The impact of liquidity on profitability in Libyan commercial banks:

A case study of the Trade and Development Bank

Abstract

Given the great importance of the issue of cash liquidity and its impact on profitability in financial institutions in general and banking in particular, and in an effort to study the variables surrounding banks and affecting the performance of this sector, this study came with the aim of measuring the impact of liquidity on profitability indicators at the Trade and Development Bank during the period (2008-2018). Due to the small sample size, this data was divided into quarterly data comprising 44 observations. To explore this effect, multiple linear regression analysis was conducted with standard estimates using the Ordinary Least Squares (OLS) method. The study concluded that there was a statistically significant negative effect at the significance level of (5%) for the (current deposits / total deposits) index. On profitability measured by return on assets, while there was a positive and statistically significant effect at the significance level (1%) of the (current deposits / equity) index on both profitability indices (on return on assets; and return on equity), and there was no significant effect of the cash balance index on profitability variables.