ABSTRACT
This research work is aimed at identifying the impact of liquidity problems on
the Nigerian banking sector with regards to their profit and previous made by
the Government and the Apex Authority in finding the solution the problem.
In carrying out his study, secondary Data was used extensively. This
project work is divided into five chapters:
In chapter one, we have: Introduction, Background of the study, statement
of problem, purpose / objectives of the study, significance of the study, scope
and limitation and definition of terms.
In chapter two, we have literature review which is made up of
liquidity versus profitability in Nigerian Bank, Equilibrium balance between
profitability and liquidity ratio-which is further subdivided into; Signifance
of liquidity ratio, computation of liquidity ratio, cash ratio, liquidity risks,
liquidity preference, liquidity measurement, rational for liquidity ratio
measurement. Furthermore, there is factors affecting liquidity of
Nigerian banks, Federal Government steps towards solving the liquidity problems
in Nigerian banks and finally guidelines for the development of liquidity
management policies in Nigerian banks.
Chapter three deals with research design and methodology and also secondary
data, it sources, location and method of collection.
Chapter four, deals with the research findings.
Chapter five deals with recommendation and conclusions.
Lastly, there is
provision of bibliography.
TABLE OF CONTENTS
CHAPTER
ONE
1.0
Introduction
1.1
Background of the
study
1.2
Statement of
problem
1.3
Purpose of
study
1.4
Objective of
study
1.5
Research
Questions
1.6
Significance of
study
1.7
Scope and limitation of
study
1.8
Definition of
terms
CHAPTER TWO
2.0
Preview of Related
Literature
2.1
Liquidity versus profitability in Nigerian Banking
2.2 Equilibrium
balance between profitability
and liquidity.
2.3
Liquidity Ratio
2.3.1 Significance
of liquidity
ratio
2.3.2 Computation
of liquidity
ratio
2.3.3 Cash
ratio
2.3.4 liquidity
Risks
2.3.5 Liquidity
Preference
2.3.6 Liquidity
Measurement
2.3.7 Rationale
for liquidity ratio measurement
2.3.7 Rationale for liquidity
ratio
measurement
2.4
Factors affecting liquidity of Nigerian
banks
2.4 Federal
government steps towards solving
the liquidity
problems in Nigerian
banks
2.5 Guidelines
for the development of liquidity
Management policies in Nigerian
banks.
CHAPTER THREE
3.0 Research
Design and
Methodology
3.1
Secondary
Data
3.2
Source /location of secondary
data
3.3
Methods of Data
collection
CHAPTER FOUR
4.0
Findings
CHAPTER
FIVE
5.0
Recommendations
5.1
Conclusion
BIBLIOGRAPHY
CHAPTER ONE
INTRODUCTION:
Liquidity is crucial to
the on-going viability of any bank as liquidity can have dramatic and rapid
effects on even well capitalized banks.
When a crisis develops
in a bank as a result of other problems such as deterioration in asset quality,
the time available to the bank to address the problem will be determined by the
liquidity therefore, the measurement and management of liquidity are amongst
the most activities of banks.
1.4 BACKGROUND
OF STUDY.
The term liquidity means the ease with which an
asset
can be turned to cash
with certainty Orjih John (1996:152).
Liquidity in banks can be defined as the capacity of the bank to meet promptly
its current obligations that is its customers demand.
A bank is considered to be liquid when it has sufficient cash and other short
term financial instruments like treasure bill, treasury certificate and call
money in its portfolio together with the ability to raise funds quickly from
other sources to enable it meet its payment obligation and other financial
commitments in a timely.
How much liquidity to hold and in what form constantly disturbs bank management.
Banks are also required to comply with the cash reserve requirements (CRR) set
by the Central Bank of Nigeria (CBN).
During periods of expanding economic activities banks are frequently faced with
attractive loan situations, which can only be met if banks maintain adequate
liquidity.
In Nigeria, Banking activities are registered strictly by the banking act of
1969 was amended under the control of the central bank of Nigeria. As a
result of these regulations the banks required to hold specific assets equal to
certain other liability in liquid form. This is known as the cash reserve
requirement (CRR), liquidity ratio and stabilization securities issued by the
central bank.
STATEMENT OF PROBLEM.
The most profitable activity of a commercial banks is the lending of money by
loan or overdraft but every time a bank increases its advances to customers it
increases at the same time the amount that are likely to be withdrawn in
cash. Most borrowers simply wish to be able to draw cheques up to the
amount of their overdraft but some of them may want cash and in general a
certain proportion of loans will be taken in cash. This banker is torn
between two conflicting motives: On the one hand he would like to expand
his loans in order to make more profit and on the other hand, he is anxious to
hold sufficient cash so that he can at all times fulfill his obligations to pay
cash on demand J.L Hanson (1970:37).
