The Impact of Banks’ Liquidity on Economic Growth in Nigeria

Isaac Azubuike  Ogbuji

Isaac Azubuike Ogbuji University of Lagos

Keywords: Loan-to-deposit ratio, , liquidity ratio

Abstract

This study investigates the impact of liquidity management indicators on the Gross Growth Rate (GGR) in Nigeria from 1999 to 2022. Utilizing a Generalized Linear Model (GLM) approach, the research explores how some bank liquidity metrics, specifically the liquidity ratio (LR), loan-to-deposit ratio (LTD), cash reserve ratio (CRR), interest rate (INT), and inflation rate (INF) influence economic growth. The findings indicate that liquidity management significantly impact economic growth, with LR, LTD, and CRR having negative impact on GGR. In contrast, INT showed a positive impact, highlighting the importance of lower interest rates in stimulating economic activity in Nigeria. The study also revealed that, when all independent variables are held constant, the GGR is expected to be approximately 4.65%. The study concludes that effective liquidity management and appropriate monetary policies are crucial in fostering economic growth in Nigeria. Recommendations include optimizing liquidity management practices, reviewing cash reserve requirements and promoting lower interest rates. This research contributes to the understanding of liquidity dynamics in developing economies like Nigeria.

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