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Research Article | | Peer-Reviewed

Impact of Money Market on the Liquidity of Some Selected Quoted Banks in Nigeria

Jude Idemudia Okoh,  Isibor Areghan*,  Olokoyo Felicia,  Ehikioya Benjamin,  Adegboye Folasade,  Adesina Tolulope,  Taiwo Omoyin
Published in Journal of Finance and Accounting (Volume 13, Issue 1)
Received: 13 November 2024     Accepted: 23 November 2024     Published: 10 February 2025
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Abstract

The issue of bank failure due to low level of liquidity has been an age-long challenge bedeviling the Nigerian banking sector. Hence, this study examined the linkage between money market and the liquidity of some selected quoted banks in Nigeria. Specifically, the study assessed the impact of deposit money banks’ working capital on savings deposits in Nigeria, and it also investigated how the interbank call rate influences monetary policy rate in Nigeria. The research used secondary data from 2014 till 2023 of five (5) selected banks including First Bank PLC, Guaranteed Trust Bank, Zenith Bank, United Bank for Africa PLC, and Access Bank PLC for its analyses. Findings showed that, first, there was a significant and positive relationship between savings deposit rates and working capital, and secondly, monetary policy rate does not have a statistically significant impact on the interbank call rate. The study thus recommended that as savings deposit rates significantly influence working capital, policymakers should focus on mechanisms that stabilize these rates to ensure consistent liquidity conditions. The study further recommended that understanding the differential impact of various financial indicators on bank liquidity can help policymakers design more targeted and effective monetary policies. For instance, if savings deposit rates significantly influence working capital, policymakers should focus on mechanisms that stabilize these rates to ensure consistent liquidity conditions.

Published in Journal of Finance and Accounting (Volume 13, Issue 1)
DOI 10.11648/j.jfa.20251301.12
Page(s) 14-28
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2025. Published by Science Publishing Group
Previous article
Keywords

Liquidity, Working Capital, Inter Bank Call Rate, Savings Deposit Rate, Monetary Policy Rate

