Liquidity Risks and Financial Performance of Commercial Banks in South Sudan
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Date
2024-03
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Kenyatta University
Abstract
Banks play a dynamic role in preserving and promoting the growth of economic sectors,
making them crucial components of the economy. They shift resources' attention from areas
with surpluses to those with deficits. However, nations have encountered banking issues that
have necessitated significant banking system reforms. Commercial banks in South Sudan
have shown deteriorating financial performance in the period 2017 to 2021. This has been
shown by the substantial number of commercial banks making losses and with the profit making ones exhibiting fluctuating performance as well as reducing financial performance
levels. For example, only 25% of the commercial banks made profit in the year 2021 with
the majority making losses. Further, the sector has made losses for the last five years. For
example, Liberty Commercial Bank recorded a decline in return in assets from 0.58 in 2018
to 0.53 in 2019 and a further decline to 0.51 in the year 2020. The aim of this study primary
was to determine the effect of liquidity risks and the financial performance of commercial
banks in South Sudan. The precise purposes were to; ascertain how liquidity reserve, asset
quality, liquidity adequacy and operational efficiency impacted South Sudan's commercial
banks' financial performance. The study was informed by liquidity preference theory, shift
ability theory and commercial loan theory. A design for explanatory research was used in the
study. The target populace was commercial banks in South Sudan .There were 29
commercial banks that existed in South Sudan between 2017 and 2021. The study used
purposive sampling to sample 23 banks that were in operation between 2017 and 2021.
Secondary information was used in the study. For analysis, the obtained information was
cleaned and imported into STATA 17. Descriptive statistics and regression analysis was
conducted. The inferential statistics used were correlation and regression. The ratios for
financial performance and the percentages for the predictor factors served as the basis for the
analysis. The exams included model specification test, multicollinearity, heteroskedasticity,
normality as well as heteroskedasticity. Before beginning data collecting, the researcher
received work authorization from Kenyatta University and National Commission For
Science, Technology & Innovation (NACOSTI). The researcher provided informed consent
for all tests that were subjected. The researcher acted professionally, discretely, and honestly
to ensure that the information provided was only used for its intended purpose. The outcomes
showed that liquidity reserve and asset quality had a negative and unnoteworthy impression
on financial success. The outcomes also showed that operational efficiency and liquidity
adequacy was seen to have a positive and noteworthy impression on financial success. The
study further concluded that the financial performance of commercial banks is hampered by
high non-performing loans. Loan loss provisions, loan advances, and non-performing loans
were used to assess asset quality. Commercial banks that are efficient can deploy and utilize
their resources in a way that best suits the demands of their businesses. The study notes that
though liquid assets attract some returns to commercial banks, too much of it depletes the
profitability level of banks. The management of banks must establish guidelines and
practices that foster a high degree of operational effectiveness. Banks can increase
operational efficiency by investing in financial technologies. These findings suggest that
bank management needs to pay close attention to, monitor, and guarantee increased
operational efficiency. To safeguard investors' interests, the regulator should make sure that
operational efficiency regulations and prudential principles are followed. The study
recommends that banks ought to refrain from holding too many loans relative to their overall
assets, as this reduces liquidity and negatively impacts the bank's ability to operate.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option) of Kenyatta University, March 2024.
Supervisor
Anthony Mugetha Irungu