Impact of Liquidity Management on Profitability in the Pakistani Commercial Banks
Author(s)
Muhammad Usman Malik , Muhammad Aqeel ,
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Abstract
The purpose of this research was to investigate the effect of the liquidity management on profitability in the Pakistani commercial banks during the period (2004–2013). Total of Three banks having more than 1767 branches are chosen to reflect the whole Pakistani commercial banks. The liquidity indicators are investment ratio, current ratio, capital ratio, credit facilities and liquid assets ratio, while return on equity (ROE) and return on assets (ROA) are the proxies for profitability. Hypotheses are tested by using regression analysis and correlation. The empirical results show that increase in the current ratio and the investment ratio of the available funds have positive effects on the profitability, while there is a negative effect of the capital ratio and the liquid assets ratio on the profitability of the Pakistani commercial banks. The researcher recommends that there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the banks' profitability, and banks should adopt a general framework of liquidity management to assure sufficient liquidity for executing their operations efficiently, and they should initiate an analytical study of the evolution rates of liquidity and their ability to achieve a balance between sources and uses of funds.
Keywords
liquidity, profitability, ROE, ROA, liquid assets, investment ratio, capital ratio
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