1. Introduction
Finance is the most significant factor supporting investment projects, economic growth, and development. The money market is a group of financial organizations specifically designed to offer short-term loans and trade short-term securities with maturities ranging from a few days to a year, easily convertible into cash. The money market development facilitates financial intermediation, enhances lending to the economy, and improves the country’s economic and social welfare
[8]
. Money market instruments are vital for the growth and development of the Nigerian economy. However, their effectiveness is limited by the absence of sub-markets and the lack of adequate credit instruments necessary for smooth market operations
[17]
.
The Nigerian money market, established by the Central Bank, aims to raise domestic savings for profitable investments and provide funding to the government for policy implementation
[19]
. Additionally, it serves as an intermediary for short-term financial assets that closely substitute for cash. The Nigerian money market offers highly liquid, low-risk short-term instruments trading opportunities. The money market also lays the groundwork for implementing monetary policy. Treasury bills, Treasury certificates, commercial paper, banker’s acceptances, and certificates of deposit are among the instruments traded. According to
[16]
, the Nigerian money market has experienced substantial growth and development following the deregulation of the financial system in 1986. This growth is evident in the expansion of securities offerings and increased trading volumes.
The money market’s role in economic development cannot be overstated. It is crucial for bank liquidity management and monetary policy transmission to offer appropriate instruments and liquidity trading partners
[32]
. Hence, the money market facilitates refinancing short-term positions and enhances business liquidity management.
Since the financial market is essential to the economy’s growth, the Central Bank, the banking industry, and the economy as a whole, stands to gain from the money market’s expansion
[23]
.
The impact the money market has on the growth and development of the Nigerian economy cannot be over-emphasized or underestimated. This assertion is true because the money market functions as an intermediary, channeling funds from surplus units to deficit units within the Nigerian population, primarily for short-term investments in trade and commerce
[16]
. Consequently, the money market development facilitates financial intermediation and enhances economic lending, promoting economic growth. Money markets are crucial for banks’ liquidity management and monetary policy transmission. They help control the money supply, mitigate demand-pull inflation, and determine short-term interest rates
[13]
.
Some factories have either temporarily shuttered or completely collapsed due to the inability to meet their financial obligations. This pertains to liquidity issues, while some promising investments with high rates of return have turned out to be failures due to inadequate working capital
[12]
.
1.1. Statement of the Problem
The money market has underperformed in many developing nations, such as Nigeria when it comes to providing funds to investors with deficits. This deficit has hampered development and economic growth.
Nigeria’s money market is still underdeveloped, which is accurate considering the market’s present liquidity issues
[32]
. Nigeria’s money market remains in its infancy compared to its counterparts in advanced and emerging economies. It is characterized by an underdeveloped secondary market, a lack of diversified instruments, poor coordination in issuing debt instruments, and inadequate information flow, among other issues
[32]
.
Government assets like Treasury Bills and Bonds dominate the market, with a significant disparity between deposit and lending rates. The Nigerian money market has recently experienced significant reforms and expansion. However, it still faces several challenges. Unlike in advanced economies, where the money market is a key institution for creating liquidity for governments, companies, and individuals, the Nigerian money market is inadequate. It is constrained by sub-markets’ absence and the lack of adequate credit instruments necessary for smooth market operations
[21]
.
A deepening of the market is necessary to achieve the vibrancy expected of a money market
[28]
. This does not imply inefficiency but underscores the importance of continuously evaluating its performance and its impact on the economic growth and development of the country. Consequently, the expansion of the money market promotes the development of financial intermediation, enhances economic lending, and improves the nation’s economic and social well-being.
1.2. Purpose of the Study
This study aims to examine the money market and evaluate its performance in terms of how it affects the liquidity and profitability of some quoted banks.
1.3. Objectives of the Study
The specific objectives to be achieved include the following:
1) To examine the impact of banks’ working capital on financial stocks in Nigeria.
2) To investigate the influence of CBN monetary policies on the liquidity of banks in Nigeria.
1.4. Research Questions
1) What is the impact of banks’ working capital on financial stocks in Nigeria?
2) How do CBN monetary policies influence the liquidity of banks in Nigeria?
1.5. Research Hypotheses
H01: There is no significant difference between the banks’ working capital and financial stocks in Nigeria.
H02: There is no significant difference between CBN monetary policies and the liquidity of banks in Nigeria.
2. Literature Review
2.1. Concept of Money Market
Money market instruments are short-term maturity documents representing economic entities’ claims and obligations. These instruments channel funds from surplus units within the economy to deficit units
[28]
. The Nigerian money market participants include the Central Bank of Nigeria (CBN), the Nigerian Deposit Insurance Corporation, the Debt Management Office, the Federal Ministry of Finance, Deposit Money Banks, Microfinance Banks, Discount Houses, and private individuals.
Money market in Nigeria did not exist before the establishment of the Central Bank of Nigeria (CBN) in 1958
[7]
. However, some forms of short-term fund markets were present. Before the advent of commercial banking, there were elements of short-term lending and borrowing through commercial paper. This early market was closely linked to the London money market. Essentially, there was year-round money market activity. With the establishment of the Nigerian money market, the CBN began directing these funds towards the country’s economic growth. The primary function of the money market is to facilitate the transfer of funds from surplus units (savers) to deficit units (investors)
[1]
.
Securities with less than a year of maturity are traded on the money market. Due to its decentralized nature, most transactions occur through phone, fax, telex, and other communication channels
[16]
. The annual monetary policies of the Federal Government of Nigeria, regulated by the Central Bank, typically influence the prices of traded securities. Examples of high-quality, unsecured financial assets with relatively low risk include savings (negotiable and non-negotiable certificates of deposit), bankers’ acceptances, commercial papers, call money, treasury bills, and treasury certificates.
