TABLE OF CONTENTS
TITLE PAGE I
TABLE OF CONTENTS VI
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 3
1.3 OBJECTIVES OF THE STUDY 3
1.4 RESEARCH QUESTIONS 4
1.5 RESEARCH HYPOTHESES 4
1.6 SCOPE OF THE STUDY 5
1.7 SIGNIFICANCE OF THE STUDY 5
1.8. LIMITATION OF THE STUDY 6
1.9 DEFINITION OF TERMS 6
CHAPTER TWO: LITERATURE REVIEW
2.1 INTRODUCTION 9
2.1.2 ILLIQUIDITY 10
2.1.3 INSOLVENCY 10
2.1.4 CAUSES OF ILLIQUIDITY AND INSOLVENCY 11
2.1.5 SYMPTOMS OF DISTRESS 13
2.1.6 OVER CAPITALIZATION 13
2.1.7 OVER TRADING 14
2.2 THEORETICAL BASIS FOR BANK DISTRESS 15
2.3 THE BUSINESS CYCLE THEORY 16
2.4 CREDIT MARKET CONDITIONS APPROACH 16
2.5 MONEY APPROACH 16
2.6 RELEVANCE OF PRUDENTIAL GUIDELINES AND
PREVENTION OF ILLIQUIDITY 17
2.7 GENERAL FUNCTIONS OF COMMERCIAL BANKS 22
2.8 MONEY CREATING FUNCTION 22
2.9 SERVICE RENDERING FUNCTION 24
2.10 SPECIAL FUNCTIONS OF COMMERCIAL BANKS 25
2.11 REVIEW OF DECREE NO 25 OF 1991 26
2.12 SUMMARY 31
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 INTRODUCTION 32
3.2 RESEARCH DESIGN 32
3.3 POPULATION AND SAMPLE OF THE STUDY 33
3.3.1 POPULATION SIZE 33
3.3.2 SAMPLE OF THE STUDY 33
3.4 SAMPLE TECHNIQUES 34
3.5 RESEARCH INSTRUMENT 34
3.6 VALIDATION OF INSTRUMENT 35
3.7 METHOD OF DATA COLLECTION 35
3.8 METHOD OF DATA ANALYSIS 36
3.9 INSTRUMENT RELIABILITY 36
CHAPER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 INTRODUCTION 37
4.2 DATA ANALYSIS 37
4.3 TESTING ANALYSIS AND INTERPRETATION OF
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS 49
5.2 CONCLUSION 50
5.3 RECOMMENDATIONS 50
1.1 BACKGROUND OF THE STUDY
The business of modern banking started
in Nigeria in 1892 with the incorporation of African Banking
Corporation. British Bank of West Africa later absorbed this bank in
1894. The early period of commercial banking in Nigeria was
characterized by lack of legislation which made it an all-comers affair.
With the absence of any banking
legislation in 1892, when the first bank was established in Nigeria
(African Banking Corporation) anybody could set up a banking company
provided the bank is registered under the Ordinance Act which section
2(i) prohibited the formation of a banking company or partnership
consisting of more than ten (10) persons for the purpose of carrying on a
banking business, unless it was registered as a company, hence it was
referred to as the “free banking era”.
This period also saw the establishment
of three foreign banks and two indigenous banks. The foreign banks were;
The British Bank of West Africa Limited in 1894 (now known as First
Bank Plc), the Barclays Bank Dominion colonial and overseas in 1917 (now
known as Union Bank Plc) and the British and French Bank, in 1949 (now
known as United Bank for Africa Plc). The two indigenous banks were
National Bank of Nigeria in 1933 and the Agbonmagbe Bank (now known as
Wema Bank Plc), as well as the African Continental Bank Limited in 1947.
The appointment of the Paten commission of enquiry on 7th
September, 1948 was another feature of this free banking era. It was to
enquire generally into the business of banking in Nigeria and make
recommendation to the government on the form and extent of control,
which should be introduced into the banking system.
Based on the report of this commission,
the first ever banking legislation in the country was promulgated in
1952. Increase in the number of indigenous banks in the country was
another major event during this period. However, some banks established
during this period could not survive.
