The Effect Of Liquidity Management On The Profitability Of Deposit Taking Financial Institutions In Kenya

Abstract

Robustness of the financial system is indispensable in ensuring the economic growth and stability of any given country. Liquidity risk management is one of the key aspects that influence, not only the profitability of a financial institution, but also its sustainability and reputation. The purpose of this study was to explore the effect of liquidity management ratios on the profitability of deposit taking financial institutions in Kenya. Specific objectives of the study were to assess the effect of current ratio, liquid ratio, loans to deposit ratio and loans to asset ratio on profitability of deposit taking financial institutions in Kenya. Additionally, the study evaluated the moderating role of management efficiency on the relationship between liquidity and profitability of deposit taking financial institutions in Kenya. The study applied a descriptive research design and targeting 38 commercial banks and 6 DTMs, all with data spanning five years between 2012 and 2016.