The Nigerian financial market facilitates trading short-term financial instruments to address the immediate needs of major fund users, including governments, banks, and other similar institutions. Markets comprise the arrangements and infrastructure enabling short-term funds and securities trading. The money market originated as a segment of the African financial market focused on lending, borrowing, buying, and selling securities with initial maturities of one year or less
[2]
. Similar to the capital market, the money market is divided into primary and secondary markets. The primary market is responsible for issuing new debt instruments, whereas the secondary market facilitates trading previously issued instruments
[4]
.
Commercial banks have access to a ready market for money to invest their excess reserves and earn interest while retaining liquidity
[33]
. For instance, bills of exchange are quickly converted into cash to facilitate customers’ withdrawals. They can also borrow short-term loans from the money market rather than the central bank when they encounter liquidity issues. This may result in lower short-term lending interest rates on the money market than at the central bank.
2.2. Concept of Liquidity
A company is deemed liquid if it can quickly and conveniently convert its assets into cash. Balancing long-term and short-term financial needs determines the ideal capital structure. Bank liquidity is the capacity of a bank to sustain adequate funds to meet its maturing liabilities
[3]
. This means ensuring adequate liquidity for customers at all times is a fundamental aspect of banking. To meet this objective, banks ensure enough cash and other near-cash securities are available to fulfill withdrawal requests and satisfy new loan demands from customers requiring liquidity. Consequently, banks in Nigeria are legally obligated to adhere to the Cash Reserve Requirement (CRR) policy set by the Central Bank of Nigeria
[26]
.
2.3. Concept of Liquidity Management
Liquidity management refers to a bank’s programs and strategies designed to meet deposit and loan demands
[14]
. These strategies include holding short-term financial assets like treasury bills and certificates, which are highly marketable, maintaining avenues for short-term accommodation from the Central Bank or other banks, and bidding for greater deposits.
Effective liquidity management involves liquidity planning, which requires the bank to accurately forecast future fund demands and deposit supplies. A portfolio of short-term financial securities a bank holds can be easily sold or rediscounted for cash.
For Nigerian banks, liquidity primarily relies on two major sources: rediscounting assets for cash and interbank borrowings. Rediscounting assets involves selling existing assets, such as government securities or loans, to the Central Bank of Nigeria at a discounted rate in exchange for immediate cash. Interbank borrowings involve banks borrowing funds from other banks
[22]
.
2.4. Banks Liquidity: Sources
Banks derive their liquidity from the following sources
[31]
:
1) Vault cash
2) Balances held with offices & branches outside Nigeria
3) Money at call in Nigeria
4) Inter-bank placement
5) Placement with discount houses
6) Treasuring bills
7) Treasuring certificates
8) Investment in stabilization securities
[18]
9) Bills discounted payable in Nigeria
10) Negotiable certificates of deposits
11) Bankers’ acceptances and commercial papers
12) Balances held with CBN
2.5. Characteristics of Liquidity
Three essential components or attributes comprise liquidity: marketability, stability, and conservatism. A higher level of marketability or transferability is ideal for liquid assets. This suggests that they can be quickly exchanged for cash and used for redemption before maturity. On the other hand, assets are considered illiquid if they cannot be redeemed by the maturity dates
[31]
.
The ease with which an asset can be sold or turned into cash on the market is called marketability. An asset is seen as more liquid, the more marketable it is. The capacity of an item to hold onto its worth or keep a steady price in the face of shifting market conditions is known as stability. A conservative approach to asset liquidity assessment considers worst-case situations and the possibility that assets won’t be sold for their full worth
[5]
.
2.6. Government Policy Measures for Liquidity Management
The main objectives of government monetary and financial policies are:
1) Establish market-based interest and exchange rate regimes
[18]
.
2) Reduce excess liquidity in the banking system.
3) Maintain stability in the financial sector.
4) Promote non-inflationary growth.
5) Achieve a favourable balance of payments
[31, 29]
.
2.7. Importance of Liquidity
Since much of the money commercial banks use to function is borrowed from depositors in demand and time deposits, liquidity assets are very important. Banks must maintain sufficient liquidity assets to preserve depositor confidence, which is valued as an intangible asset in the commercial banking industry. To effectively manage risks, uphold depositor confidence, sustain profitable operations, and prevent bad outcomes during financial stress, commercial banks must retain appropriate liquidity
[11]
.
Liquidity helps manage various risks, such as funding risk, which is the ability to replace net outflows by taking out retail deposits or by choosing not to renew wholesale funds.
Secondly, Liquidity is required to compensate for the loss of anticipated funds if borrowers default on their obligations.
When favourable lending opportunities materialize, such as a request from a valued customer, or when abrupt increases in borrowing under credit lines occur, the bank can obtain more capital to fulfill these obligations
[31]
.
2.8. Policy Instruments
According to
[7]
and
[6]
, the policy instruments adopted for liquidity management include the following:
1) Open market operations conducted wholly in Nigeria.
2) Treasury Bills.
3) Discount window operations
4) Cash reserve requirements
5) Liquidity ratios
6) Bank credit policies
7) Taxation and government borrowing, etc.
2.9. Concept of Working Capital Management
Working capital refers to the resources available to a firm for conducting its daily operations and serves as a gauge of the business’s liquidity. This capital enables a firm to meet its short-term obligations promptly as they arise
[12]
. Working capital management is the controlling and managing of current assets such as cash, marketable securities, accounts receivable, and inventories
[20]
.
Working capital management involves establishing and implementing a working capital policy in daily operations
[34]
. Therefore, it holds significance due to its impact on the firm’s profitability, risk, and overall value. Working capital management aims to maintain an optimal balance of its components, ensuring that firms operate with adequate funds (cash flows) to meet short-term and long-term debt obligations. Insufficient working capital results in shortages of inventories finished goods, and customer credit
[34]
. Conversely, excessive levels of working capital lead to unnecessary additional costs. This imbalance in working capital components poses challenges for management, a situation faced by firms of all sizes, including small, fast-growing enterprises and multinational corporations.
