The impact of liquidity management on the performance of the Libyan banking sector during the period (2012-2008)

أثر إدارة السيولة على أداء القطاع المصرفي الليبي

Abstract

This research aims to determine the impact of liquidity management on the performance of Libyan banks. Three relative indicators were selected regarding the annual performance of banks listed in the Central Bank of Libya: profitability, return on assets, and liquidity. Theoretically, the research was based on the content analysis method based on a review of previous studies. Practically, the data of the selected indicators were analyzed using Karl Pearson’s correlation coefficient matrix and linear regression. The results of the analysis led to the construction of a model indicating that profitability measured by return on equity is positively affected by return on assets and liquidity despite these positive relationships revealed by the model, the theoretical analysis revealed the possibility of achieving higher profitability than that shown by the model this is due to the presence of excess liquidity that was considered unutilized due to force majeure. The analysis concluded that the Libyan banking sector faces a fundamental dilemma, which lies in the difficulty of being able to achieve a balance between profitability, return on assets, and liquidity simultaneously because both liquidity shortages and excess liquidity can easily weaken a bank's profit base, this dilemma can lead to a liquidity crisis, which reduces customer confidence and loyalty. To limit the impact of challenges and repercussions the study recommended that the banking sector’s investment strategies and cash management should be continuously modified to meet the competing requirements of profitability, asset efficiency and liquidity stability. Based on finding a non-linear strategic balance that ensures a liquidity level sufficient to manage risks and meet unexpected requirements, but not so high that it negatively impacts profitability and the efficient use of assets.