ABSTRACT
Liquidity
is one of the many problems which banks management constantly struggles with.
Although the problem has received much attention but should be emphasized here
that the problem has not fully been solved. The concept of liquidity is a very
important issue in the management of banks. This is so because banks live on
confidence and they can only remain in business only if their customers, the
regulatory banks and the public at large continue to have confidence in them. The
principle arm of the research work is to examine liquidity management of First
Bank of Nigeria plc vis-à-vis the problem and methods and ways to improve the
methods.
The primary concern of the project is
the Banking industry, it was found that banks always have problems of meeting
with the required standard of liquidity ratio set by CBN. This study yields
useful suggestions in the Banking industry.
CHAPTER ONE
1.0 Background of the Study
By liquidity
it’s means the ability to mobilize cash or convert an assets into cash with
minimum delay and minimum loss. Virtually all economic units including banks
needs liquidity (Isedu and Akhator 2000). Banks must maintain a substantial
part of their assets in cash or in assets that can be converted into cash
quickly.
How much
liquidity to hold in what form to hold it have been major areas of management
decision (Pandey 1999).
The problem
faced with commercial banks is term insufficient funds to meet the demands for
money that may be made on them.
Banks are
required by law to comply with legal reserves requirement, and in addition the
need liquidity to meet all legitimate loan demands and deposits withdrawals.
Liquidity is also needed to take advantage of unexpected profit opportunities
(speculative purpose) and for unforeseen contingencies or emergency (Nwankwo
1991).
This liquidity
is a protection against the risk that losses may develop if banks are forced to
sell or liquidate credit worthy access in an adverse market (before maturity).
According to (Isedu and Akhator 2000) liquidity can be defined as a bank’s
ability not only to meet possible deposit withdrawals but also to provide for
the legitimate credit needs of its customer and the community.
The effective
management of liquidity of any bank afloat of all time as finance is the
bedrock of any organization in the early 90’s there were incessant cases of
banks failure some of this was as a result or reckless liquidity management on
the part of the management of such bank (Ajie and Ezi 2000). From the above
statement, it can be said that in the Banking industry the management of
liquidity is the most important and pressing taste the following:
1.
To repay it’s deposit at maturity without delay
that is, to meet obligation that remain viable.
2.
To meet the requirement of monetary in the
solvency
3.
To generate and sustain public confidence in it’s
secrecy.
4.
To meet unexpected and unforeseen demand.
This study has
become necessary because the researcher feel there is no adequate liquidity
management in the required level of liquidity (under liquidity) and above the
required level of liquidity (over liquidity) will have an adverse effect on
both the customer and banks operation as well as now the banking industry as
very important sector of the economy.
1.1 Statement of Research Problem
It
is quite necessary to emphasize here that many bank have failed due to so many
reason the most apparent of those reason is poor liquidity management it’s
obvious that due to establishment of many bank, wrong hand or inefficient and
inexperienced manager as a managed their liquidity for viability and manager as
a result of this, some question will be resolved these questions are:
1.
What role do the management team and bank stalls
play in bank liquidity management?
2.
Is the Constant intervention of the Apex bank
central Bank of Nigeria
3.
As the mode of granting credit facilities to
customers have any effect on banks liquidity?
4.
Is the level of liquidity maintained in the bank
sufficient enough to meet customers demand?
5.
How is the debt recovery period of the bank?
6.
Is the bank liquidity policy generating enough
liquidity to maintain its operations?
7.
Can there be effective and efficient liquidity
management of the bank?
1.2 Objective of Study
Banks is
expected to manage its fund, in such a way as to optimize its profit, maintain
an adequate level of liquidity and acceptable level of risk. Thus, the objective
of the study are to examine the extent to which First bank of Nigeria plc has
managed it and how this can be level to viability and profitability in looking
at the objective if this research work the researcher will consider the
following.
1.
To identify the role of management team and staffs
in bank liquidity management.
2.
To investigate the constant intervention of the
apex bank. CBN in mopping up liquidity in the interest of bank.
3.
To investigate if the level of liquidity maintain
in bank is insufficient enough to meet the customers demands.
4.
To investigate the mode of granting credit
facilities to customers if it have any effect on Banks liquidity.
5.
To identify the debt recovery of Bank.
6.
To investigate the bank liquidity to maintain it’s
operations.
7.
To identify if there can be effective and
efficient liquidity management of the banks.
1.3 Scope of Study
This research
work is designed to look firstly into the banking industry are how liquidity of
banks is being managed with partial reference to First Bank of Nigeria Plc.
The bank
operate on area basis there are so many branches under an area. This research
work would look into Ekpoma and Benin
City
1.4 Significance of Study
Adequate
liquidity levels to an effective and efficient banking, it is great deal to
note here that the economy of any Nation depends largely on the banking sector
to carry out its activities liquidity management of bank becomes paramount
importance to banks.
Liquidity
problems leads to surface the short run when there is a large increase in the
demand for cash it becomes a crisis if the bank cannot meet this demand and
assets cannot be sold quickly at price that permit the bank to meet their
obligation. The significance of this study is hoped that apart from stimulating
a more general research into liquidity management of bank this study is
therefore relevant and significant to the bank in Nigerian to develop and
efficient liquidity management.
1.5 Statement of Hypothesis
According to
Aigbokhaevbolo and Ofanson, research hypothesis can be defined as a tested
statement regarding the relationship between two or more variable that are
usually derived from theories.
a. Ho: Bank liquid funds are not adequate for
its services at any given time.
Hi: Bank liquid funds are adequate for its
services at any given time.
b. Ho:
Proper bank liquidity management will not enhance profitability
Hi: Proper bank liquidity management will
enhance profitability.