Working capital management involves supervising a company’s short-term assets and liabilities to maintain sufficient liquidity for supporting daily operations and meeting financial obligations efficiently. It involves optimizing cash flow, overseeing inventories, managing accounts receivable, and handling accounts payable, all aimed at achieving a harmonious balance between operational efficiency and financial stability.
2.10. The Influence of CBN Monetary Policies on the Liquidity of Banks in Nigeria
These regulations, which include instruments like the Monetary Policy Rate (MPR), Open Market Operations (OMO), and Cash Reserve Ratio (CRR), have a direct impact on the amount of liquidity in the banking system
[32]
.
1) Open Market Operations (OMO): The Central Bank of Nigeria (CBN) uses OMOs to buy and sell government securities, absorbing or injecting liquidity into the banking system to enhance lending capacity,
[29]
.
2) Cash Reserve Ratio (CRR): The Central Bank of Nigeria (CBN) regulates banks’ liquidity by adjusting the Central Reserve Ratio (CRR), which is the minimum fraction of customer deposits and liabilities.
3) Monetary Policy Rate (MPR): The MPR, the benchmark interest rate set by the CBN, impacts borrowing and lending costs in the economy, with higher MPR increasing funds costs and lower MPR decreasing costs,
[19]
.
3. Theoretical Framework
3.1. Fry’s Theory on Money Market
This theory was developed by Fry in 1988 and emphasized the role of money markets
[15]
. the theory argued that financial repression can elevate the real rate of interest due to liquidity preferences, pushing it above its equilibrium level. Consequently, freely determined money markets, where the interaction of supply and demand sets interest rates, are scarce in the developing world. The theory emphasizes that positive real interest rates act as an incentive for savers. They also enable banks to extend credit to the most efficient firms capable of generating profits sufficient to cover the high cost of borrowing
[9, 10]
. The theory focuses on utilizing market-based approaches to achieve financial development in emerging market economies. Financial intermediation and the money market’s function in enabling the effective distribution of resources within an economy are the main topics of discussion in Fry’s money market theory. In his seminal work, David Fry underscored the money market’s role in transferring capital from savers (surplus units) to borrowers (deficit units), fostering stability and economic expansion. His theory emphasizes how important it is to control liquidity, set interest rates, and consider how monetary policy affects financial markets
[15]
. A positive money market rate encourages financial savings and intermediation, increasing the supply of credit to the private sector and stimulating investment
[15]
.
Fry’s thesis revolves around financial intermediaries who invest in money market instruments, including commercial papers, treasury bills, and certificates of deposit to manage liquidity
[8]
. These instruments let intermediaries fulfill their responsibilities by offering short-term liquidity. The influence of monetary policy on liquidity in the money market is recognized by Fry’s hypothesis
[15]
. The availability and cost of liquidity are impacted by shifts in interest rates and other central bank policy measures, which impact how financial intermediaries and market players behave.
3.2. Empirical Review
A study aimed to ascertain the relationship between money market efficiency and the development of the Nigerian financial system. The study utilized money market variables as measures of money market efficiency while real gross domestic product (RGDP) was employed as the control variable. Financial deepening (M2/GDP) was used as a proxy for financial system development with the adoption of multivariate OLS analysis for the estimation process, co-integration analysis for long-run relationships and the associated error correction model (ECM) to determine the short-run impact of the variables. The Granger causality test was also used to determine the direction of causality among the variables. It was found that there is a significant positive relationship between money market efficiency regarding interest expense and financial system development both in the short and long run, respectively. The study recommended that monetary authorities, in collaboration with the bankers’ committee, devise a framework to relax certain credit requirements that have been stifling the loan market. This initiative will support the growth of retail and small to medium-scale enterprises, contributing to a robust economy and fostering the development of our financial system
[1]
.
A research examined the impact of the Nigerian money market instruments on the liquidity of ten selected quoted banks from 2005 to 2014. Secondary data were used and the multiple regression econometric technique was used to analyze the data obtained. It was found that firms’ working capital and profitability significantly impact the money market instrument. The study recommended that sufficient monitoring and surveillance of market participants’ activities, along with the introduction of new and flexible financial instruments, is required to improve the money market
[21]
.
Another research sought to investigate the impact of selected money market instruments on economic growth in Nigeria. Data was obtained from the Central Bank of Nigeria Statistical Bulletin 2017. The study adopted the Autoregressive Distributive Lag (ARDL) Bound Testing approach to co-integration. It was found that the Nigerian money market has not been efficient in its functions. The study recommended that the Central Bank of Nigeria exercise caution when using Treasury Certificates for short-term liquidity management, as their prolonged use may result in negligible economic impact
[7]
.
4. Methodology
4.1. Sources of Data Collection
The data obtained for this study was through secondary sources. Atotal of (24) commercial banks operate in Nigeria, constituting the study's population. Therefore, five (5) selected banks (First Bank PLC, Guaranteed Trust Bank, Zenith Bank, United Bank for Africa PLC, and Access Bank PLC) were selected to represent all commercial banks in Nigeria from 2014 to 2023. These banks were specifically chosen for this study, providing an appropriately wide cross-section of the banking industry. According to the Central Bank of Nigeria's guidelines, the selection criteria comprised age, geographic distribution, innovation, and rating. These banks were selected because of their broad branch networks and prompt financial statement release, which is widely available on the internet and easily accessible on their websites.
4.2. Method of Data Analysis
The multiple linear regressions, an econometric technique, was used to establish the nature of the relationship among the variables under investigation using E-views Statistical Package.
4.3. Data Analysis and Discussion
Descriptive Statistics
The dataset provides descriptive statistics for six key financial indicators in an economy: Savings Deposit rates, Treasury Bill rates, Prime Lending rates, Maximum Lending rates, Interbank Call rates, and the Monetary Policy Rate (MPR). These indicators are crucial for understanding the financial environment and monetary conditions. The analysis of these statistics includes measures of central tendency (mean, median), dispersion (standard deviation), and the shape of the distributions (skewness, kurtosis). Additionally, unit root tests were conducted to assess the stationarity of these series.
Table 1. Descriptive Statistics.

