The Impact of Liquidity and Financial Structure Indicators on the Financial Performance of Libyan Commercial Banks

Abstract

 This study aims to analyze the impact of liquidity and financial structure indicators on the financial performance of Libyan commercial banks from 2011 to 2018. The study examined this relationship through analysing the Loan-to-Deposit Ratio, the operating cash flow ratio cash and cash-equivalent balances, and the debt-to-total-assets ratio, in order to determine their relationship with both return on assets (ROA) and return on equity (ROE).The study sample consisted of five Libyan commercial banks: Wahda Bank, Jumhouria Bank, Bank of Commerce & Development, National Commercial Bank, and Sahara Bank.

To achieve the study objectives, Panel Data analysis was employed, utilizing both the Fixed Effects Model and the Random Effects Model. The Hausman test was employed to determine the more appropriate model. EViews 13 software was used for this analysis. The results indicate a significant impact of the Loan-to-Deposit Ratio and the operating cash flow ratio on the financial performance of Libyan commercial banks. However, no significant effect was observed for working capital, measured by cash and cash-equivalent balances, nor by the debt -to-total assets ratio, on their financial performance. The study reached several recommendations, the most important of which is that Libyan commercial banks can enhance their operational efficiency through effective management of their liquid assets, thereby improving liquidity and strengthening their capacity to meet financial obligations.