Liquidity management seeks ensure the attainment of short-term
objective of monetary policy, which means maintenance of desire monetary
aggregate. It is very important aspect of monetary policy
implementation and control commercial banks create money every creates
incompatible with the absorption capacity of the economy macro economic
instability may result in order to maintain relative macro economic
stability must enhance in place on liquidity management to leave out the
saving liquidity growth in the banking system lending and investment
operation of commercial bank have been widely and extensively discussed
in various literatures. It has also been stated that anyone who express
to borrow from commercial bank should be most concerned with the loan
and investment policies and techniques. The principal profit making
activity of a commercial bank create loan available to its customer and
in doing this, it faces uncertainties and therefore risks money kinds.
These uncertainties are with regard to its features volume and costs of
funds and the future income and price of the various types of assets
that it acquire. A bank does not therefore consider earning alone
instead is seeks some optimum combination of earning liquidity and
safety to secure more or one it must often sacrifice some of the other
for instance to get higher earnings a bank many have to incurred more
risk and liquidity and vice-versa risk because of the very high ratio of
their liability to their total assets. Liquidity and management have
implication on bank profitability and ability to meet its obligation
both to the regulation authority depositions and shareholder.
1.1 BACKGROUND OF THE STUDY
Liquidity management seeks ensure the attainment of short-term
objectives of monetary policy, which means maintenance of desire
monetary aggregate. It is very important aspect of monetary policy
implementation and control commercial banks. Create money everyday but
when the quality of money created in incompatible with the absorption
capacity of the economy. Macro economics instability may result in order
to maintain relative macro economics stability much reliance is place
on liquidity management to leaven out the swing liquidity grown in the
Lending investment operation of commercial bank have been widely and
extensively discussed in various literatures. It has also been stated
that anyone who express it borrow from commercial bank should be most
concerned with the loan and investment policies and techniques.
The principal profit making activity of a commercial bank is making
loans available to its customer and in doing this; it faces
uncertainties and therefore risk money kinds. These uncertainties are
with regards to its feature volume and costs of funds and the future
income and price of the various type of assets that it acquires.
A bank does not therefore consider earning alone instead is seeks
some optimum combination earning liquidity and safety o secure more or
one. It must often sacrifice same of the other for instance, do get
higher earning, a bank may have to incurred more risk and liquidity and
vice-versa liquidity and credit management in Nigeria banking industry.
However, commercial banks are limited in their ability to assure risk
because of the very high ratio of their liability to their total asset.
1.2 STATEMENT OF THE STUDY
Liquidity and credit management have implication on bank
profitability and ability to meet its obligation both to the regulation
authority, depositors and shareholders. It could trigger off mass cash
withdrawal thus plunge the bank into deeper crises. In analyses of
credit and liquidity management of community bank.
I shall examine its assets quality, which include its performing and
non performing loans. In addition efforts would be made to look onto
the bank capital adequacy and ratio and its stock of risk asset using
different measure of liquidity solvency.
1.3 RESEARCH HYPOTHESIS
1. Ho: Credit facilities is not useful in banking industry.
Hi: Credit facilities is useful to banking industries.
2. Ho: Microfinance bank has no impact on the development of Ifelodun Local
Hi: Microfinance bank has impact on the development of Ifelodun Local
3. Ho: Microfinance bank render assistance to small scale industry
Hi: Microfinance bank does not render assistance to small scale business.
1.4 THE PURPOSE OF THE STUDY
Commercial banks act as matter vies by collecting deposition and
paying interest on them and granting loan charging the borrowers and
depositors, their main goes of bank is to make profit. Part from
granting loan bank also generates liquidity and credit management in
Nigeria banking industry. Profit on investment in order to maximize
their earning every bank attempt to structure its asset and abilities in
such a manner as to yield the highest retune subject to some sufficient
cash and other asset in its portfolio together with liability to raise
funds quickly from other sources to enable to meet its payment
obligation and financial commitment in a timely manner.
However way factors bear on nature of operations of commercial bank
generally and lending functions in particular. An important factor which
is the focus of this paper is the “theories in liquidity management of
commercial bank” these theories defined by Wool Worth G. Walker (1967)
have existed since the early days of commercial banking.
1. The commercial loan which stated that commercial
liquidity is assured as long as its assets are held in short loan. That
would be liquidity in the source of business. The ideal assets under
this theory are short-time size liquidity loans granted for working
2. The shift ability theory which postulated a bank
liquidity is maintained of it holds asset that could be sold or shifted
to other lending or investors for cash.
3. The anticipated income, theory which states that
bank “liquidity can be planned if scheduled repayments are based on the
future income of the borrowers”.
4. The liquidity management theory which maintains
that banks can meet liquidity management requirements by hidings in the
market for additional funds.
These theories were founded in a developed environment different from
the Nigeria environment which is till developing one liquidity and
credit management in Nigeria banking industry.
