An Evaluation of Liquidity Risk Management Among Banks: A Case Study of Barclays Bank Ghana And Standard Chatered Bank

Abstract

The effective handling of liquidity risk as pertains in the banking industry has in recent years attracted global attention. This is largely attributable to recent global developments in the financial sector. Liquidity creation is usually regarded the foremost function of the bank, as it guarantees the sustainability of any bank. It is also their source of vulnerability and a reason why they need fortification from liquidity crises. The licences of some indigenous banks in Ghana were recently revoked after they were unable to improve upon their capital adequacy and insolvency challenges. Against this background, this study sought to undertake an evaluation of two foreign owned banks in the country to determine their soundness in relation to liquidity risk management. The study adopted the quantitative method approach and collected primary data through a questionnaire. Data obtained from published statements of financial standing of the banks, covering 2013-2017 were also gathered for financial ratio analysis. Financial analysis and techniques including financial ratios were used to evaluate the past financial statements of the two banks for the period under consideration. The findings indicated that both banks had a high composition of corporate deposit (70%) as against retail deposits (30%) but had no issue with deposit concentration as the 20 largest depositors for each bank was less than 10% of total deposits. The study also found both banks, especially Standard Chartered to be exposed to liquidity risk in relation to their liquid assets to demand deposit ratios. The incidence of non-performing loans was also found to be a challenge to liquidity of the banks. The study concluded that both Banks had good liquidity positions and adequate liquidity management systems. It was recommended that each bank should balance its credit activities (loans) with the maintenance of adequate liquid assets.