Liquidity Adequacy and Financial Performance of Commercial Banks in South Sudan

Abstract

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 a 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 ROA from 0.58 in 2018 to 0.53 in 2019 and a further decline to 0.51 in the year 2020. If nothing is done to improve South Sudan's commercial banks' financial performance, then the contribution of the banks to the country’s welfare will be watered down. The primary aim of this study was to determine the effect of liquidity adequacy and the financial performance of commercial banks in South Sudan. An explanatory research design was used in the study. The target populace was commercial banks in South Sudan. 29 commercial banks 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 were conducted. The inferential statistics used were correlation and regression. The outcomes further showed that the mean of liquidity adequacy from 2017 to 2021 for the commercial banks in South Sudan was 3.178, with the least liquidity adequacy being -0.068 and the most being 64.297. Trend outcomes were clear that liquidity adequacy was increasing amongst South Sudan commercial banks. Regression outcomes were clear that operational adequacy was positive and significantly impacted by the performance. The study notes that though liquid assets attract some returns to commercial banks, too much of it depletes the profitability level of banks. Because highly liquid assets are linked to lower returns than riskier assets, the study advises banks to avoid keeping excessive amounts of liquid assets. Therefore, owning too many liquid assets has a greater opportunity cost than benefit. Consequently, it is advised to have the ideal ratio of liquid assets to total assets. Furthermore, during times of weak economic conditions, the report advises banks to keep a greater proportion of liquid assets. Therefore, it is advised that bank management provide liquidity management with the necessary consideration.