ABSTRACT
Liquidity management is the product management
of bank asset in cash or which can be quickly convened to meet Short-term
liabilities. The problem which most bank authorities are, having is inability
to manage their liquidity appropriately.
It
is the objective of this study to enunciate the effect and importance of
liquidity management strategy on the commercial banks profitability.
Competition
among banks to day require adequate liquidity management strategy. In essence any
bank that cannot manage its liquidity properly cannot stand in test of time in
meeting its profit target.
On
this note this study is narrowed down to examining how the effective adoption
of liquidity management affect the profit of a bank.
The
method of analysis for this study was based on the usage of ordinary least
square (O/S) method which expresses the regression analysis of the study.
Following
the thorough analysis of the study we can affirm that liquidity is a
determining factor for profit.
On
that basis, brink should maintain a level of liquidity and this will indirectly
affect the profit of me bank.
Key
words:
Liquidity: It describes the
degree to which an asset or security can be quickly bought or sold in the
market without affecting the asset's price.
Liquidity
management: It is
the basic concept of the access to readily available cash in order to fund
short-term investments, cover debts, and pay for goods and services.
Profitability: It is the ability of a business to earn a profit
Financial institution:
It is an establishment that conducts financial transactions such as
investments, loans and deposits.
Competition:
It is a contest or rivalry between two or more entities, organisms, animals,
individuals, economic groups or social groups
TABLE OF CONTENTS
Title
page
Certification
Dedication
Acknowledgement
Abstract
Table
of contents
CHAPTER
ONE
1.0
Background of the study 1
1.1
Introduction 1
1.2
Statement of the problem 3
1.3
Objectives of the study 4
1.4
Hypothesis of the study 4
1.5
Relevance and signification of the
study 5
1.6 Scope and limitation of the Study 5
CHAPTER
TWO
2.0 Literature review 7
2.1
Introduction 7
2.2
Evolution 11
2.3
Liquidity management 16
2.4 Liquidity of profitability 20
25
Measurement and liquidity 23
CHAPTER
THREE
3.0 Research methodology 25
3.1 Introduction 25
3.2. Population for the study 25
3.4 Model specification 26
3 .5 Model estimation 26
3.6 Statement of hypothesis 27
3.7 Sources of data 27
3.8 Validity and reliability 29
CHAPTER
FOUR
4.0 Data presentation, empirical result and
analysis 30
4.1 Introduction 30
4.2 Data presentation 30
4.3 Empirical result 33
4.4 Interpretation of result from the equation 37
CHAPTER
FIVE
5.0 Summary conclusion and recommendation 38
5.1 Summary of findings 38
5.2 Conclusion 40
5.3 Recommendations 40
Reference
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
The
availability of financial capital is a pre-equisite for the rapid development
and transformation of any nations economy, But since the provision and
efficient management of this scarce resources is enhanced by the existence and
appropriate functioning of financial institution in the economy This implies
that the bank have a vital role to play in making their vast financial resource
available for financial and promoting development.
Since
banks cannot predict with certainty future demand flows, loans demand, interest
rate and the action by the monetary authorities.
Therefore,
commercial bank needs to have a portion of asset which represent a stock of liquidity
that as butter against changes in these factors.
On
this note, liquidity can be defined as the means by which asset can be easily be
converted into medium exchange cash itself is the most liquid asset. Some other
items are almost as liquid as cash.
Liquidity
requirement should be kept as a reasonable level to accommodate a normal
pattern of withdrawals taking into account such factor as payment practices and
seasonal movement.
Adequate
liquidity is essential for the survival of all business, especially in the
banking business where the tool of trade is money liquidity.
This
now introduces us to liquidity management liquidity management is centre on
the? planning, controlling and coordinating of the liquid (cash) resources of
the bank.
A
bank should meet the objectives on which it was established among which is
lending money to a variety of borrower. In practice, bank lend on long term
basis and borrow on short term basis. This require a considerable level of
liquidity to meeting with the obligations of both the borrower and lenders.
Therefore,
there is need for effective liquidity management which serve as a yardsticks
for meeting the objective of the shareholders. Therefore, strategies on how to
manage liquidity are necessary because it will guide against any mis-management
in banks portfolio management.
On
this note, liquidity management strategy can be defines as the prudent
management of a bank’s asset in cash or which can quickly converted into cash
available to meet short-term liabilities.
Liquidity
asset consist of cash and bank balances, debtor and marketable securities. Consequently,
effective liquidity management involves obtaining full utilization of all reserves
all stored cost advantage. There should be a balance between reliance on banks
own fund and purchased liquidity because the bank reserved is assets based
while the purchased liquidity has its own limitation.
Therefore,
am aggressive bank philosophy should emphasize on the purchased liquidity
rather than the stored.
1.2 STATEMENT
OF PROBLEMS
By
January 1989, the number of commercial banks has increased tremendously
likewise the merchant bank is now obvious that some states own banks because
others have theirs, while the inventor wants to own a bank because of huge
profit mode in the banking sector.
From
foregoing, the high proliferation of commercial banks simply indicate that
there in need for proper review of management strategy adopted by individual
banks to allow them successfully achieve their desired objectives ‘
Furthermore,
the competition among banks require adequate attention being to liquidity
management strategy.
In
essence, only bank that cannot manage its liquidity properly cannot stand the
test of time in meeting is profit target and the extreme will be forced to fold
up.
However
experience has shown the higher profitability is a function of well managed liquidity
position. In other words, any bank that achieves optional manipulation of its
liquidity would not meet its operation cost but have excess profit.
1.3 OBJECTIVES
OF THE STUDY
Commercial
banks are always in dilemma on how to strike a judicious balance between high liquidity
and in liquidity in order to manage their liquidity properly.
Hence,
the stud y is an attempt
i.
To determines the liquidity behaviour of
the Fist Bank Plc and its effect on their profit
ii.
To identify the liquidity strategy of the
Firs Bank and the effect on their asset
iii.
To determine whether high profit is a
function of well managed liquidity.
iv.
To apprises the finding and make recommendation
to the problem
1.4 HYPOTHESES
OF THE STUDY
This
is the statement about a parameter which implies testing of the formulated
hypothesis.
Ho:-
Null hypothesis
Hi:-
Alterative hypothesis
Ho:-Liquidity
behavour does not affect profitability of bank
Hi:-
Liquidity behaviour affects bank profitability
1.5 SIGNIFICANCE
OF THE STUDY
This
study is relevant in the view that it reveal the relationship that exist
between liquidity and profitability it (the study) will also show mid
understanding on how to strike a balance between adequate liquidity and its
reducing effect on profits and high profitability with consequent worsening of
the liquidity position.
The
study will also show an understanding of the dynamic nature of banking sector
and activities as well as an in-depth analytical method of improving services.
Financial decision and proper liquidity management.
1.6 LIMITATION
OF THE STUDY
It
is a fact that banking sector consist of the commercial banks, merchant bank,
mortgage, community bank, central, first bank Plc and development banks. But the
scope of this study will be limited to the first bank Plc.
This
study will also be limited to first bank Plc in Nigeria using date for five
years covering 2000-2004.
The
following are the imitating factors against the effort mode by the researcher
to collect as much as possible data for the research.
Time
Factor: This is a major constraint that the researcher
has limited time to fast approaching final examination. '
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