1.1 BACKGROUND TO THE STUDY
Cashless economy is an economy where
transaction can be done without necessarily carrying physical cash as a
mean of exchange of transaction but rather with the use of credit or
debit card payment for goods and services. Omotunde et al (2013) posits
that cashless economy policy initiative of the Central Bank of Nigeria
(CBN) is a move to improve the financial terrain but in the long run
sustainability of the policy will be a function of endorsement and
compliance by end-users which can which can be aimed at reducing bank
liquidity risks. According to Tunde Lemon, the Deputy Governor of CBN,
the CBN cash policy stipulates a daily cumulative limit of N150, 000 and
N1, 000, 000 on free cash withdrawals and lodgments by individual and
corporate customers respectively in the Lagos state since March 30,
2012. Individuals and corporate organizations that make cash
transactions above the limits will be charged a service fee for amounts
above the cumulative limits. Furthermore, 3rd party cheques
above N150, 000 shall not be eligible for encashment over the counter
with effect from January 1, 2012. Value for such cheques shall be
received through the clearing house. All Nigerian banks were expected to
cease cash in transit lodgment services rendered to merchants and
customers from January 1, 2012. Omotunde et al (2013) further clarified
that the policy through the advanced use of information technology
facilitates fund transfer, thereby reducing time wasted in Bank(s).
Wizzit, a fast growing mobile banking company in South Africa has over
three hundred thousand customers across South Africa. Likewise, M-PESA
was introduced in Kenya as a small value electronic system that is
accessible from ordinary mobile phones. According to them, it has
experienced exceptional growth since its introduction by mobile phone
operator (Safaricam) in Kenya in March, 2007 and has already been
adopted by nine million customers, which is about 40% of Kenya?s adult
population. Wizzit and other mobile financial services including M-PESA
in Kenya are helping low income Africans make financial transaction
across long distance with their cell-phones, thereby reducing their
travel cost and eliminating the risks of carrying cash and also avoiding
most banking charges (Akintaro, 2012).
Banks play a central role in all modern
financial systems. To perform it effectively, banks must be safe and be
perceived as such. The single most important assurance is for the
economic value of a bank’s assets to be worth significantly more than
the liabilities that it owes. The difference represents a cushion of
“capital” that is available to cover losses of any kind. However, the
recent financial crisis underlined the importance of a second type of
buffer, the “liquidity” that banks have to cover unexpected cash
outflows. A bank can be solvent, holding assets exceeding its
liabilities on an economic and accounting basis, and still die a sudden
death if its depositors and other funders lose confidence in the
In banking, liquidity is the ability to
meet obligations when they come due without incurring unacceptable
losses (Odior & Banuso, 2012). Managing liquidity is a daily process
requiring bankers to monitor and project cash flows to ensure adequate
liquidity is maintained. Maintaining a balance between short-term assets
and short-term liabilities is critical. For an individual bank,
clients' deposits are its primary liabilities (in the sense that the
bank is meant to give back all client deposits on demand), whereas
reserves and loans are its primary assets (in the sense that these loans
are owed to the bank, not by the bank). The investment portfolio
represents a smaller portion of assets, and serves as the primary source
of liquidity. Investment securities can be liquidated to satisfy
deposit withdrawals and increased loan demand. Banks have several
additional options for generating liquidity, such as selling loans,
borrowing from other banks, borrowing from a central bank, such as the
US Federal Reserve bank, and raising additional capital. In a worst-case
scenario, depositors may demand their funds when the bank is unable to
generate adequate cash without incurring substantial financial losses.
In severe cases, this may result in a bank run. Most banks are subject
to legally mandated requirements intended to help avoid a liquidity
1.2 STATEMENT OF THE PROBLEM
Banks can generally maintain as much
liquidity as desired because bank deposits are insured by governments in
most developed countries. A lack of liquidity can be remedied by
raising deposit rates and effectively marketing deposit products.
However, an important measure of a bank's value and success is the cost
of liquidity. A bank can attract significant liquid funds. Lower costs
generate stronger profits, more stability, and more confidence among
depositors, investors, and regulators. This is the first research that
is examining the relationship between the cashless policy and bank
liquidity in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To examine the impact of cashless policy on banks liquidity.
- To examine the effect of cashless policy on the Nigerian economy.
- To find out the challenges confronting cashless policy in Nigeria.
1.4 RESEARCH QUESTIONS
- What is the impact of cashless policy on banks liquidity?
- What is the effect of cashless policy on the Nigerian economy?
- What are the challenges confronting cashless policy in Nigeria?
HO: There is no significant relationship between cashless policy and bank liquidity
HA: There is significant relationship between cashless policy and bank liquidity
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
- The outcome of this study will educate the bankers and other
stakeholders in the management of banks on the relationship between
cashless policy and bank liquidity.
- This research will be a contribution to the body of literature in
the area of the effect of personality trait on student’s academic
performance, thereby constituting the empirical literature for future
research in the subject area.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study will cover the relationship between cashless policy and bank liquidity.
LIMITATION OF STUDY
Insufficient fund tends to impede the efficiency of the researcher in
sourcing for the relevant materials, literature or information and in
the process of data collection (internet, questionnaire and interview).
Time constraint- The
researcher will simultaneously engage in this study with other academic
work. This consequently will cut down on the time devoted for the