BACKGROUND OF THE STUDY
A bank is considered liquid when it has asset and investment
in security that are easily reliable at a short notice without a loose to the
bank together with the ability to raise fund from he other source, to enable it
to meet its payment obligation and financial commitment in a timely manner. In
addition there should be financial commitment buffer to meet almost all
Liquidity management of a commercial bank is a very vital
issue in the banking industry. It is the ability of the bank to manage its
liquidity position so that neither the liquidity nor the profitable will
suffer. For this to be effective, liquidity management must contribute to the
achievement of the overall cooperate fund management objectives to attain and
maintain a balance of profitability, solvency and liquidity.
Obligation of the maximum liquidity owed by surplus unite
can only be archived by holding enviable fund as cash since it has maximum
profitability. The must invest all fund on loan and average the highest
yielding, and most liquid of the entire asset in the bank.
Banks, because of the important role they play in the
economy, particularly in monetary and credit aspect of the economy faces a lot
of restriction irrespective of the fact that banks are the most highly and
closely regulated of all the business, they still have to operate within the
confines of the law and solve the problem of liquidity and profitability
dilemma in the economy. Apart form the constraints and the dual role of
liquidity and profitability, there is virtually no work on the liquidity
management in Nigeria commercial banks. In the light of this, the researcher
has decided to discuses this topic based on the analysis of the data collected.
The researcher will suggest some solution the problem of liquidity management
in the country.
STATEMENT OF THE PROBLEMS
Commercial bank asset management is a never-ending thing of
war. This war is pitched between efficient liquidity management on one hand and
profitability on the other hand. As Liquidity and profitability are two
inherent goals in commercial bank, bank managers will continue to experience
the conflict o trying provide efficient mechanism of addressing their bank
liquid and hence their safety of necessarily arising from the nature of their
A high proportion of commercial bank liabilities are made up
of demand deposits (current account fund deposits) saving deposit, fixed
deposit and fund from other source. Demand deposit are those bank liabilities
that are payable on demand. Necessary commercial bank need to keep only liquid
asset to meet a considerably volume of withdrawal. Liquid asset earn little of
zero return on asset. It is les risky and the less it likely to yield adequate
returns. As such, the high the less risky asset, the more banks is expose to
experience a bank run or crisis. At that rate will probably not able to recover
all its cost and then also make profit for the owners. But behold. Commercial
bank are business oriented firm with their share holder interested on
profitability. In other to satisfy its share holders, a bank might be attempted
to forget liquidity and pursue profitability by investing on a high yielding
less liquid asset that are profitable at the expense of liquidity which is
dangerous. It is always necessary to balance liquidity and profitability in
order to have efficient bank management.
The ratio or the percentage of idle cash balance in the
commercial bank are to hold at any point in time and to what form to hold it is
very necessary. While doing that, they should bear in mind the importance of
satisfactory level of profit. There are many constraints to bank in achievement
of their goal liquidity and profitability such as legal reserve requirement and
they should maintain adequate liquidity to meet the unforeseen and seasonal
loan demand and fluctuations of deposits. Cash reserves are also needed to take
the advantage of unexpected profitability investment opportunities. In effect,
banks are constrained and have to walk on a tight rope. There is the never
ending of war or what I may refer to as dilemma policy commercial bank
management in developing country. The Nigerian case is further aggravated by
the inconsistency of the monetary policy as administered by the central bank of
Nigeria. Is the reticent of the monetary coups detach. You will just walk up
one morning and hear over the radio of via circular No XY2 that the central
bank of Nigeria has issued a monetary circular No adjusting the private whether
upward or downward.
The federal government directive on withdrawal on all
federal parasttatals account from the commercial bank is one of such
constraint. The stock stirred up aggressive market in the banking industry.
Although all this stock are necessary to produce the desired
control of money in the economy, but such tends to give nightmare to the
banking management. This directive causes ripples in the banking industry as
such cause more discrepancy in the liquidity position of the commercial bank
and subsequently the rate of profitability.
OBJECTIVE OF THE STUDY
The objectives of the study are;To look at the liquidity
management of the bank in Nigeria with more emphasis on their investment
liquidity and profitability portion. To found out why bank need to be more
liquidity than any other business organization To solve the liquidity –
profitability problems of the banks. To look at the effectiveness and
management of the portfolio, by employing and using various approach, theories
and instrument in solving their liquidity profitability problems. To examine
the bank investment outlet (e.g. loan and advance investment in treasury bills.
Banker unite fund, bankers certificate called money, equity participation in
small and medium scale firms etc) and the degree of liquidity of such
establishment shall be examined. To take critical look of the asset portfolio
management of banks with a view to determine if there is a relationship between
the rate of profitability and liquidity. To identify why Nigeria banks are
excessively liquid and at the same time make high profit.
SIGNIFICANCE OF THE STUDY
The importance of liquidity management in the banking
industry cannot be over – emphasized. Since not more contribution was made in
the topic liquidity management, the researcher will carefully examine those
relevant to efficient liquidity management for a successful achievement of the
It is hoped that the result obtained form the study will
benefit the management and the non-bank financial institution, business
enterprise and student of financial accounting, banking and finance student and
other related course.
Readers of this study/work will be expose as regarding the
input of future study. The basis of this research work is the position of
liquidity of the Nigerian commercial bank as determinant of profitability.
DEFINITION OF TERM
Portfolio: this is a list of security and investment loan
stock, shares and lands held/owned by a bank, individual or and organization
Portfolio management: this goes with the management of the
security holding (investment portfolio of a bank or a business firm). A
committee or portfolio management department or any other body might manage a
Liquidity: it is the ability of bank to pay cash immediately
when called upon to do so for all of its demand liability.
Liquidity management: it is the ability of the bank to
manage the liquidity position so that neither the liquidity nor the
profitability will suffer. It evolves the provision for the withdrawal of
deposit, short term, and cash cyclical and satirical cash requirements.
Bank deposit: these are fund deposited in a bank. It is
divided into demand saving and time deposits
Demand deposit: this also known as checking the account
deposit payable on demand that is without pro notice of withdrawal.
Saving deposit: this type of deposit is usually evidence by
a past book under which the depositor customer of the bank is required to
notify the bank before withdrawal, but it is not the same in practice.
Asset: these are the entire property of a bank and other
investment in other profitable organization.
Asset management: it is the allocation of fund, the basic
objective being the maximization of profitability, solvency and regulatory
Bank run: A run occurs in a bank where there is mismanagement
of liquidity and profitability.