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