This study there aims to discover the extent the microfinance bank
plc is guided by the above enumerated theories in the management of its
lending function and global liquidity problem. To supplement this
lending practices and procedures of the bank will also be evaluated.
An in-depth attempt is made to analysis the relevant ratio relating
to credit and I liquidity of the bank. This study is sub-divided of the
study the work whilst relevant is review in chapter two with brief
history of the bank, the methodology of research is presented in chapter
three, chapter four is an analysis of data the work is summarized
conclusion and recommendation are given in chapter five. The rest of
these chapters take a cursor look at the historical development and
functions of the bank in Nigeria as will as overview of liquidity
problems in commercial banks.
1.5 THE SCOPE OF THE STUDY
The study shall focus on the credit and liquidity management of
microfinance bank for a period of three years 2002 – 2005, this period
is selected because it is current and has also witnessed both bank boon
bank failure resisting from poor liquidity and credit management. This
focus is no microfinance bank plc because of its top position in the
1.6 LIMITATION OF THE STUDY
In any research work a few problems usually encountered, first and
foremost, the time factor constrain bound to hinder the research because
of the time constraint. It was not possible to carry out the study
extensively as it was originally anticipated liquidity and credit
management in Nigeria banking industry. There is also problem arising
from collection of the questionnaire distribution due to non challent
attitude of some respondents library facility is another limitation
factors there is inadequate in libraries to consult for the purpose of
selecting secondary data
1.7 THE SIGNIFICANCE OF THE STUDY
The services offered by commercial banks are numerous and they include:
a. Mobilization of saving: Commercial banks
performs a very important function to all sector of the economy by
providing facilitate for the mobilization of saving and making the funds
available to business to enable them to expand their productive
capacity and to individuals and households to facilitate consumption.
b. Extension of credit facilities: According to
Needit in (1984) the primary function o commercial bank is the extension
or waiting borrowers in banking credit available commercial banks are
rendering great social services through their actions production in
increase capital investment is expanded and high standard of lives in
c. Transfer of funds or money transmission
commercial banks serve as medium for transforming funds. They facilitate
payments by enabling business, Government and consumers to transact
without cash, cheques and credit card are use for the bank purchases as
measured by naira amount of transaction.
d. Creating money commercial bank create money used
to extend productive facilities otherwise there would be a slowdown of
economy activities generally as business would be force to wait until
sufficient profit are made before they could expand liquidity and credit
management in Nigeria banking industry.
e. International trade services: All commercial
banks are involve in the financial aspect of international trade and the
service required supporting this important part of the country’s
economy such services included bills for collection documentary, credits
and open amount which are instrument use in impart and expert trade.
f. Services to the travelers: All commercial bank
in Nigeria offer services to the travelers by providing them with
travelers cheques are form of travel currency giving the would the
security of letters of credit and the convenience of a local
g. Status inquiries: A customer gives his name to
another bank for reference purpose and enquiry is sent to the customer
bank to find out about his financial and personal accounts in commercial
h. Business advisory services: The aim of this
service is to assist small business customer to develop their business
to such a way that they can attract bank finance.
1.8 DEFINITION OF TERMS
1. Bank: A place were goods and other
valuable materials are kept i.e. cash, asset, etc they also accept cash
deposit from the public and other business concern.
2. Cheques: This is the instrument use by the customers operating current account with the bank to withdraw money.
3. Loan: This is the [process of lending
money to banks customer in which the interest is agreed and fixed it is
only meant for customer operating current account.
4. Collateral: A credit or ledger is not
satisfied with the amount of capital possessed by the borrower may
support the debt property whose value can be liquidity and credit
management in Nigeria banking industry determined early and which can be
readily converted into cash is preferred for this purpose.
5. Capital: The types and value of capital
if the borrower affect his ability to obtain credit capital is
protecting the creditor against loss hence the credit analyst must
carefully scrutinize the balance sheet of the borrower.
6. Credit Transfer: It is a types of banking
method of payment whereby cash can be withdraw fro another branch of
the bank or another bank entirely from that where the account is
7. Bank Draft: bankers draft is regarded as
near money instrument, it is more acceptable than a cheque can be
dishonor for lack of funds or irregularities in preparation but in the
case of draft, the finds has been moved out of the customer account.
8. Microfinance Bank: Can be described as a
self sustain financial institution owned and managed by a group of
people in microfinance for the purpose of providing credit collection
deposit and other financial services to public largely.
9. Small Business: Small business refers to
self instituted largely self financed and closely self managed and it is
of relatively small size when considered as part of the industry.
10. Organization: In economic term
organization can be described as economic institution having materials
resources for the purpose of making production of profit, liquidity and
credit management in Nigeria banking industry.
11. Deposit Account:
Saving accounts funds
that are not required for immediate use can be deposited in this account
fund deposited are usually for a special period which may be between
five month to one year thus its termed turn deposit.