1.6 Limitation of Study
The major
limitation of this research work as a result of finance this is because its
self sponsored, time again was another limiting factor as the research have to
combine its normal and academic work with the research work.
1.7 Background Information of the Study
It was
incorporated as a liability company on 31st March, 1894. It started
business under the corporate name of the bank for British West, African with a
paid up capital PF 12,000 pounds, Sterling after absorbing its predecessor the
African banking corporation which was establish early in 1892. This signaled
the prominent position which the bank was established in the banking industry
in West African.
In the early
year of operation the bank recorded an impressive growth and worked closely
with the colonial government in performing the traditional function of a
central bank such an issue of specie in West African sub-region.
To justify it
West Africa coverage, a branch was opened in Accra ,
gold coast (Now Ghana) in 1896 and another in fraction Sierra Leone Nigeria
When the bank
began operation in 1894 it has a staff strength of six persons comprising of
three European and three African, its staff strength had increased to corer 6,
988 with 370 branches spread throughout the federation the bank maintain the
largest branch network in the industry in Nigeria.
To satisfy the
needs of its customer First Bank of Nigeria N55.million in 1980 the banks share
capital grew to N8/3million as at March
2001 and N1.976 billion as at March
2003.
The bank total
assets base was N212.9billion while it
deposit base stood at N322.196million. N50, the bank market capitalization stood
at 31st March 2005.
To reposition
and take advantage of opportunities in the changing environment the bank
embarked on several restricting initiation. In 1957 it changed it’s name from
bank of British West Africa to Bank of West
Africa. In 1969 the bank was incorporated locally a standard bank of Nigeria Nigeria
In 1985 the
bank introduced a decentralized structure with fire regional administrations. This
was recognized in 1992 to enhance the banks operational efficiency. In 1996,
the bank introduced the FBN century 11 project to revolutionalized its
operation in line with the dynamics of the environment. FBN got listed on the
Nigeria Stock Exchange (NSE) in March 1971 and has won NSE presidential merit
award nine times for the best financial report in the banking sector.
The bank has
continues to be a leader in financing long term development of the economy
which was demonstration 1947 when the first long term loan was advanced to the
colonial government. To demonstrate it commitment to its customers and the
development of the Nigeria
The bank has
ford record in rural banking agricultural credit facilities through community
farming loan scheme for four years it came first at the CBN partners merit
Award. The banks in very much alert to its social responsibilities to worthy
social philanthropic cultural education and sporting event. As part of First
bank strategy to sustains and consolidate it leading position a large
proportion of its profit is normally ploughed back top profit and share up the
capital base which is currently above statutory minimum. Also keeping with the
banks tradition of ensuring that shareholders receive adequate return of their
investment. First bank Nigeria
1.8 Definition of Terms
Bank: According to
Sayer’s bank is defined as an institution whose debts is usually referred to as
bank deposit commonly accepted in paying settlement of other debts.
In
the Nigerian banking Act of 1969, the term bank was interpreted as meaning any
person who carries on banking business (Sayers 1998)
The
Act amended by section (1) (LC) Banking & Amendment (Decree No 3 1970).
States that bank business “means the business of recurring money from outside
sources of deposit irrespective of the payment of interest and the granting of
money loans and acceptance of credit or the purchase of bills and cheque or the
purchase and sales of securities for account of others incurring of obligation
of acquire claims in respect of loans prior to maturity.
Liquidity:
(Adekanye
1986) defined liquidity as the relative amount of asset in cash or available to
meet short term liability. (Anao and Osaze 1990) defined liquidity as the
amount of cash or near asset that a company has or finance its operation to in
effect it’s asset which can be readily converted to cash in case of need
management (Akhator 2001) defined it as the process of combining and utilizing
or allocating an organization input, men, material, machine, money and manpower
by Planning directing and controlling the producing output goods and services
or whatsoever the objective are desired by customer so that organization
objective are accomplished viability. Encyclopedia of social science vol. 9 see
bank viability as the ability of the bank to be able to provide adequate
finance for the running of its operation and in meeting its customers
withdrawal needs and granting of credits facilities to investors.
Profitability:
Thus
refers to the increase in a bank out assets resulting from its ordinary
business activities.
Asset:
This
refers to the bank vehicle and using useful which are the total balance sheet
items e.g. land and building, furniture and others assets like cash, stock and
debtor.
Liability:
This
is the bank indebtedness to either its customer, investors and bank and other
provides of capital portfolio, its is a combination of asset security or
project of an investor at a given point in time.
Investment:
This
is when bank use excess cash in its deposit to purchase capital goods, security
asset or share in a firm or business in order to make a profit.
Deposit:
These
are funds that customer leave in the account whether current or saving account
credit its transfer between two or more parties in which (the credit or lender)
supplies money, goods and service speculative in retain for a promise future
payment.
Withdrawal:
This
is when a bank customer takeout of his total deposit in his account at a given
point in time.
REFERENCES
Aigbokhaevbolo
O.M and Ofason E.J. (2000) Project Work Designed and Published in Nigeria by Ejodamen Publishers 76, Uwa of Benin City
Akhator P.A.
(2001) Grand Work in Business Management Benin City
OB. 2ED Publisher/ANO R.A. and Oseje B.E. (1990) Management Finance Benin City
First Bank of
Nigeria Plc.
Isedu M.O. and
Akhator P.A. (2000) Money and Banking Management and Policy Imprint Service Lagos
Nwankwo G.O.
(1991) Bank Management Principle and Practice
Pandey (1999)
Financial Management Risks Publishing House put it 576 Masid Road
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