Abstract

This study investigates the effect of liquidity risk management strategies on the financial performance of commercial banks in Cameroon. Effective liquidity risk management is essential for maintaining a bank’s stability and profitability. It involves ensuring that a bank has enough liquid assets to meet its short-term obligations while maintaining profitability. Failure to manage liquidity risks properly can result in financial distress, a loss of market confidence, and in extreme cases, the collapse of banks. This research aims to analyze how various liquidity management strategies impact the financial performance of commercial banks in Cameroon.

The study employs a mixed-method approach, using data from the financial statements of selected commercial banks in Cameroon and conducting interviews with banking professionals. It focuses on key liquidity risk management strategies, such as maintaining adequate cash reserves, liquidity gap management, and diversification of funding sources. Financial performance was measured using key indicators, including return on assets (ROA), return on equity (ROE), and net profit margins.

The findings reveal that banks with strong liquidity risk management strategies tend to perform better financially. Specifically, banks that maintain sufficient liquidity buffers and diversify their funding sources report higher profitability and better financial stability. Banks that closely monitor their liquidity gaps to ensure they do not face cash flow shortages during critical times also tend to perform better. Conversely, banks that struggle with liquidity management tend to experience lower returns, higher operational risks, and reduced investor confidence. The study also highlights the importance of regulatory frameworks in shaping liquidity strategies. Banks that adhere to regulatory liquidity requirements, such as the Basel III liquidity coverage ratio, are better able to manage liquidity shocks.

Despite the benefits of strong liquidity management, the study found that some banks in Cameroon face challenges balancing liquidity needs with profitability. Maintaining a high level of liquid assets can be costly and may limit growth opportunities. Additionally, some banks lack sophisticated tools for liquidity management, which increases their vulnerability to market fluctuations.

The study concludes that effective liquidity risk management is crucial for improving the financial performance of commercial banks in Cameroon. To enhance financial outcomes, banks should adopt comprehensive liquidity management strategies, invest in risk management tools, and ensure compliance with regulatory standards.

Keywords
Liquidity risk management, financial performance, commercial banks, Cameroon, return on assets, return on equity, profitability, regulatory compliance, liquidity buffers, funding sources.