SAVINGS DEPOSIT

TREASURY BILL

PRIME LENDING

MAX LENDING

INTERBANK CALL RATE

MPR

Mean

3.493697

7.441261

15.14193

28.57840

12.32916

13.52941

Median

3.780000

9.110000

16.08000

28.31000

10.73000

13.50000

Maximum

5.280000

14.93000

18.23000

31.56000

64.58000

18.75000

Minimum

1.250000

0.000000

11.13000

25.07000

0.000000

11.00000

Std. Dev.

1.030757

4.457431

2.211634

1.872554

9.529954

1.987827

Skewness

-0.819605

-0.135781

-0.587006

0.114057

2.085911

1.285068

Kurtosis

3.048773

1.564817

1.850867

1.694879

10.36455

4.240044

Jarque-Bera

13.33489

10.57858

13.38161

8.703747

355.2186

40.37725

Probability

0.001272

0.005045

0.001242

0.012883

0.000000

0.000000

Sum

415.7500

885.5100

1801.890

3400.830

1467.170

1610.000

Sum Sq. Dev.

125.3704

2344.506

577.1763

413.7622

10716.76

466.2721

Observations

119

119

119

119

119

119
Source: Eviews Version 10 Output
The table above revealed the data used in the study with the mean savings deposit rate is 3.49%, with a median of 3.78% and a range of 1.25% to 5.28%. This suggests a relatively low savings deposit rate, which may impact the incentive for individuals to save
[25]
. The treasury bill rate has a mean of 7.44% and a median of 9.11%, indicating a moderate return on government securities
[10]
.
The prime lending rate has a mean of 15.14% and a median of 16.08%, with a range of 11.13% to 18.23%. This suggests a relatively high cost of borrowing for businesses, which may constrain investment and economic growth
[9]
. The maximum lending rate has a mean of 28.58% and a median of 28.31%, indicating a high cost of credit for borrowers
[30]
.
The interbank call rate has a mean of 12.33% and a median of 10.73%, with a range of 0% to 64.58%. The high standard deviation of 9.53% suggests significant volatility in the interbank market, which may be a concern for financial stability
[5]
. The MPR has a mean of 13.53% and a median of 13.50%, with a range of 11% to 18.75%, indicating a relatively tight monetary policy stance.
The skewness and kurtosis values for most of the variables suggest a non-normal distribution, which is confirmed by the significant Jarque-Bera test statistics and probabilities. This indicates that the financial variables may not follow a Gaussian distribution, and the use of appropriate statistical techniques for non-normal data may be necessary in further analysis
[24]
.
4.4. Unit Root Test
Table 2. Unit root (individual unit root process).

Series: SAVINGS DEPOSIT, TREASURY BILL, PRIME LENDING,

MAX LENDING, INTERBANK CALL RATE, MPR

Date: 07/17/24 Time: 07:10

Sample: 1 119

Method

Statistic

Prob.**

ADF - Fisher Chi-square

72.6918

0.0000

ADF - Choi Z-stat

-4.83725

0.0000

** Probabilities for Fisher tests are computed using an asymptotic Chi

-square distribution. All other tests assume asymptotic normality.

Intermediate ADF test results UNTITLED

Series

Prob.

