The impact of liquidity on the performance of commercial bank in nigeria plc a case study of first bank of nigeria)

Thesis Overview

<p> INTRODUCTION<br>BACKGROUND OF THE STUDY<br>The impact of liquidity position in management of financial institution and<br>other economic unit have remained fascinating and intriguing, though very<br>elusive in the process of in investment analysis visa- visa bank port folio<br>management.<br>There appears to be an interminable argument in the literature over the<br>years on the roles, meaning and determinants of liquidity and credit<br>management. The Nigeria financial environment has noticed increase in credit<br>which has become a problem to the country.<br>Credit control described as to maximize the value of the firm by<br>achieving a trade a trade off purpose of credit control is not to maximize sales<br>or to minimize the risk of bad debt.<br>In fact the firm should manage it credit in such a way that sales<br>are expanded to an extent to which risk remains within an acceptable<br>unit. These costs include the credit administration expenses bad debt, losses<br>and opportunity cost of the fund field up in receivables, the aim of liquidity<br>management should be to regulate and control these cost that cannot be<br>eliminated together.<br>8<br>According to Begg, fisher and Rudiger (1991:130) liquidity refers to<br>the speed and certainty with which an asset can be converted back into<br>money (cash, income) whenever the<br>Asset holder desires, money itself is the most liquidity asset o all<br>liquidity management seeks to ensure attainment of the short term objective.<br>A liquid bank is one that stores enough liquid assets and cash together<br>with the ability to raise funds quickly from other source to enable it meet its<br>payment obligation and financial commitment in a timely manner.<br>Therefore according to Ngwu (2006:36) liquidity management is the<br>act of storing enough funds and raising funds quickly from the market to<br>satisfy depositor loan customer and other parties with a view to maintain<br>public confidence.<br>STATEMENT OF THE PROBLEM<br>Liquidity is considered as the success of as bank, therefore ay<br>ineffectiveness in its management consuetude’s a huge problem i.e. it<br>encounter a huge problem that affect the affairs of the financial institution.<br>This problems is therefore analyses here as the basis for this research study.<br>The analysis commence from the era of banking in inception in Nigeria<br>through it growth stages and till what is it today. The initial bank failures<br>recorded were principal dues to inefficiencies in the management of the<br>9<br>liquidity of such bank which in one way or the other had something to do with<br>either liquidity inadequacy and the relative inefficiency in their management.<br>As an institutional problem, it has persisted over the years, in<br>determining the survival or otherwise of banks. Although it must be said that<br>some relative degree of banking it is believed that any banking institutions<br>that is properly managed and has adequate liquidity should be able to swim<br>above troubled waters.<br>Problems sometimes also evolve from banks inordinate urge to make<br>phenomenal profit. In the process of doing this there is the tendency for these<br>banks to get carless in the resources utilization and particularly their<br>management of liquidity.<br>The resultant effect is usually loss substance and consequently, loss<br>accumulation, a situation which can lead to banking failure. The marginal<br>loans in the banking system calls to mind the important factor that national<br>government of all` time preoccupy themselves with banks. This shows the<br>degree of importance attached to liquidity and its management by these<br>governments and deviation from its ratio or inadequacy of it management<br>always spells trouble for the banking concerned.<br>The far reacting consequences of inadequate liquidity management can<br>also be examined. Apart from profit declines. Other of attendant consequences<br>to a bank includes loss of confidence in the particular bank its inability to<br>10<br>fulfill both its short term and long-term obligation, lack of trust on the part o<br>depositors and other customers alike; and the concomitant reduction in level<br>of operations.<br>A recent example of the eminent distress facing Nigeria bank which is as<br>a result of improper liquidity position management as well as loan lossaccumulation<br>(marginal loans)<br>OBJECTIVES OF THE STUDY<br>Considering the nature of banking itself which is a risk taking<br>venture, i.e borrowing short and lending long one sees the indispensability of<br>liquidity for a banks effective and profitable operation liquidity is needed to<br>finance the gap created by mismatching funds. Again liquidity adequacy is a<br>sure way of minimizing the risk portfolio of any bank. The need to put some<br>family into the management of banks liquidity has always been considered a<br>serious issue by the authorities and this has often influenced periodic<br>prudential regulation. As a check on banks against holding excessive cash,<br>Central Bank presently stipulated liquidity ratio of 24.69%, is considered by<br>the Apex bank as being the reasonable maximum any an expression of the<br>bank liquidity assets which comprise cash marketable securities and<br>investments over the bank banks total liabilities (Ngwu 2006:56)<br>The objectives of the study include <br></p>