IMPACT OF LIQUIDITY ON PROFITABILITY OF PRIVATE COMMERCIAL BANKS – THE CASE OF NIB INTERNATIONAL BANK S.C.

Abstract

Liquidity management is crucial, given highly volatile markets and increasingly complex investment options. The misalignment of a portfolio’s liquidity profile with cash flow demands can lead to a liquidity squeeze. Accordingly, the overall performance of an institution will be adversely affected. This study intended to investigate the impact of liquidity on profitability of Nib International Bank S.C. Both qualitative and quantitative data were used to address the objective of the study. Purposive sampling was used to gather primary data through questionnaires to test the applicability and effectiveness of liquidity measurement tools the Bank has employed. Quantitative method particularly explanatory and descriptive design was adopted for the study. The time series data taken from the audited financial statements of the Bank, particularly balance sheet and income statements during 1999-2015 were analyzed using multiple regressions. Results of the regression model indicated that Liquidity ratio, NBE Bills and inflation rate had significant positive impact on profitability. However, loan to deposit ratio and deposit interest rate had an inverse relation with insignificant impact on profitability of Nib International Bank. In addition, the existing liquidity measurement tools were found out to be applicable and effective in terms of liquidity measurement and management. Finally, the study concluded that the impact of liquidity on profitability of Nib International Bank was positive and significant.