DETERMINANTS OF BANKS’ LIQUIDITY MANAGEMENT IN SUB-SAHARAN AFRICA

Abstract

Liquidity management remains one of the most critical aspects of banking operations, as it directly influences financial stability, credit intermediation, and the resilience of the financial system. This study examines the determinants of liquidity management among commercial banks in Sub-Saharan Africa. Adopting a quantitative explanatory research design, the study utilizes balanced panel data from deposit money banks purposively selected based on continuous operation over the period 2010–2022. The analysis employed panel least squares regression and the results reveal that government securities exert a positive and statistically significant effect on reserve requirements (0.000; p < 0.05), underscoring their dual role as both yield-bearing assets and liquidity buffers. Vault cash holdings (−0.000; p < 0.05) and interbank credit (−0.000; p < 0.05) exhibit negative associations with reserve requirements, highlighting substitution effects and risk–return trade-offs in banks’ liquidity management decisions. Interbank lending shows a positive but weaker association (p < 0.10), reflecting its modest influence on regulatory liquidity buffers. The sensitivity model confirms liquidity persistence, with the lagged reserve requirement ratio remaining positive and significant (β = 0.374; p = 0.012), indicating path-dependent adjustment behavior among banks. Policy implications suggest the need for gradual reserve requirement adjustments, deepening of government securities markets, tighter regulatory oversight of interbank exposures, and enhanced fiscal–monetary coordination to balance financial stability with credit growth. In conclusion, the study recommends a balanced liquidity regulation framework that integrates market-based instruments with prudential supervision, ensuring resilience of the banking sector. These findings contribute to the literature on liquidity management by providing context-specific, statistically grounded insights into the Nigerian banking sector, with broader relevance for other emerging economies.