The second phase (i.e. the second era)
in the origin of commercial banking in the country opened with the
establishment of the Central Bank Plc (CBN) in 1959. After the
establishment of the Central Bank and prior to independence in 1960, new
commercial banks were established. 1959 to 1962 saw the enactment and
amendments of banking legislations. These were 1958 Banking Ordinance
which became effective in 1959, the 1961, 1962 and 1964 amendment and
the Banking Decree.
The evolution of commercial banking in
Nigeria brought about the Financial System Review Committee set up by
the Federal Government under the chairmanship of a distinguish
economist; Dr. Pius Okigbo. The committee known as the Okigbo committee
was review the Nigerian Financial System. Consequently, in a white paper
published on the committee with respect to the commercial banks (the
establishment of a state bank in each state and the amalgamation of the
three biggest indigenous banks into one entity). The Okigbo report, and
the white paper on it nevertheless, marked a new era in the evolution of
commercial banking system in Nigeria (Yunisa and Kehinde2010 ).
1.2 STATEMENT OF THE PROBLEM
There are very brilliants ideas,
projects, concepts, businesses that are viable, feasible and bankable
still waiting for angel investors. There seem to be lack of faith in the
Nigeria Entrepreneur, bank and financial institution business owners by
custodians of loanable funds i.e. banks and other financial
institutions. Therefore the statement of problem is how all these
business owners can have access in establishing this type of business.
More so, inventors find it difficult to access credit.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to
focus on the problems of liquidity in commercial banks in Nigeria so as
to provide the information required to make decisions as to how fund
should be mobilized effectively and one such decisions is made, to
provide the data necessary to adequately manage the available fund.
Other objectives of this study includes;
- To determine whether fund mobilization has effect on liquidity problem.
- To find out whether illiquidity hold customer to loose confidence in commercial banking.
1.4 RESEARCH QUESTIONS
1. Does fund mobilization has effect on liquidity problem?
2. Does illiquidity hold the customer to loose confidence in commercial bank?
1.5 RESEARCH HYPOTHESES
Ho: Fund mobilization has effect on problems of liquidity.
Hi: Fund mobilization does not have any effect on problems of liquidity.
Ho: Illiquidity holds the customers to loose confidence in commercial banking system.
Hi: Illiquidity does not holds the customers to loose confidence in commercial banking system.
1.6 SCOPE OF THE STUDY
The scope of this study is restricted to
the effect of liquidity problems on commercial banking system in
Nigeria with United Bank for Africa Plc. (UBA) as the case study. The
research work is limited to the staff and customers of the bank only.
1.7 SIGNIFICANCE OF THE STUDY
A study of this kind is expected to make
significant contribution to organization’s development. The study will
provide the basis for scrutiny for liquidity problems on commercial
banking in Nigeria, which aids bank under study (United Bank for Africa)
and other commercial banks to solve the problems faced in the area of
liquidity and mobilization of funds. It will assist other banks to solve
similar problems. It also provides various indicators and methods used
to measure organizational performance.
1.8. LIMITATION OF THE STUDY
As expected this study may not be without its limitations.
The study was limited by a number of factors, which include the following:
i. Insufficient numbers of the recent literature on the subject topic.
ii. Inadequate time and financial resources to carry-out the study extensively.
iii. Inaccessibility of some relevant data.
1.9 DEFINITION OF TERMS
1. Liquidity: The liquidity of an organization is measured by the ability of that organization to meet its short term debt and liabilities.
Liquidity can be measured through the following ratios:
(a) Current ratio: current asset
Current liabilities (in which the ratio is 2:1)
(b) Acid test ratio: Current asset – stock
(in which the ideal acid test ratio is 1:1)
(c) Fixed interest ratio: Profit before interest and tax
Fixed interest rate
(d) Return on Capital Employed (ROCE):
Profit before interest and tax
(e) Earning per share ratio:
Profit after tax
No of ordinary share issued
An establishment or bank is said to be illiquid when it can no longer
meet its depositors demands or its obligations as at when due. It is
numinous sign of insolvency and when the problem of illiquidity persists
for a very long time, it could lead to forceful sale of assets below
their market value.
3. Commercial Banks:
Commercial banks are institutions where people, corporate bodies,
statutory corporation etc keep money and other valuables for security
4. Insolvency: An
establishment or bank is said to be insolvency when the value of its
realizable assets is less than the total value of its liabilities.