Modelling the Impact of Liquidity Trend on the Financial Performance of Commercial Banks and Economic Growth in Cameroon

Abstract

Recent year statistics have revealed the build-up of excess liquidity in Cameroonian commercial banks for more than two decades now. This has led to renewed interest in liquidity management, as it has implications on the financial performance of commercial banks. This paper is therefore designed to examine the impact of excess liquidity on the financial performance of commercial banks in Cameroon. Using Return on Assets (ROA) as proxy for the measurement of financial performance, secondary data from 1990 to 2016, with the application of the VAR technique, the findings reveals that excess liquidity and total liquid outflows affect ROA negatively. Gross domestic product, interest rate gap, total liquid inflows and previous year ROA had positive effects on ROA. Also from the empirical findings, there is an existing significant negative chain between excess liquidity, commercial bank performance and economic growth in Cameroon based on the Koyck Geometric lag reasoning. To address the negative vicious cycle chain, we therefore recommend guided minimum and maximum liquidity regulatory control and government effort geared towards encouraging moral suasions and special directive of investment by commercial banks in the agricultural, industrial and the educational sectors in Cameroon. Also, commercial banks should set maturity mismatch limits appropriate to the size of excess liquidity observed in each bank. Attempt to reverse the chain is part of the assurance to Cameroon emergence by 2035.

Mobile Commerce: A Rising Wave of Consumer Purchase Intention

“…A few previous literature on liquidity showed that as an independent variable, it had a significant and positive effect on the firm performance's measures ROA, ROE & EPS (Banafa, 2016;Edem, 2017;Kahyani et al, 2016;Odalo & Achoki, 2016). Some studies depicted negative relationship of liquidity and firm's performance (Ahmad et al, 2015;Njimanted et al, 2017;Vintila & Nenu, 2016). Hakeem & Bambale, (2016) used liquidity as the mediator and depicted that it acted as a mediator amongst dividend payout & financial performance of registered manufacturing companies of Nigeria.In this study, the liquidity is taken as the moderator andit is found that liquidity does not act as a moderator between capital structure variable total debt to total assets (TDTA) ratio and firm's performance variables, return on equity (ROE) & earnings per share (EPS), while liquidity acts as a moderator between the capital structure variable total debt to assets (TDTA) ratio & firm performance variablereturn on assets (ROA).…”

“…On the other hand, some literature regarding liquidity and firm's performance showed their positive impact on each other (Edem, 2017;Odalo & Achoki, 2016;Sheikhdon & Kavale, 2016;Tuffour & Boateng, 2017). Whereas, some authors observed negative relation among liquidity &firm's performance (Ahmad et al, 2015;Njimanted et al, 2017;Vintila & Nenu, 2016).…”

Blended Finance: A Tool for Inciting Commercial Financial Institutions to Provide Financing for Machinery Acquisition for SMEs in Cameroon

“…The level of acquisition of technology is considerably low in SMEs in Cameroon principally due to reduced access to financing (Intarakumnerd, 2016;Mallinguh et al, 2020;Subrahmanya, 2014), it is reported that formal financial institution in Cameroon has significant liquidity (Njimanted et al, 2017;Kamta et al, 2020). However, their inclination to lend to SMEs is quite reduced principally due to SMEs' lack of collateral security or guarantee (Agyemang, & Ansong, 2017; Akinboade, 2015; Ibrahim, & Ibrahim, 2015; St. Pierre, et al, 2015).…”

“…This does not include the informal sector of this economy which constitute the greater part of SMEs in Cameroon and whose population is not known. While SMEs in the Cameroonian economy struggle with reduced access to financing, it is reported that formal financial institutions in Cameroon have significant liquidity (Njimanted et al, 2017;Kamta et al, 2020). In that same light, Etogo (2020), argues that just like in most developing economies, SME access to formal financing in Cameroon is highly limited and this is having a significant impact on the performance of this category of businesses.…”

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“…It is thus necessary to understand operational risk and its effects on the financial performance of commercial banks. (Luburic, 2016) The impact of operational risk on the financial performance in private commercial banks of Cameroon has emerged as a major issue of concern ( (Njimanted, Akume, & Aquilas, 2017;Valentina Flamini, January 2009)). The 2008 sub-primes crisis was partially attributable to poor operational risk management procedures; which resulted to the closure of many financial institutions such as Lehman Brothers, ENRON and a lot of others.…”