THE IMPACT OF LIQUIDITY PROBLEM ON THE NIGERIAN BANKING INDUSTRY.
This research work is aimed at identifying the impact of liquidity problems on the Nigerian banking sector with regards to their profit and previous made by the Government and the Apex Authority in finding the solution the problem.
In carrying out his study, secondary Data was used extensively. This project work is divided into five chapters:
In chapter one, we have: Introduction, Background of the study, statement of problem, purpose / objectives of the study, significance of the study, scope and limitation and definition of terms.
In chapter two, we have literature review which is made up of liquidity versus profitability in Nigerian Bank, Equilibrium balance between profitability and liquidity ratio-which is further subdivided into; Signifance of liquidity ratio, computation of liquidity ratio, cash ratio, liquidity risks, liquidity preference, liquidity measurement, rational for liquidity ratio measurement. Furthermore, there is factors affecting liquidity of Nigerian banks, Federal Government steps towards solving the liquidity problems in Nigerian banks and finally guidelines for the development of liquidity management policies in Nigerian banks.
Chapter three deals with research design and methodology and also secondary data, it sources, location and method of collection.
Chapter four, deals with the research findings.
Chapter five deals with recommendation and conclusions.
Lastly, there is provision of bibliography.
Approval page ii
Table of contents vi
1.0 Introduction 1
1.1 Background of the study 1-2
1.2 Statement of problem 2
1.3 Purpose of study 2
1.4 Objective of study 2-3
1.5 Research Questions 3-4
1.6 Significance of study 4
1.7 Scope and limitation of study 4-5
1.8 Definition of terms 5-6
2.0 Preview of Related Literature 8
2.1 Liquidity versus profitability in Nigerian Banking 8-9
2.2 Equilibrium balance between profitability 9-11
2.3 Liquidity Ratio 11-12
2.3.1 Significance of liquidity ratio 12-13
2.3.2 Computation of liquidity ratio 13-14
2.3.3 Cash ratio 13-14
2.3.4 liquidity Risks 14-15
2.3.5 Liquidity Preference 15-16
2.3.6 Liquidity Measurement 16
2.3.7 Rationale for liquidity ratio measurement 16-17
2.3.7Rationale for liquidity ratio measurement 18
2.4 Factors affecting liquidity of Nigerian banks 18-19
2.4 Federal government steps towards solving 19-21
the liquidity problems in Nigerian banks
2.5 Guidelines for the development of liquidity
Management policies in Nigerian banks. 21
3.0 Research Design and Methodology 23
3.1 Secondary Data 23
3.2 Source /location of secondary data 23
3.3 Methods of Data collection 23
4.0 Findings 24
5.0 Recommendations 25-26
5.1 Conclusion 27
Liquidity is crucial to the on-going viability of any bank as liquidity can have dramatic and rapid effects on even well capitalized banks.
When a crisis develops in a bank as a result of other problems such as deterioration in asset quality, the time available to the bank to address the problem will be determined by the liquidity therefore, the measurement and management of liquidity are amongst the most activities of banks.
1.4 BACKGROUND OF STUDY.
The term liquidity means the ease with which an asset
can be turned to cash with certainty Orjih John (1996:152).
Liquidity in banks can be defined as the capacity of the bank to meet promptly its current obligations that is its customers demand.
A bank is considered to be liquid when it has sufficient cash and other short term financial instruments like treasure bill, treasury certificate and call money in its portfolio together with the ability to raise funds quickly from other sources to enable it meet its payment obligation and other financial commitments in a timely.
How much liquidity to hold and in what form constantly disturbs bank management. Banks are also required to comply with the cash reserve requirements (CRR) set by the Central Bank of Nigeria (CBN).
During periods of expanding economic activities banks are frequently faced with attractive loan situations, which can only be met if banks maintain adequate liquidity.
In Nigeria, Banking activities are registered strictly by the banking act of 1969 was amended under the control of the central bank of Nigeria. As a result of these regulations the banks required to hold specific assets equal to certain other liability in liquid form. This is known as the cash reserve requirement (CRR), liquidity ratio and stabilization securities issued by the central bank.