THE SOURCE AND APPLICATION OF FUNDS TO A COMMERCIAL BANKING SECTION (A CASE STUDY OF ACCESS BANK PLC ENUGU BRANCH)
ABSTRACT
This researcher work
sought to evaluate the sourcing and application of funds on Commercial Banks in
Nigeria using Access Bank Plc Ogui Road, Branch Enugu as a case study.
The importance of prudent sourcing and application of funds in every business
enterprise particularly the banking industry cannot be overemphasized. It is in
this regard that the researcher went about his quest. The researcher
employed the personal interview. Observation and documentary instrumentations
in data collections. From the information and data sources, via the bank
financial statements and records, the researcher was able to find out that
though, the bank maintaining a sound sourced and application of fund policy,
they still need to do more in view of the fact that sourcing and application of
funds is a going process which needs to be reviewed and restructured from time
to time to meet the yearning for prudent financial management and growth.
The researcher therefore is of the view that the bank management should evolved
better deposit, lending and other like financial services policies such that
the bank is able to provide the desired services to the public and other
economic units and also ensure prudency, particularly in its lending sourcing
and application of fund generally.
TABLE OF CONTENTS
CHAPER 1: INTRODUCTION
Background of the Study
Historical Background of
the Study
Purpose of the Study
Aims and objective of
the
Study
Significant of the
Study
CHAPTER 2: REVIEW OF
RELATED LITERATURE
Introduction
Share
Capital
Ordinary
shares
Loan stock and
Debentures
CHAPTER 3: RESEARCH
DESIGN AND METHODOLOGY
Introduction
Description of
Research
Description of
Population
Sample of the
Study
Description of
Investigation
Technique
Data Analytical
Procedure
CHAPTER 4: PRESENTATION
OF DATA
Introduction
Analysis of
Data
Interpretation of
Data
Testing and Prove of
Hypothesis and
Findings
CHAPTER 5: SUMMARY,
CONCLUSION AND RECOMMENDATION
Summary
Conclusion
Recommendation
References
Appendix
CHAPTER 1: INTRODUCTION
Background of the Study
The sources of funds in
an organization denotes the various ways in which cash inflows to operate the
business is realized. The followings are some of the ways cash came into
a business
Through an increase in liability
Through an increase in net worth
Through a decrease in asset
Through a net profit after tax
Through sales of shares, preferred or common
stock
It also snows ways how
an extra money comes into the organization through consultancy services,
borrowing in form of loan. Summarize sources of funds to any organization
devotes all the ways money comes into an organization for its operational
utilization and for achieving its stated goals and objectives. However
for an organization to thrive well it must also spent money to achieve it
stated goals and objectives, thus application of funds refer to the various
ways the sourced funds are put to usage in order to increase the value of fixed
or working capital. The followings are the various ways funds can b e put
to use;
Where there is an increase in assets
Where there is a decrease in liability
Where there is a payment of cash dividend
When shares are purchased
Where there is a decrease in Net worth.
Having explained the
meaning of sources and application of funds in a financial institution, it will
be good to see what accounting bodies says about the same subject matter.
The Accounting Standard Steering Committee (ASSC) in their Standard Accounting
Practice No. 10 (ASSAP 10) requires that all firms with an annual turn over of
gross income of N25,000 or more should produce funds statement. In its
explanatory notes it describes the statement and principles underlying its
preparation as follows.
That the profit and loss
account and the balance sheet of a company should show the amount of profit
during the year, and the disposition of the company’s resources at the
beginning and the end of that year. But for a more understanding of the
company’s affairs, its necessary to identify the movement of assets,
liabilities and capital which have taken place during the year and the effect
of such movements on the net liquid funds.
The above statement is
not specifically stated in the balance sheet or profit and loss accounts but
rather can be made available in form of statement of sources and application of
funds (fund statement).
Though the fund
statement is in no way a replacement for the profit and loss account or the
balance sheet, but yet it contain in summary form the information contain in
the two above. The objective of such statement is to show the manner in
which the operations of a company are financed and the format selected should
be designed to achieve this objective.
A fund statement should be
able to show the resources from which funds flow into the company, and the way
in which they are put to use. It should clearly show the funds generated
or absorbed by the operation of the business and the manner in which any
resulting surplus of liquid asets have been applied or any deficiency of such
assets has been financed where by distinguishing the long term from the short
term.
