A survey of liquidity management approaches and their effect on profitability of commercial banks in Kenya
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Date
2007-09Author
Loo, Muhammed A
Type
ThesisLanguage
enMetadata
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Liquidity has been generally defined as the ability of commercial banks
to fund increases in assets (advances) and meet obligations
(depositors' claims) as they become due. Liquidity is of two types:
Liquidity of assets and that of liability Illiquidity of assets refer to the
inability to sell assets at current market prices. The liquidity instability
of liability (UL) refers to the inability to obtain sufficient funds to meet
payment obligations in a timely manner (instability of deposit base
over a long period of time). Banks create liquidity on the balance sheet
by transforming less liquid assets into more liquid liabilities. This
suggests that Banks may also create significant liquidity off the
balance sheet through loan commitments and similar claims to liquid
funds.
The study had the objective of identifying the liquidity management
theories employed by commercial banks in Kenya and study
relationship between bank liquidity management approaches and bank
profitability.
The study findings reveal that the most popular theory with bankers
is Commercial loan theory the next is Asset liability management
theory, the evidence of use of shiftability and anticipated income
theory is weak. However, there was one firm that employed a hybrid
strategy i.e. anticipated and commercial loan theory. All the
respondents were at senior management level with professional
qualifications in banking.
From the study it is evident the most common type is commercial
and industrial loans. However, consumer loans are becoming more
popular. The liquidity levels seem not to depend on particular
theories, again because a number of approaches are employed by a
particular bank.
Citation
Masters Of Business Administration (MBA) Degree, University of NairobiPublisher
University of Nairobi School of Business
Description
A management research project submitted in partial
fulfilment of the requirements for the Degree Of
Master of Business Administration (MBA), Faculty of
Commerce, University of Nairobi