Liquidity and credit management in Nigerian Banks
banks generally provide avenues for savings to those who have surplus funds.
The bulk of such funds are then lent out to needy personnel and business
customers in loans and overdrafts, its has been widely appreciated that more
that half of the total gross earnings of universal banks is earned from
interest on loans and advances, which constitute the single must importance
assets of the banks.
savings and time deposited constitute the major source of banks profitability,
it has to be aggression in its lending function. At the same time, it has to be
liquid to meets the depositors request and maintain public confidence.
therefore, has to strike a balance between liquidity and profitability. As
lending is one of the most intricate services provide by banks, this paper will
examine in 8rme details many theories emanating from developed environment and
their effect on the operation of universal banks especially the credit, lending
include the consumer loans theory, and the anticipated income theory.
theories will thus be evaluated to measure the extents to which they guide the
lending activity of the first bank of Nigeria Plc in a developing environment.
This is a with a view of highlighting the degree of compliance to these
theories by the universal banks and also proffer solutions and recommendations
to resolve the liquidity and profitability position in a developing economy
such as Nigeria.
TITLE PAGE i
TABLE OF CONTENTS vi-vii
1.1 BACKGROUND TO THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 RESEARCH HYPOTHESES
1.4 PURPOSE OF THE STUDY
1.5 SCOPE OF STUDY
1.6 LIMITATION OF THE STUDY
1.7 SIGNIFICANCE OF STUDY
1.8 DEFINITION OF THE TERMS
2.0 LITERATURE REVIEW
2.1 CONCEPTUAL FRAME WORK
2.2 LIQUIDITY THEORIES
2.3.1 THE ANTICIPATED INCOME THEORY
2.3.2 THE ORIGIN OF BANK LENDING
2.3.3 IMPORTANCE OF CREDIT
2.4 SOURCES OF LOANS ABLE FINDS
2.5 FIRST BANKS OF NIGERIA PLC A PROFILE
3.0 RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN
3.2 AREA OF STUDY
3.3 POPULATION OF THE STUDY
3.4 INSTRUMENT FOR DATA COLLECTION
3.5 METHOD OF DATA ANALYSIS
4.0 PRESENTATIONS AND ANALYSIS OF DATA COLLECTION
4.2 ANALYSIS OF PERSONAL DATA
management seeks to ensure the attainment of short term objectives of monetary
policy, which means maintenance of dose rue monetary aggregate. It is very
important aspect of monetary policy implementation and control.
banks create money every day, but when the quantity created is compatible with
the absorption capacity of the economy macro economic instability may result.
In order to maintain relative macroeconomics stability, mush reliance is placed
on liquidity, growth in the banking system.
and investment operation of universal banks have been widely and extensively
discussed in various literatures. It has also been stated that any one who
expects to borrow from the universal banks should be most concerned with the
loans investment policy and techniques. The concept profit making activity of a
universal bank is making loan available to its customers. It faces
uncertainties and therefore risk of many kinds. A bank does not consider
earning alone instead it seeks some optimum combination of earning; liquidity
example to gather higher earnings, a bank has to increase more risk and
liquidity and vice versa. However, universal banks are limited in their ability
to assure risks because of the very high ratio of their liability to their
1.1 BACKGROUND OF THE STUDY
banking in Nigeria into the nineteenth century started as a means to facilitate
the slipping business of a British shipping line Elder Dempster agencies
operating in the Nigeria territory. The chairman of the company, Mr. Alfred
Jones perceiving the advantages that were acquirable, and its agents in Nigeria
Mr. George William Neville to establish a bank in Lagos.
was how the First Bank of Nigeria Plc was opened in Lagos in 1894.
1.2 STATEMENT OF THE PROBLEM
and credit management have implication on bank profitability and the
authorities’ depositors and shareholders. It could trigger off mass cash
withdrawal thus plunging the bank into deeper crisis. In analyzing the credit
and liquidity management of First Bank of Nigeria Plc, I shall examine its
assets quality, which includes its performing and non – performing loans. In
addition efforts would be made to look into the bank’s capital adequacy ratio
and its shocks of risk assets different measures of liquidity and solvency.
1.3 RESEARCH HYPOTHESIS
following hypothesis is developed and tasked to ensure a more effective and
result oriented research work.
Hi: the liquidity of universal banks could be determined
efficiently from the effectiveness of its credit management.