The statement should
also distinguish the use of funds for the purchase of fixed assets from funds
used in increasing the company. The fund statement will provide a link
between the balance sheet at the beginning of the period, the profit and loss
for the period, and the balance sheet at the end of the period. A minimum
netting off should take place as this will tends to mark the significance of
individual important figures for example the sale of one building and the
purchase of another should generally be kept separate in a funds statement.
The figures from which a
fund statement is constructed should generally be identifiable in the net
profit and loss account, balance sheet and all related accounts or notes.
Furthermore the fund statement should show:
The profit before tax or
loss for the accounting period together with adjustment for items, which did
not use funds or provide funds e.g. depreciation.
The individual paid and
those proposed to be paid.
Acquisition and disposal
of fixed and other non-current assets.
Finds raised by
increasing or expending in repaying or redeeming medium or long term loans or
issued capital of the company.
Increase an decrease in
working capital sub-divided into its components and movement in net liquid
funds. Net liquid cash means cash at hand and at bank, less bank over
drafts repayable within one year.
Increase in liabilities
and decrease in assets in liabilities is regarded as a source of funds, while
decrease in liabilities and increase in assets are regarded as application.
Some of the functions of commercial banks includes the following.
i)
Acceptance of deposits
On current account:- In this case the
money is with drawable by cheque on demand. There is no interest payable
top the customers on this account. The Access Bank current is a flexible
account that offers the customer a lot of new modern banking services either in
person, online, or by phone. Access Bank operates the following types of
current accounts.
Individuals
Joint account
Corporate account
Non governmental organizations
Sole proprietorship/enterprise account
Partnership account
Trustees/executers/administration account
Unincorporated societies, club and association
account
ii)
Savings Deposit Account:-
This is also an interest yielding account, where customers are only allowed to
withdraw money by using a pas book and also allowed to deposit using the same
pass book or the bank teller.
The Access Bank Savings Account attract a
competitive interest rte which is paid monthly on the full closing balance.
The features of the account are as follows
Zero cot
Quarterly statement of account transactions
No invoice for withdrawals
Withdrawal and deposits from any of their
branch.
Statement of transaction on request.
It also offers electronic banking, which
includes Internet Banking, Telephone Banking, and Mobile Banking to enable
customers access to their account from just about anywhere.
iii)
Domiciling Account:- These are
accounts maintained in currencies other than the Nigerian naira, the accounts
are essential to the business operations of entrepreneurs due to the sizing
global business challenges and opportunities.
Access bank domiciliary
accounts carryout the following transactions:
Telegraphic fund
transfer to Third party Own
Withdrawal of foreign
currency cash and travelers cheques.
Deposit of foreign
currency cash and travel less cheques
Choosing of foreign currency cheques and foreign
currency draft issuance
Lotlers of credit
The Access Bank Domiciliary Account supports the
following currencies
US Dollars
British Pounds
Starling Euro
The minimum opening balance for the Access Bank
Domiciliary Account is five hundred US Dollars (US$500) or its equivalent in
Euro es Pounds Starling.
iv)
Long Term Financing
Access Bank supports their customers in the
attainment of their long term business, by providing of a broad array of
financing options to suit their particular requirements. This is
particularly handled through the followings:
Term loans
Project finance
Syndications
Note issuance facility
v)
Products and Services
At Access Bank, there is an extensive range of
products and services tailored provide a value added banking solutions ranging
from day – day transactional banking and complex financing structures, to help
customers achieve all the products and services they need in obtaining
liquidity, strong finding reduced capital costs and stronger balance sheets.
Other services includes:
Cash management
This is carried out through;
Access Bank collection services
Access Bank Payment Solution
Access bank in liquidity management solutions
Access bank in correspondent banking services
Access bank information solutions
Electronic banking
Access Bank provides the customers with an easy
and component ways to carry out their banking at the comfort of their homes and
offices
vi)
Working Capital Financing
At Access bank customers are offered with a wide
rang of working capital financing to enable them meet up with their short-term
financing needs. The above services is obtains able through the followings:-
Drawing against undeared bank cheques
Overdraft facilities
Revolving credit facilities
Invoice discounting
Distributor credit plans
Trade finance
And leases
Historical Background of
Access Bank
Access bank was
incorporated on 8th February, 1989 as a privately owned
commercial bank. It obtained a banking licence in December 1988 and
commenced business on 11th May, 1989. The bank was
converted to a public limited liability company on 24th March
1998 and was listed on the Nigerian Stock Exchange on 18th November,
1998. In December 2001, Access Bank was successfully recapitalized and
the bank’s board of directors appointed the current executive management team
with a clear mandate to reposition the bank as one of Nigeria’s top five (5)
banks by the year 2007.
