The Impact Of Liquidity Problem On The Nigerian Banking Industry.

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THE IMPACT OF LIQUIDITY PROBLEM ON THE NIGERIAN BANKING INDUSTRY.

ABSTRACT

        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.

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

Title page                                                                         i

Approval page                                                                  ii

Acknowledgement                                                            iii

Dedication                                                                       iv

Abstract                                                                           v

Table of contents                                                             vi

 

CHAPTER ONE              

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

CHAPTER TWO      

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

and liquidity.

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

CHAPTER THREE                                                  

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

        CHAPTER FOUR

4.0   Findings                                                                  24

        CHAPTER FIVE                                                     

5.0   Recommendations                                                 25-26

5.1   Conclusion                                                               27

BIBLIOGRAPHY                                                     28-29

 

 

 

 

 

CHAPTER ONE

INTRODUCTION:

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.

 

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