Lag

Max Lag

Obs

SAVINGS DEPOSIT

0.7898

11

12

107

TREASURY BILL

0.0526

0

12

118

PRIME LENDING

0.0017

0

12

118

MAX LENDING

0.0556

0

12

118

INTERBANK CALL RATE

0.4872

1

12

117

MPR

0.0000

0

12

118
Source: Eviews Version 10 Output
The analysis presented in Table 2 is focused on determining the presence of a unit root in various financial time series, including YEAR, SAVINGS DEPOSIT, TREASURY BILL, PRIME LENDING, MAX LENDING, INTERBANK CALL RATE, and MPR. The unit root tests conducted here are essential for understanding the stationarity properties of these time series, which in turn has implications for their statistical properties and for econometric modeling.
The results of the ADF (Augmented Dickey-Fuller) Fisher Chi-square and ADF Choi Z-statistics indicate strong evidence against the null hypothesis of a unit root for the collective series. The Fisher Chi-square statistic is 72.6918 with a p-value of 0.0000, and the Choi Z-statistic is -4.83725 with a p-value of 0.0000. These p-values suggest that we can reject the null hypothesis at conventional significance levels, implying that at least some of the series are stationary.
The unit root test (ADF - Fisher Chi-square and ADF - Choi Z-stat) results suggest that some series may be non-stationary, meaning their statistical properties change over time. This is crucial for econometric modeling and forecasting, indicating the need for differencing or other transformations to achieve stationarity
[27]
.
4.5. Hypotheses Test
4.5.1. Hypothesis One
H01: There is no significant difference between the banks’ working capital and savings deposit in Nigeria.
Table 3. Regression analysis.

Dependent Variable: WORKING CAPITAL

Method: Least Squares

Date: 07/17/24 Time: 07:22

Sample: 1 119

Included observations: 119

Variable

Coefficient

Std. Error

t-Statistic

Prob.

C

26.99870

0.592327

45.58075

0.0000

SAVINGSDEPOSIT

0.452158

0.162667

2.779659

0.0063

R-squared

0.061948

Mean dependent var

28.57840

Adjusted R-squared

0.053930

S.D. dependent var

1.872554

S.E. of regression

1.821361

Akaike info criterion

4.053709

Sum squared resid

388.1306

Schwarz criterion

4.100417

Log likelihood

-239.1957

Hannan-Quinn criter.

4.072676

F-statistic

7.726505

Durbin-Watson stat

0.254718

Prob(F-statistic)

0.006342
Source: Eviews Version 10 Output
The data presented in table 3 illustrates the findings of a linear regression analysis in which working capital serves as the dependent variable and savings deposit as the independent variable. The regression results show that the constant term (C) is statistically significant at the 1% level, with a coefficient of 26.99870. This suggests that there is a significant baseline level of working capital in the economy, even when the savings deposit rate is zero.
The coefficient of the savings deposit rate is 0.452158 and is also statistically significant at the 1% level. This indicates a positive relationship between the savings deposit rate and working capital, implying that a higher savings deposit rate is associated with an increase in working capital. This finding is consistent with the results of
[34]
which suggested that higher savings rates can lead to increased availability of funds for investment and working capital.
The R-squared value of 0.061948 suggests that the savings deposit rate explains approximately 6.19% of the variation in working capital. The adjusted R-squared, which accounts for the number of independent variables, is 0.053930, indicating a modest goodness of fit for the model.
The Durbin-Watson statistic of 0.254718 suggests the presence of positive autocorrelation in the residuals, which may indicate a need for further investigation and potential model refinement. The Akaike Information Criterion (AIC) and Schwarz Criterion (SC) provide measures of model fit, with lower values indicating better model performance.
The findings revealed that there is a positive and significant relationship between the savings deposit rate and working capital. However, the low R-squared indicates that other factors also play a significant role in determining working capital.
4.5.2. Hypothesis Two
H02: There is no significant difference between Interbank Call Rates and Monetary Policy Rate (MPR) in Nigeria.
Table 4. Regression analysis.

Dependent Variable: INTERBANK CALL RATE

Method: Least Squares

Date: 07/17/24 Time: 07:21

Sample: 1 119

Included observations: 119

Variable

Coefficient

Std. Error

t-Statistic

Prob.

C

4.668308

6.017925

0.775734

0.4395

MPR

0.566237

0.440118

1.286558

0.2008

R-squared

0.013950

Mean dependent var

12.32916

Adjusted R-squared

0.005522

S.D. dependent var

9.529954

S.E. of regression

9.503605

Akaike info criterion

7.357883

Sum squared resid

10567.26

Schwarz criterion

7.404591

Log likelihood

-435.7941

Hannan-Quinn criter.

7.376850

F-statistic

1.655232

Durbin-Watson stat

1.410370

Prob(F-statistic)

0.200788
Source: Eviews Version 10 Output
The provided data in Table 4 represents the results of a linear regression analysis with the interbank call rate as the dependent variable and the monetary policy rate (MPR) as the independent variable. The regression results show that the constant term (C) has a coefficient of 4.668308 and is not statistically significant at the conventional levels. This suggests that there is a baseline level of interbank call rate in the economy, which is not significantly influenced by the MPR.
The coefficient of the MPR is 0.566237, indicating a positive relationship between the MPR and the interbank call rate. However, this relationship is not statistically significant at the conventional levels, with a p-value of 0.2008. This finding suggests that the MPR may not be the primary driver of the interbank call rate, and other factors might be more influential in determining the interbank market dynamics
[6]
.
The R-squared value of 0.013950 suggests that the MPR explains only 1.39% of the variation in the interbank call rate. The adjusted R-squared, which accounts for the number of independent variables, is 0.005522, indicating a very low goodness of fit for the model.
The Durbin-Watson statistic of 1.410370 suggests the presence of positive autocorrelation in the residuals, which may indicate a need for further investigation and potential model refinement. The Akaike Information Criterion (AIC) and Schwarz Criterion (SC) provide measures of model fit, with higher values indicating poorer model performance.
The result revealed that there is no significant difference between Interbank Call Rates and MPR in Nigeria, suggesting that other factors may be more significant in determining interbank market rates. The low R-squared value indicates a poor fit, necessitating further investigation.
5. Discussion of Findings
The study seeks to determine how the money market affects the liquidity of selected banks in Nigeria. The specific objectives are: to analyze the impact of banks' working capital on savings deposits in Nigeria; and to explore how the interbank call rate influences MPR in Nigeria.
The first hypothesis indicates that there is a significant and positive relationship between savings deposit rates and working capital in the economy. This highlights the importance of encouraging higher savings rates to support business liquidity and investment
[11]
.
The second hypothesis indicates that the MPR does not have a statistically significant impact on the interbank call rate in the economy. This result goes against the expected theory that changes in the MPR would directly affect the interbank market
[4]
.
6. Conclusion and Recommendations
The research aims to investigate the impact of the money market on the liquidity of selected banks in Nigeria. This analysis is crucial for understanding the dynamics of the financial system and for formulating effective monetary policies. The findings suggest stability in some areas, like savings deposit rates and prime lending rates, but significant volatility in others, such as interbank call rates. This variability has implications for the liquidity management strategies of banks. Stable indicators provide a reliable foundation for predicting future trends and making strategic decisions, whereas volatile indicators require more robust risk management practices.
The regression result indicates that savings deposit rates have a significant impact on working capital. This relationship suggests that fluctuations in savings deposit rates directly influence the liquidity available to banks for operational purposes. On the other hand, the study finds that the interbank call rate does not have a significant impact on Monetary Policy Rate (MPR). The lack of a significant relationship might suggest that other factors, such as market perceptions or external economic conditions, play a more dominant role in determining interbank call rates in Nigeria.
Based on the conclusion, the study recommends that understanding the differential impact of various financial indicators on bank liquidity can help policymakers design more targeted and effective monetary policies. For instance, if savings deposit rates significantly influence working capital, policymakers should focus on mechanisms that stabilize these rates to ensure consistent liquidity conditions. Also, Banks should improve their liquidity management and risk assessment strategies. Further research may be needed to identify the key determinants of the interbank call rate and to explore the potential factors that may influence the relationship between the MPR and the interbank market.
Abbreviations