Since the new team lead
by Mr. Aigboje Aig-Imoukhede (MD/CEO) and Mr. Herbert Wigwe (Deputy MD)
assumed office, the bank has witnessed a movemental change in all facets
of its operations.
The new Access Bank is
well positioned to become Nigeria’s leading provider of financial services, by
providing its customers with banking services and solutions that exceeds their
expectations and helping them manage their business more effectively.
I)
BUSINESS
Access bank is engaged in the provision of
universal services to corporate, commercial and individual customers.
Within the first year of its five year transformation program, the bank
recorded over N1 billion in pre-tax profits for the 2002/2003 financial year
exceeding the total cremelative profits made by the bank since inception.
It is for this reasons amongst others that Access bank shares were the most
actively traded stocks on the Nigerian stock exchange in year 2003 and the bank
was nominated as “Bank of the year 2003” by This Day News Paper.
The bank maintained this outstanding performance
in its 2003/2004 financial years and was ranked 5th in terms of
total assets from a lowly 65th in 2001. in recognition of
its strong operating performance, the bank was conferred with an “A” rating by
the Global Credit Rating Company (GCR).
II)
Technology
Success in the highly competitive financial
services sector often depends on the speed with which an organization reacts to
opportunities and market changes as at and when due.
In October 1999, Access Bank became the first
Nigerian bank to deploy the FLEXCUBE Banking Application to Support its banking
operations. FLEXCUBE is an end-to-end, integrated product suite for
universal banking. Flexcube has evolved over the years in response to
changes in global financial world. The most recent version is Flexcube
6.2 “a state of the art universal banking solution”.
Consistent with the
bank’s desire to bring world class banking to customers and after an extensive
due diligence review by KPMG international, the bank took a bold decision to
upgrade its existing Flexcube application to the latest version 6.2, a browser
enabled version. This ground-breaking upgrade positions access bank as
the first bank in Africa to implement the latest version of Flexcube and the
second most advanced Flexcube user in the world after one of India’s biggest
banks – Syndicate Bank. In recognition this the bank recently received
the Hewlett Packard for the best implementation of a core banking
infrastructure in West Africa.
Iii)
Value Added Services
The bank defines value as the ability of its
products and services to deliver cost savings to its customer’s board in the
course of the year approved a charter on the bank’s internal audit. The
charter isolates and insulates the Internal Audit Department from the control
or influence of the Executive Management and also frees staffs within the
Internal Audit unit from operational and management responsibilities that could
impair their ability to make independent reviews of all aspects of the banks
operation there by making the department independent.
V)
Financial Summary
The financial summary presented below is
extracted from the reporting accountants report on the profit forecast of
access bank for the years ending 31st March 2005, 2006 and
2007, assuming the offer is fully subscribed, and the reporting accounting’s
report on the audited financial statement of Access Bank for each of the five
year ended 31st March 2004.
Profit Before Tax (PBT)
The bank’s PBT for the
year ended 31st March 2004 was N952 million, representing a 17%
increase over the previous year’s PBT of N811 million. The bank’s PBT is
projected at N2.02 billion, N4.89 billion, and N7.85 billion for the years
ending 31st March 2005, 2006 and 2007 respectively.
Profit After Tax (PAT)
The bank’s PAT for the
year ended 31st March or increase their capacity to generate
more revenues. The bank has hosted several sector forums to enable
existing and prospective customers learn about best practices, share
experiences with pears, and freely interact with regulators and policy
makers. These interactions have had significant positive impact on customers
business.
The bank also
collaborated with Nigerian Maritime Authority to develop a functional framework
for implementation of the newly enacted sabotage legislation. Local
shipping companies, as beneficiaries of this legislation have confirmed that
the implementation framework completely addresses the operational and funding
issues the law intends to resolve.