PURPOSE OF THE STUDY.
The impact of liquidity problem:- This is the purpose of this study to
look at problems encountered by bank managers responsible for liquidity
management.
It will also focus on guidelines set by the CBN and other regulatory body for
the development of liquidity management in Nigeria banks.
Finally, the impact of liquidity problems will be looked at on how it affects
profitability, loans and advances to customers of commercial banks and the
Nigerian economy.
1.4 OBJECTIVES
OF THE STUDY.
The objective of this study on the impact of
liquidity problem is to find out.
1. If the
CBN has enough policies or guidelines put in place to help the banks fight this
problem.
2. To
find our banks for the correction of this problem.
3. The
overall impact of liquidity problems on loans and advances to customers of the
commercial banks.
4. To
find out the liquidity problems in relation to customers deposit.
5. The
profitability of commercial banks in Nigeria.
1.5
RESEARCH QUESITIONS.
1. What is
the impact of liquidity problems in the Nigerian banking industry?
By this we main how the effect of excess cash holding by banks in their vault
affect their progress and equally how the non-holding of cash affect their
transportation too. This effect could be negative in that making banks to
give out loans and banks.
2. How
important is liquidity management?
Liquidity management is very essential in that
liquidity transcends the individual bank, as a liquidity short fall in a single
institution can have system-wide repercussions. Consequently, the
analysis of liquidity requires bank managements to measure, not only liquidity
positions of their banks, on an ongoing basis, like also to examine how finding
requirements are likely to evolve under crisis
scenarios.
3. WHAT IS THE RELATIONSHIP BETWEEN
LIQUIDITY AND PROFITABILITY IN THE NIGERIAN BANKING INDUSTRY?
Both are interwoven in
a particularly way in that in providing for liquidity one has to also check out
ways of being profitable.
Liquidity is maintained
by banks for the primary purpose of meeting depositors demand which will help
this banks to have a good standing and reputation with the public. On the
other hand banks are set up to make profit and their profitability portion is
an index of measuring the performance of the bank. Which will also help
them to meet up with their own financial obligations. Orjih John
(1996:152-154).
SIGNIFICANCE OF
THE STUDY.
The significance of this research work is aimed at getting relevant information
and solutions to liquidity problems facing the banking sector in Nigeria.
The researcher hopes it will be of immense benefit to the following
sectors.
i. The
banking sector in Nigeria especially bank managers involved in liquidity
management.
ii. The
government sector.
iii. The
monetary and fiscal policy department of the central bank of Nigeria.
iv. Finally
for countries facing similar problems.
1.8 DEFINITION
OF TERMS
LIQUIDITY:- This
is the ability of a bank to meet promptly, its current obligations. This
simply means the capacity of the bank to meet its customers demand as and when
due liquidity problem.
In this case a bank may
be suffering from shortage of cash in its vault to meet its current obligations
liquidity ratio:
It is the cash
requirement held by banks as directed by CBN. It is the ratio above which
banks may not raise its loans and advances relative to its liquid assets.
This is cash deposited
by the customer to the bank, which can be withdrawn at anytime.
LOANS AND ADVANCES:-
These are by far the largest assets of the commercial banks. The lending
system of the commercial banks can be in the form of loans and overdraft
facilities. This is one of the major ways profit is made.
CASH:
This is the amount of notes and coins held in the strong room of all the head
offices of banks and in other branches to meet customer’s demands for cash
withdrawals. Cash reserve does not yield income. It is the
most liquid of all the assets.
CALL MONEY:
Money at all is the shortest maturity instrument and it is the next liquid item
after cash. It is an arrangement whereby banks borrow money from one
another on overnight basis.
TREASURY BILL:
These are short-term instruments issued by the central bank of Nigeria to raise
finance for the federal government, its maturity is usually for 91 days.
TREASURY CERTIFICATE:-
These are short-term instruments issued by the government with maturity period
of one to two years.
MONETARY POLICY:
Defined by the CBN as the combination of measure designed to regulate the
value, supply of money in an economy in consonance with the expected level of
economics activity.
FISCAL POLICY:
Fiscal involves the use of government income and expenditure instruments to
regulate the economy.
CASH RESERVE
REQUIREMENTS;
This is the proportion of banks total deposits liabilities (Demand, Savings and
Time Deposit), Certificate of deposit, promissory notes and other items held in
cash balance with CBN.
Department | Banking and Finance |
Project ID Code | BFN0085 |
Chapters | 5 Chapters |
No of Pages | 52 pages |
Reference | YES |
Format | Microsoft Word |
Price | ₦4000, $15 |
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Contact Us On | +2347043069458 |