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.

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 loss-accumulation (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

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(a).   To examine in details the liquidity position of banks in Nigeria using first bank Nigeria as a case study.

(b).   To identify causes of illiquidity or factors that influence liquidity management.

(c).   To examine how these banks are able to adjust their liquidity and control management in Nigeria financial environment.

(d).   To analyses the consequences of inadequate of liquidity control management.

(e).   To make some suggestion on policy guideline to the monitory authorities who can after banks current liquidity and credit management practices.

RESEARCH QUESTIONS

The essence that the respective bank should manage their balance sheet inn such a way as to operate within that maximum range and still remain liquid.

The basic questions this research attempt to answer includes:

(a).      what is the impact of liquidity position in management?

(b).      what is the relationship between liquidity and profitability?

(c).      what are the criteria for determining adequate liquidity for a bank?

(d).