ASSET-LIABILITY-MIX AND FINANCIAL PERFORMANCE OF DEPOSITMONEY BANKS IN NIGERIA

Abstract

One of the key issues faced by Deposit Money Banks is that of liquidity which arises as a result
of poor decisions regarding the right mix of assets and liabilities used in financing the
business. The purpose of this study was to examine how asset-liability-mix of DBMs in Nigeria
affect their financial performance. Specifically, we examined the relationship between cash
and cash equivalents; loans and advances; other assets; deposits; and other liabilities and
financial performance. Employing the descriptive and correlational design approaches we
surveyed all the 22 DMBs in Nigeria. Secondary data was obtained from the Statistical Bulletin
of the CBN and analyzed using statistical cost accounting OLS model to examine the
relationship between asset-liability-mix and financial performance. The study established
significant positive relationships between cash and cash equivalents; loans and advances; and
other assets, on one hand, and financial performance, on the other. Deposits had insignificant
positive relationship, while other liabilities had insignificant negative relationship with
financial performance. It was recommended that bank directors and managers should closely
monitor asset and liability levels and quality by ensuring strict compliance with the CBN
Prudential Guidelines, Circulars, and bank specific risk thresholds as a means of achieving
optimal asset-liability-mixes for enhanced financial performance; and the CBN should
occasionally tinker with the regulatory policy requirements towards a more convenient
environment to enhance bank performance.