits ratio had statistically significant negative relationships with return on assets and return on equity. Cash and cash equivalents to total assets ratio had statistically insignificant positive relationship with return on assets and return on equity whilst cash to deposits ratio had statistically insignificant negative relationship with return on assets and return on equity. Findings suggest that the commercial banks should try to optimize liquidity variables to boost bank performance. The policy makers also, through the Central Bank, should come up with initiatives such as prescribing minimum liquidity requirements that will help banks to stay profitable.