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This article is based on empirical research on the relationship between liquidity and bank performance for South African banks for the period between 1998 and 2014. The study employed the Autoregressive Distributed Lag (ARDL)-bound testing approach and the Ordinary Least Squares (OLS) to examine the nexus between net interest margin and liquidity. Liquidity in this article is viewed in the context of the market liquidity risk and funding liquidity risk. The study observes that there is a negative significant deterministic relationship between net interest margin and funding liquidity risk. However, there is an insignificant co-integrating relationship between net interest margin and the two measures of liquidity. Based on this research it is recommended that further research should be conducted to investigate liquidity in the context of asset- liability mismatches. Financial institutions also should realise that liquidity is a short-run phenomenon that has to be analysed as such.
Godfrey Marozva (Thu,) studied this question.