Ho: the liquidity of a universal bank could not be determined
efficiently from the effectiveness of its credit management.
Hi: lending and investment operations of universal banks depend
widely and extensively on its liquidity.
Ho: Lending and investment operations of universal bank does not
depend widely and extensively on its liquidity.
1.4 THE PURPOSE OF THE STUDY
bank is considered liquid it has sufficient cash and other liquid assets in its
portfolio together with the ability to raise fund quickly from other sources to
enable it meet its payment obligations and financial commitment in a timely
manner, therefore the main purpose is to highlight how liquidity and credit
management in this Nigeria Banking Industry is being discovered and the extent
to which First Bank of Nigeria Plc is guided in the management of its lending
1.5 SCOPE OR DELIMITATION OF THE STUDY
banks act as intermediaries by collecting deposits and paying interest on them
and granting loan charging the borrowers interest at the higher rate. Improving
these services to borrowers and the depositors the main goal of the bank is to
make profit. Apart from granting loans bank also generate profit on
investments. In order to maximize their earnings every bank attempts to
structure its assets and liabilities such a manner as to yield the highest
returns, subject to some constraints.
bank is considered liquid if it has sufficient cash and other liquid assets in
its portfolio, together with the ability to raise fund quickly from other
sources to enable. It meets its payment obligation and financial commitments in
a timely manner. This study therefore aims to cover the extent to which First
Bank of Nigeria, Plc is guided by the above enumerated theories in t he
management of it lending functions and know now it has been able to survive
over years in spite of the global liquidity problems to supplement his effort
the lending practices and procedure of the bank will also be evaluated.
1.6 LIMITATIONS OF THE STUDY
research was faced with many problems in the course of collecting information
relating to this project, as many staff is not willing to divulge related
information. The directions at various departments dealing with credit
management and liquidity in first bank refuse to disclose detail information
relating to liquidity and credit management. Access to departmental ledger
account was denied through verbal information relating to questions, asked was
given another limitation was the inability to cover various branches of
Nigerian banks, which are throughout the federation. This was mainly due to the
financial and logistical difficulties that such exercise of this would entail.
THE SIGNIFICANCE OF THE
Liquidity is defined in its
broadest sense as the ability to meet cash quickly and at a reasonable cost.
Credit management is the way universal bank, lend money out to borrowers.
However, this study tends to reveal the problems that one involved in the
liquidity is essentially that of having sufficient fund to meet at all times
this demand of money that may be made on a bank. Bank must be maintain adequate
liquidity in order to provided for and line in deposit for and other
liabilities, to satisfy unforeseen increased investment in particular desirable
earning assets when such opportunities arises the liquidity requirement of any
bank out of the bank. It is the responsibility of management to measure these
requirements and to anticipate them on a current and continuous manner.
1.8 DEFINITION OF TERMS
of universal banks the services offered by universal banks are numerous and
savings: - universal banks perform a very important function to all sectors
of the economy by providing facilities for the mobilization of savings and
making the available for investing purpose by the process of granting credit
facilities to other customers. In this may those funds are made available to
business to enable them expand their productivity capacity and to individuals
and household to facilitate consumptions.
credit facilities:- According to read (1984). He establish that the primary
function of universal banks is the extension of credit to commuting borrowers.
In making credit available, universal banks are rendering great social service
through their actions production is increased capital investments are expanded
and higher standard of living is realized.
Banks make it possible for
industries to produces a larger quantity of goods, which may remain the stock
as inventory before eventually being sold or reprocessed into another from. A
good example is the food industry where the quantity produced may be far in
express of what can be consume immediately.
fund:- universal banks serve as medium for transfer funds they facilitates
payment by enabling business, government and consumers to transact without
cash, cheques and credit cards which are used for bulk purchases as measured by
naira amount of transaction cheques drawn and deposited at the bank merely
indicated transfer of fund from one account to the other.
universal banks create money used to expand productive facilities otherwise
there would be a short down of economic activity generally as business would be
forced to wait until sufficient profits are made before they could expand.
However, the money create activity of universal banks is kept under the control
by the monetary to ensure that it is not excessive.
trade services:- all universal banks are involved in the financial aspect
of international trade and services
required supporting this important part of the country’s economy, such include
bill for collection, documentary credit and open account which are investment
used in import and export trade.