A liquidity ratio is a financial ratio that is used to evaluate a company's ability to pay its short-term debt obligations. The measure calculates whether a company's current, or liquid, assets can cover its current liabilities. It is the sum of a bank's specified liquid assets divided by its total current liabilities.
Investors and creditors want to see a company with liquidity ratios above 1.0 when analyzing it. A company with healthy liquidity ratios is much more likely to get credit.
The Central Bank of Nigeria (CBN) currently requires banks to maintain the following minimum liquidity ratios: Deposit Money Banks (DMBs) accounted for 30%, merchant banks accounted for 20%, and non-interest banks accounted for 10%.
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