The Effect of Liquidity Management on the Financial Sustainability of Financial Institutions in Rwanda
DOI:
https://doi.org/10.53819/81018102t2318Abstract
This study examined the effect of liquidity management on the financial sustainability of financial institutions in Rwanda using the case of Bank of Kigali and Banque Populaire du Rwanda. The trade-off theory, financial intermediation theory, cash flow theory and the Basel framework for bank liquidity form the theoretical foundations of this research. The researcher used correlation and case study designs with a quantitative approach. The sample size was 333 people who included top level, middle level, and entry level staffs of the 2 selected commercial banks. However, the survey yielded a response rate of 66.4%, with 221 individuals successfully completing the questionnaire. Purposive sampling and convenience sampling techniques were used to select this sample. Data was collected using the questionnaire and it was analyzed using descriptive and inferential analysis (correlation and regression analysis). Findings show that asset securitization has no statistically significant effect on the financial sustainability of selected commercial banks in Rwanda (β=.122, p>.05). However, inter-bank borrowing/lending has a statistically significant effect on financial sustainability of selected commercial banks in Rwanda (β=.565, p<.05). Similarly, loan maturity management has a statistically significant effect on financial sustainability of selected commercial banks in Rwanda (β=.297, p<.05). The study recommends that the banks refine capital allocation strategies, that regulatory authorities collaborate with industry stakeholders, that risk management departments focus on capital adequacy, and that the banks' leadership diversify external funding to ensure long-term financial sustainability. There is need to conduct the research on the entire banking sector to determine the extent to which liquidity management influences financial sustainability as a whole. It is hoped that the above study findings will stimulate the management to prioritize liquidity management as a key driver for sustaining their financial growth.
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