EFFECT OF LIQUIDITY ON BANK’S PERFORMANCE. A CASE STUDY OF UBA PLC 2010 – 2017

CHAPTER ONE

INTRODUCTION

1. Background of the study

Liquidity management in banks has posed several challenges during the distress era of 1980s and 1990s and persisted to the re-capitalization phase in 2005 when banks were mandated to have an increased capital base from N2 billion to an astronomical N25 billion (Agbada&Osuji, 2013). The apex bank’s mandate for recapitalisation was considered to be the salvation for the banking and indeed financial system in Nigeria, however, just five years later, precisely 2009, the Central Bank’s intervention was sought to stabilize and redeem five banks that were deeply enmeshed in illiquidity. Consequently, N620billion was injected into the five affected banks to stimulate stability, and confidence and subsequently heralded the establishment of Asset Management Corporation of Nigeria (AMCON) for the acquisition of affected banks.

Alshatti (2015), brought to light the fact that Banks are largely exposed to various types of risks attributable to liquidity management, which affect the performance and activity of these banks. Admonishing that since the primary goal of the banking management is to maximize the shareholders’ wealth, banks should assess the cash flows and the assumed risks in order to direct its financial resources in different areas of utilization. Ibe (2013) emphasizes that Liquidity plays a vital role in the successful functioning of a business firm; a firm should ensure that it does not suffer from lack-of or excess liquidity to meet its short-term compulsions.