At significant financial
cost to the bank, it engaged, a local software developing company to incubate
“cliuc”, which is a software application that allows customers to reconcile
their bank statements in seconds. The not only made this software
available to customers but its free of charge and the bank also bears the cost
of installation and training of their employees.
IV)
Corporate Governance
Access Bank has imbibed the highest standard of
corporate governance and best practices. In line with the bank’s quest to
maintain the highest standards and ensure the independence of the internal
audit, the 2005, 2006 and 2007 respectively is projected at N1.56 billion,
N3.76 billion and N6.05 billon respectively.
8 Profit before
Tax
Profit after
tax 8.0
(N’b)
(N’b)
6
6.0
4
4.0
2
Profit before Tax
Profit after
Tax
2.0
0
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|||
8 Profit
before
Tax
Profit after
tax 8.0
(N’b)
(N’b)
6
6.0
4
4.0
2
Profit before Tax
Profit after
Tax
2.0
0
0.0
2000
2001 2002
2003 2004
2005 2006 2007
E
=
Estimates based on Access Bank’s profit forecasts for the years
ending 31st March
2005, 2006 and 2007
TOTAL ASSETS
As at 31st March
2004, Access Bank’s total assets stood at 31.34 billion representing a 39%
growth over the previous years total assets of N22.58 billion.
VI) Shares
At present the
authorized share capital of the bank stood at N6 billion comprising 12 billion
ordinary shares of 50k each, while its issued and paid up share capital is N2
billion comprising of 4 billion ordinary shares of 50 kobo each.
The charges in the share
capital of the bank since the NSE listing are summarized below.
|
Year |
Authorized |
Issued & fully
paid (N) |
Consideration |
||
|
Income |
Cumulative |
Increase |
Cumulative |
||
|
1998 |
0 |
600,000,000 |
19,205,000 |
163,205,000 |
Cash |
|
1999 |
0 |
600,000,000 |
300,000,000 |
493,205,000 |
Cash |
|
2000 |
0 |
600,000,000 |
106,795,000 |
600,000,000 |
Cash |
|
2001 |
1,400,000,000 |
2,000,000,000 |
150,000,000 |
750,000,000 |
Bonus |
|
2001 |
0 |
2,000,000,000 |
600,000,000 |
1,350,000,000 |
Cash |
|
2003 |
0 |
2,000,000,000 |
150,000,000 |
1,500,000,000 |
Bonus |
|
2004 |
4,000,000,000 |
600,000,000 |
500,000,000 |
2,000,000,00 |
Bonus |
Shareholding structure
As at October 2004, the
4,000,000,000 ordinary shares of 50 kobo each in the issued ordinary share
capital of the bank were beneficially held as follows:
|
Shareholder |
Number of ordinary
share held |
Percentage |
|
SDS limited |
203,716,565 |
5.09 |
|
Access Bank staff
investment scheme |
404,713,472 |
10.12 |
|
United Alliance
Company Limited |
847,268,277 |
21.18 |
|
Others |
2,544,301,686 |
63.61 |
|
|
4,000,000,000.00 |
100.01 |
At the 15th annual
general meeting of the bank held on the 30th August 2004, the
shareholders of the bank empowered the directors of the bank to issue a maximum
of 3,000,000,000 ordinary shares of 50 kobo each to the general public, by way
of an offer for subscription. The board of directors subsequently resolved
that 3,000,000,000 ordinary shares be offered for subscription at N2.90 kobo
per share.
Purpose of the Offer
The bank expects to
receive not proceeds of N8.22 billion from this offer after deducting estimated
offer expenses of N480 million. These proceeds will finance the
bank’s strategic business development and expansion of its network of
branches. This will involve the establishment of the following thirty
branches. Abeokuta, Abuja, Kebbbi, Ilorin, Makurdi, Sokoto, Bauchi, Uyo,
Minna, Katsina, Yola, Owerri, Lagos (6), Port Harcourt, Abakaliki, Damaturu,
Yenagoa, Ado-Ekiti, Dutse, Gusau, Lafia, Jalingo, Lokoja, Umuahia and Kano.
Vii) Nationwide
Spread
Access Bank’s Head
Office is situated at Plot 1665 Oyin Jolaefemi Street, Victoria Island
Lagos. In addition, the bank operates from 30 business offices across
Nigeria. Details of the bank’s premises are provided below.