AIC

Akaike Information Criterion

ARDL

Autoregressive Distributive Lag

CRR

Cash Reserve Ratio

CBN

Central Bank of Nigeria

ECM

Error Correction Model

MPR

Monetary Policy Rate

OMO

Open Market Operations

OLS

Ordinary Least Squares

SC

Schwarz Criterion
Author Contributions
Jude Idemudia Okoh: Funding acquisition, Software, Supervision, Writing-review & editing
Isibor Areghan: Conceptualization, Data curation, Formal Analysis, Investigation, Methodology
Olokoyo Felicia: Funding acquisition
Ehikioya Benjamin: Writing-review & editing
Adegboye Folasade: Funding acquisition
Adesina Tolulope: Writing-review & editing
Taiwo Omoyin: Writing-original draft, Writing-review & editing
Conflicts of Interest
The authors declare no conflicts of interest.
Appendix
Table 5. Money Market Indicators from year 2014-2023.

Year

Month

InterBankCallRate

MRR

MPR

TreasuryBill

SavingsDeposit

PrimeLending

MaxLending

2023

1

10.35

17.5

1.39

4.29

13.67

27.63

2023

2

12.54

17.5

2.09

4.3

13.62

28.75

2023

3

14.75

18

3.81

4.58

13.97

28.08

2023

4

15.8

18

5.73

4.59

14.05

28.59

2023

5

12.31

18.5

2.98

5.13

14.07

28.31

2023

6

11.66

18.5

3.87

5.18

13.85

28.94

2023

7

6.73

18.75

4.45

5.24

13.98

27.38

2023

8

3.89

18.75

5.13

5.26

13.99

27.59

2023

9

12.73

18.75

5.29

5.26

14.32

27.24

2023

10

7.2

18.75

5.39

5.26

14.39

28.97

2023

11

19.39

18.75

7.73

5.26

14.05

27.61

2023

12

16.99

18.75

8.93

5.28

14.17

26.62

2022

1

14.31

11.5

2.49

1.25

11.68

27.65

2022

2

9.3

11.5

2.3

1.25

11.78

30.73

2022

3

11.33

11.5

1.75

1.28

11.84

26.61

2022

4

8.67

11.5

1.74

1.28

11.83

27.79

2022

5

8.38

13

2.47

1.37

11.96

27.37

2022

6

11.1

13

2.41

1.38

12.29

27.61

2022

7

13

14

2.76

1.42

12.1

27.61

2022

8

15

14

3.83

2.93

12.23

28.3

2022

9

0

15.5

5.68

4.08

12.23

28.06

2022

10

0

15.5

6.49

3.77

12.23

28.06

2022

11

12.25

16.5

6.5

3.93

13.17

28.14

2022

12

12

16.5

4.35

4.13

13.85

29.13

2021

1

4.4

11.5

0.52

1.86

11.25

28.3

2021

2

11.43

11.5

1.49

1.79

11.21

28.54

2021

3

10.1

11.5

2

1.86

11.13

28.74

2021

4

30

11.5

2

1.86

11.24

28.64

2021

5

15.23

11.5

2.5

1.83

11.29

28.39

2021

6

16.57

11.5

2.5

1.81

11.67

29.05

2021

7

12.38

11.5

2.5

1.82

11.57

27.99

2021

8

13.45

11.5

2.5

1.82

11.62

28

2021

9

13.21

11.5

2.5

1.28

11.73

27.1

2021

10

13.33

11.5

2.5

1.28

11.61

27.1

2021

11

11.53

11.5

2.5

1.83

11.8

27.26

2021

12

0

11.5

2.49

1.25

11.68

27.58

2020

1

5.74

13.5

3.45

3.89

14.97

30.77

2020

2

8.91

13.5

3

3.89

15.04

30.63

2020

3

10.29

13.5

2.39

3.89

14.71

30.48

2020

4

7.33

13.5

1.91

3.69

14.92

30.73

2020

5

4.35

12.5

2.47

3.83

14.73

30.69

2020

6

5.75

12.5

1.94

3.78

15.65

30.57

2020

7

6.25

12.5

1.3

3.78

12.1

28.42

2020

8

7.38

12.5

1.17

3.78

11.76

29.51

2020

9

2

11.5

1.1

2.41

11.55

28.45

2020

10

0

11.5

0.86

1.87

11.31

28.36

2020

11

0

11.5

0.03

1.84

11.6

28.85

2020

12

1.25

11.5

0.03

2.04

11.35

28.31

2019

1

15

14

10.98

4.07

16.01

30.48

2019

2

16.45

14

10.91

4.07

16.08

30.56

2019

3

11.5

13.5

10.42

3.97

14.92

30.83

2019

4

13.98

13.5

10.24

3.91

18.23

30.89

2019

5

5.14

13.5

10

3.9

15.33

31.07

2019

6

8.38

13.5

9.93

3.93

15.8

31.04

2019

7

6.52

13.5

9.92

3.93

15.46

31.07

2019

8

8

13.5

10.89

3.93

15.4

31.04

2019

9

11.61

13.5

11.1

3.2

15.15

31.43

2019

10

6.37

13.5

10.03

3.93

15.07

30.56

2019

11

0

13.5

6.73

3.31

14.91

29.4

2018

1

15.58

14

12.27

4.07

17.5

31.39

2018

2

26.19

14

11.88

4.07

17.53

31.4

2018

3

15.16

14

11.84

4.07

17.35

31.55

2018

4

3.1

14

11.43

4.07

17.24

31.56

2018

5

25.43

14

10

4.07

17.08

31.29

2018

6

5

14

10.11

4.07

16.78

31.17

2018

7

2.86

14

10

4.07

16.83

31.09

2018

8

2.45

14

10.64

4.07

16.65

30.93

2018

9

4.57

14

11

4.07

16.59

30.77

2018

10

14.18

14

10.94

4.07

16.53

30.67

2018

11

7.17

14

10.91

4.07

16.64

30.8

2018

12

22.68

14

0

4.07

16.17

30.52

2017

1

8.15

14

13.95

4.22

16.91

28.88

2017

2

27.46

14

13.75

4.22

17.13

29.26

2017

3

13.11

14

13.6

4.23

17.43

30.18

2017

4

64.58

14

13.58

4.24

17.44

30.31

2017

5

21.29

14

13.5

4.08

17.58

30.75

2017

6

13.46

14

13.5

4.08

17.59

30.94

2017

7

12.28

14

13.46

4.08

17.65

30.94

2017

8

22.63

14

13.35

4.08

17.69

31.2

2017

9

20.44

14

13.2

4.08

17.88

31.39

2017

10

43.78

14

13.18

4.08

17.86

31.39

2017

11

18.78

14

13.01

4.08

17.77

30.95

2017

12

9.49

14

0

4.08

17.71

30.99

2016

1

2.04

11

4.12

3.29

16.54

26.77

2016

2

2.67

11

4.91

3.29

16.72

26.73

2016

3

4.32

12

5.53

3.26

16.82

26.93

2016

4

3.75

12

7.27

3.54

16.77

26.88

2016

5

7.67

12

8.04

3.57

16.13

26.73

2016

6

35.26

12

8.32

3.61

16.78

26.93

2016

7

31.51

14

12.34

3.89

17.14

27.06

2016

8

24.25

14

14.93

3.93

17.18

27.21

2016

9

14.5

14

14

4.05

17.09

27.49

2016

10

36.42

14

13.96

4.08

17.1

27.69

2016

11

15.21

14

13.99

4.28

17.06

28.53

2016

12

10.39

14

13.97

4.18

17.09

28.55

2015

1

10.21

13

11.2

3.48

16.86

25.97

2015

2

23.5

13

10.88

3.47

16.77

26.33

2015

3

12.59

13

10.77

3.76

16.9

26.61

2015

4

24.24

13

10.23

3.6

15.95

26.41

2015

5

10.43

13

10.03

3.6

16.08

26.43

2015

6

10.85

13

9.95

3.6

17.24

26.84

2015

7

7.79

13

10

3.63

17.3

27.03

2015

8

33.26

13

10

3.63

17.29

27.01

2015

9

8.12

13

10.36

3.72

17.02

26.99

2015

10

3.22

13

9.11

3.71

16.84

27.01

2015

11

0.84

11

5.62

3.47

16.98

27.02

2015

12

0.77

11

4.57

3.33

16.96

26.84

2014

1

10

12

10.81

3.27

16.95

25.52

2014

2

10.5

12

11.82

3.26

16.93

25.83

2014

3

10.5

12

11.92

3.38

16.69

25.8

2014

4

10.5

12

11.26

3.42

16.7

25.63

2014

5

10.63

12

10.13

3.41

16.5

25.76

2014

6

10.5

12

9.98

3.42

16.5

26.07

2014

7

10.5

12

9.88

3.41

16.44

26.07

2014

8

11.91

12

9.95

3.24

16.6

25.07

2014

9

10.73

12

9.75

3.43

16.44

25.77

2014

10

10.98

12

9.83

3.43

16.48

25.75

2014

11

8.98

13

9.82

3.43

16.47

25.74

2014

12

24.3

13

10.8

3.46

15.88

25.91
Source: CBN Statistics Bulletin, 2024
Table 6. Working Capital of Selected Quoted Banks.

YEAR

FIRST BANK

GTB

UBA

ZENITH

ACCESS BANK

2014

11,258,118

5,053,387

46,293,166

9,034,780

3,697,221

2015

31,066,966

12,174,536

72,767,868

6,256,364

12,164,132

2016

78,928,707

19,733,974

70,756,000

8,120,000

17,807,000

2017

17,764,318

25,285,350

252,003,98

9,605,000

40,216,000

2018

62,470,986

38,661,271

255,944,97

7,772,000

30,579,000

2019

27,606,200

25,505,000

273,074,59

10,048,000

80,321,000

2020

55,784,079

82,271,000

368,282,47

30,072,000

100,432,895

2021

132,196,061

117,291,00

210,300,28

25,840,000

109,987,000

2022

228,322,12

207,834,00

228,609,55

20,722,000

142,698,000

2023

211,982,604

173,500,86

288,761,27

21,104,000

90,435,964
Source: CBN Statistics Bulletin, 2024
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    Okoh, J. I., Areghan, I., Felicia, O., Benjamin, E., Folasade, A., et al. (2025). Impact of Money Market on the Liquidity of Some Selected Quoted Banks in Nigeria. Journal of Finance and Accounting, 13(1), 14-28. https://doi.org/10.11648/j.jfa.20251301.12

