Abstract

The study examined the relationship between liquidity management and the financial performance of Deposit Money Banks (DMBs) in Nigeria. The purpose was to determine how liquidity practices influence profitability and stability within the banking sector. A descriptive ex-post facto research design was adopted, relying solely on secondary data obtained from audited annual reports of 12 listed banks, the Nigerian Exchange Group, and the Central Bank of Nigeria for the period 2009–2023. The analysis employed panel data regression using common effect, random effect, and fixed effect estimators, with the most appropriate model determined through the Fixed Effect test, Breusch-Pagan Lagrange Multiplier test, and Hausman test. The findings reveal that the debt-to-equity ratio (DER) has a significant negative effect on return on assets (ROA), suggesting that higher leverage reduces profitability. The loan-to-deposit ratio (LDR) showed a negative but insignificant effect on performance, while the liquidity coverage ratio (LCR) had a weakly significant negative effect on ROA. Firm size (FSZ) exhibited no significant influence. Overall, the results highlight that excessive reliance on debt financing and holding excessive liquid assets may erode profitability, underscoring the need for balance between liquidity and investment. The study concludes that effective liquidity management is vital to ensuring solvency, profitability, and resilience among Nigerian banks. It recommends maintaining optimal liquidity levels, strengthening asset-liability management, diversifying funding sources, adopting advanced risk management practices, leveraging technology, and building staff capacity. This research contributes to understanding how liquidity strategies affect bank performance in Nigeria’s dynamic financial environment.