ANALYSIS OF CASH DEPOSIT PATTERN IN COMMERCIAL BANKS A CASE STUDY OF FIDELITY BANK PLC AUCHI

CHAPTER ONE

1.0    INTRODUCTION

          A bank is a financial institution that accepts deposits from the public and creates credit (Western Cengage, 2009). Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

          Banking in its modern sense evolved in the 14th century in the prosperous cities of Renaissance Italy but in many ways was a continuation of ideas and concepts of credit and lending that had their roots in the ancient world (Goldthwaite, 2005). In the history of banking, a number of banking dynasties notably, the Medicis, the Fuggers, the Welsers, the Berenbergs and the Rothschilds have played a central role over many centuries. The oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest existing merchant bank is Berenberg Bank.

1.1    HISTORICAL BACKGROUND OF THE FIDELITY BANK

          Fidelity Bank, first known as the Bank of Fuquay, opened for business on August 10, 1909 in a one-room office in Fuquay Springs, North Carolina (now Fuquay-Varina). For the first six years a single associate, Eugene Howard, was responsible for helping the community with its banking needs. Mr. Howard knew all his customers by name and set a precedent of doing business the right way: with honesty, integrity and a passion for service. During the 1920’s, another bank in North Carolina was following a similar path as the Bank of Fuquay. Firmly rooted in the community, the Bank of Biscoe was devoted to growing small businesses and providing a stable financial presence.

          The Bank of Fuquay and the Bank of Biscoe remained strong during and after the Depression. Assets grew, and each bank began to open additional branches to serve neighboring towns. By 1970, the shareholders of the two banks voted to merge the institutions and renamed the corporation Fidelity Bank. Combining the resources of the two small banks allowed for automation of services, the increase of lending ability, and expansion into new communities.

          Fidelity Bank has remained strong through two World Wars, the Great Depression, the massive social changes of the twentieth century, and the local shifts from an agricultural to a technological economy. Since the beginning, the unique character of Fidelity Bank has been nurtured through conscious effort and leadership. Our foundation places a premium on trust that is based on the commitment to our customers, a century of solid banking service, and a tradition of sound financial principles. Today, Fidelity Bank serves 60 locations in 26 counties across North Carolina and Virginia and has approximately $1.9 billion in assets.

          In the world of finance, a cash deposit is defined as money that is injected into a checking, money market or savings account, either via money transfer, ATM machine or through a bank teller. In simple terms, a cash deposit is money placed in a financial institution for protective custody (Goldthwaite, 2005). This money can be made available for withdrawal after the transaction is completed and is the responsibility of the bank to make the funds available to the account holder.

          If a transaction is done via check, some banks may impose a minimum waiting period, but in a cash deposit, the funds are made available to the depositor almost immediately, after the transaction has been completed. Normally, financial institutions require the account holder to complete certain formalities before the transaction has been completed, like filling a deposit slip that contains information about the bank account including the account holders’ name, account number and cash amount to be deposited in the account. In banking, the verbs "deposit" and "withdrawal" mean a customer paying money into, and taking money out of, an account. From a legal and financial accounting standpoint, the noun "deposit" is used by the banking industry in financial statements to describe the liability owed by the bank to its depositor, and not the funds that the bank holds as a result of the deposit, which are shown as assets of the bank.

          Subject to restrictions imposed by the terms and conditions of the account, the account holder (customer) retains the right to have the deposited money repaid on demand. The terms and conditions may specify the methods by which a customer may move money into or out of the account, e.g., by cheque, internet banking, EFTPOS or other channels. For example, a depositor depositing $100 in cash into a checking account at a bank in the United States surrenders legal title to the $100 in cash, which becomes an asset of the bank. On the bank's books, the bank debits its cash account for the $100 in cash, and credits a "deposits" liability account for an equal amount.

1.2    STATEMENT OF THE PROBLEM

          Cash-deposits and withdrawals are the main determinant of banks financial status. In a highly competitive industry like the banking sector, this issue posses some serious challenges and responsibilities to baking sector which also the fidelity bank plc Auchi is a victim. What is their recorded cash-deposit level and level of financial base? Do these records not measure up to the standard that merited them their position in the financial or banking sector? Analysis made on the cash-deposits transactions are only information services, and as such must be conditioned by the process to which they are applied unless that may only lead to false sense in the industries. It is in the light of these questions that I wish to carry out this research.

1.3     AIM/OBJECTIVE OF THE STUDY

     i.        To examine the cash-deposits pattern of fidelity bank, which forms the basis for its growth.

    ii.        To determine the trend of its cash-deposits rate and use it to forecast future estimates.

   iii.        To deseasonalize the data on cash-deposits.

  iv.        To offer suggestions and remedies for improvement on banking.

1.5    RESEARCH QUESTIONS

     i.        How does cash deposit of banks affect the portfolio of credit by banks?

    ii.        What is the impact of cash deposit on profitability of commercial banks in Nigeria?

iii.        What are the effect of cash deposit exposures on growth and profitability of banks?

1.6    SIGNIFICANCE OF THE STUDY

          The significance of this great effort is to examine the rate of cash-deposits in the Fidelity Bank Plc, Auchi, it is very relevant to both management and staff of the company. It is believed that it will help management and staff to plan effectively for desirable change and improvement geared towards accessing and revealing the strength and weakness of the cash-deposits segment of fidelity Bank Plc, Auchi.

1.7    SCOPE OF STUDY

          This study is limited to the cash-deposits made at fidelity bank Plc, Auchi, Branch, Auchi.