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    Okoh, J. I.; Areghan, I.; Felicia, O.; Benjamin, E.; Folasade, A., et al. Impact of Money Market on the Liquidity of Some Selected Quoted Banks in Nigeria. J. Finance Account. 2025, 13(1), 14-28. doi: 10.11648/j.jfa.20251301.12

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    Okoh JI, Areghan I, Felicia O, Benjamin E, Folasade A, et al. Impact of Money Market on the Liquidity of Some Selected Quoted Banks in Nigeria. J Finance Account. 2025;13(1):14-28. doi: 10.11648/j.jfa.20251301.12

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  • @article{10.11648/j.jfa.20251301.12,
  author = {Jude Idemudia Okoh and Isibor Areghan and Olokoyo Felicia and Ehikioya Benjamin and Adegboye Folasade and Adesina Tolulope and Taiwo Omoyin},
  title = {Impact of Money Market on the Liquidity of Some Selected Quoted Banks in Nigeria},
  journal = {Journal of Finance and Accounting},
  volume = {13},
  number = {1},
  pages = {14-28},
  doi = {10.11648/j.jfa.20251301.12},
  url = {https://doi.org/10.11648/j.jfa.20251301.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20251301.12},
  abstract = {The issue of bank failure due to low level of liquidity has been an age-long challenge bedeviling the Nigerian banking sector. Hence, this study examined the linkage between money market and the liquidity of some selected quoted banks in Nigeria. Specifically, the study assessed the impact of deposit money banks’ working capital on savings deposits in Nigeria, and it also investigated how the interbank call rate influences monetary policy rate in Nigeria. The research used secondary data from 2014 till 2023 of five (5) selected banks including First Bank PLC, Guaranteed Trust Bank, Zenith Bank, United Bank for Africa PLC, and Access Bank PLC for its analyses. Findings showed that, first, there was a significant and positive relationship between savings deposit rates and working capital, and secondly, monetary policy rate does not have a statistically significant impact on the interbank call rate. The study thus recommended that as savings deposit rates significantly influence working capital, policymakers should focus on mechanisms that stabilize these rates to ensure consistent liquidity conditions. The study further recommended that understanding the differential impact of various financial indicators on bank liquidity can help policymakers design more targeted and effective monetary policies. For instance, if savings deposit rates significantly influence working capital, policymakers should focus on mechanisms that stabilize these rates to ensure consistent liquidity conditions.},
 year = {2025}
}

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  • TY  - JOUR
T1  - Impact of Money Market on the Liquidity of Some Selected Quoted Banks in Nigeria
AU  - Jude Idemudia Okoh
AU  - Isibor Areghan
AU  - Olokoyo Felicia
AU  - Ehikioya Benjamin
AU  - Adegboye Folasade
AU  - Adesina Tolulope
AU  - Taiwo Omoyin
Y1  - 2025/02/10
PY  - 2025
N1  - https://doi.org/10.11648/j.jfa.20251301.12
DO  - 10.11648/j.jfa.20251301.12
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 14
EP  - 28
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20251301.12
AB  - The issue of bank failure due to low level of liquidity has been an age-long challenge bedeviling the Nigerian banking sector. Hence, this study examined the linkage between money market and the liquidity of some selected quoted banks in Nigeria. Specifically, the study assessed the impact of deposit money banks’ working capital on savings deposits in Nigeria, and it also investigated how the interbank call rate influences monetary policy rate in Nigeria. The research used secondary data from 2014 till 2023 of five (5) selected banks including First Bank PLC, Guaranteed Trust Bank, Zenith Bank, United Bank for Africa PLC, and Access Bank PLC for its analyses. Findings showed that, first, there was a significant and positive relationship between savings deposit rates and working capital, and secondly, monetary policy rate does not have a statistically significant impact on the interbank call rate. The study thus recommended that as savings deposit rates significantly influence working capital, policymakers should focus on mechanisms that stabilize these rates to ensure consistent liquidity conditions. The study further recommended that understanding the differential impact of various financial indicators on bank liquidity can help policymakers design more targeted and effective monetary policies. For instance, if savings deposit rates significantly influence working capital, policymakers should focus on mechanisms that stabilize these rates to ensure consistent liquidity conditions.
VL  - 13
IS  - 1
ER  -

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Author Information

  • Jude Idemudia Okoh

    Department of Public Health, Texilla American University, Georgetown, Guyana

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  • Isibor Areghan

    Department of Accounting, Finance, and Taxation, Caleb University, Imota, Nigeria

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    http://orcid.org/0000-0002-4989-3458

  • Olokoyo Felicia

    Department of Finance, Covenant University, Ota, Nigeria

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  • Ehikioya Benjamin

    Department of Finance, Covenant University, Ota, Nigeria

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  • Adegboye Folasade

    Department of Finance, Covenant University, Ota, Nigeria

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  • Adesina Tolulope

    Department of Finance, Covenant University, Ota, Nigeria

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  • Taiwo Omoyin

    Department of Accounting, Finance, and Taxation, Caleb University, Imota, Nigeria

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  • Abstract
  • Keywords

  • Document Sections

    1. 1. Introduction
    2. 2. Literature Review
    3. 3. Theoretical Framework
    4. 4. Methodology
    5. 5. Discussion of Findings
    6. 6. Conclusion and Recommendations
    Show Full Outline
  • Abbreviations
  • Author Contributions
  • Conflicts of Interest
  • Appendix
  • References
  • Cite This Article
  • Author Information

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