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Project Topic: THE IMPACT OF LIQUIDITY MANAGEMENT ON THE PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

  • Type: Project
  • Department: Accounting
  • Project ID: ACC2156
  • Price: ₦3,000 ($20)
  • Pages: 49 Pages
  • Format: Microsoft Word
  • Views: 602

For more Info, call us on
+234 8130 686 500
or
+234 8093 423 853
ABSTRACT
The success of any bank is to a large extent dependent on how effective it can manage its liquidity.  In respect of this, the research project seek to evaluate the impact of liquidity management on the performance of deposit money banks in Nigeria, and in relation to this, explore the extent to which effective liquidity management can enhance the profitability and survival of banks in Nigeria. The regression analysis was applied on data on relevant data such as the industrial liquidity ratio and performance ratio proxy by ROA from the period of 1985-2013, both of which were obtained from the CBN. The findings indicate that liquidity management significantly impact on the performance of deposit money banks. It therefore recommends that the services of competent personnel should be employed by deposit money banks in Nigeria to ensure efficient and effective management of liquidity.

INTRODUCTION
1.1 Background to the Study
Globally, the maintenance of adequate liquidity level plays very crucial roles in the successful functioning of all organisations. Liquidity management is a concept that is receiving serious attention all over the world especially with the current financial situations and the state of the world economy, Ibe (2013). Some of the striking corporate goals include the need to maximize profit, maintain high level of liquidity in order to guarantee safety, attain the highest level of owner’s net worth coupled with the attainment of other corporate objectives. The importance of liquidity management as it affects corporate profitability in today’s business cannot be over emphasised. The crucial part in managing working capital is required maintenance of its liquidity in day-to-day operation to ensure its smooth running and meets its obligation (Eljelly, 2004). Liquidity plays a significant role in the successful functioning of a business firm. Therefore, a firm should ensure that it does not suffer from lack-of or excess liquidity to meet its short-term compulsions. A study of liquidity is of major importance to both the internal and the external analysts because of its close relationship with day-to-day operations of a business (Bhunia, 2012). Dilemma in liquidity management is to achieve desired trade-off between liquidity and profitability (Nahum et al. 2007).
The Basel committee, in response to the global financial crisis of 2007 – 2010, has proposed a new set of liquidity requirements to complement its revised framework of capital requirements. The primary and obvious motivation for the new interest in managing banks’ liquidity is concern about liquidity risk, which we define as the risk that a solvent bank may find itself unable to manage its current flow of withdrawals from its own stock of liquidity and access to borrowed funds from others, Calomiris et al (2012). As a result of the heavy reliance of banks on central bank lending during the crisis, policy makers understandably would like to reduce the dependence of deposit money banks on the lender of last resort, and thus encourage banks to limit or self-insure (through cash asset holdings) some of their liquidity risk.
According to Begg, fisher and Rudiger (1991:130) liquidity refers to the speed and certainty with which an asset can be converted back into money (cash, income) whenever the asset holder desires, money itself is the most liquidity asset o all liquidity management seeks to ensure attainment of the short term objective. 
A liquid bank is one that stores enough liquid assets and cash together with the ability to raise funds quickly from other source to enable it meet its payment obligation and financial commitment in a timely manner. 
Therefore according to Ngwu (2006:36) liquidity management is the act of storing enough funds and raising funds quickly from the market to satisfy depositor loan customer and other parties with a view to maintain public confidence.
Practically, profitability and liquidity are effective indicators of the corporate health and performance of not only the commercial banks (Eljelly,2004), but all profit-oriented ventures. These performance indicators are very important to the shareholders and depositors who are major publics of a bank. As the shareholders are interested in the profitability level, the depositors are concerned with liquidity position which determines a bank's ability to respond to the withdrawal needs which are normally on demand or on a short notice as the case may be.
Liquidity management is an important aspect of monetary policy implementation, while the other integral component of monetary policy, i.e. economic management, involves promoting sustainable economic growth over the long term by keeping monetary and credit expansion in step with an economy’s noninflationary output potential, liquidity or reserve management as a shorter time horizon. In order to maintain relative macro-economic stability, reliance is placed on liquidity management to even out the swings in liquidity growth in the banking system.
An important step towards market oriented policy procedures takes place when the Central bank assumes responsibility for evening out swings in demand relative to demand on its own initiative, rather than waiting passively for individual banks to come to it. Once it begins to supply or absorb liquidity through market intervention, the discount window plays an important, but subordinate safety valve role by providing the short-run reserve needs of the banking system for purposes of meeting short term liquidity obligations, Olarewaju (2011).

1.2 Statement of the Problem
The success of every bank according to Ngwu (2006) is highly dependent on its level of liquidity; therefore a problem in the management of liquidity posed a serious problem to the survival of any bank. 
Through the financial inter-mediation role, the commercial banks reactivate the idle funds borrowed from the lenders by investing such funds in different classes of portfolios. Such business activity of the bank is not without problems since the deposits from these fund savers which have been invested by the banks for profit maximization, can be recalled or demanded when the later is not in position to meet their financial obligations. Considering the public loss of confidence as a result of bank distress which has bedevilled the financial sector in the last decade; and the intensity of competition in the banking sector due to the emergence of large number of new banks, every commercial bank should ensure that it operates on profit and at the same time meets the financial demands of its depositors by maintaining adequate liquidity.
 The problem then becomes how to select or identify the optimum point or the level at which a commercial bank can maintain its assets in order to optimize these two objectives since each of the liquidity has a different effect on the level of profitability. This problem becomes more pronounced as good numbers of commercial banks are engrossed with profit maximization and as such they tend to neglect the importance of liquidity management. However, the profit maximization becomes a myth as the resulted liquidity can lead to both technical and legal insolvency with the consequence of low patronage, deposit flight, erosion of asset base.
It is on this backdrop that this study seeks to empirically evaluate the impact of liquidity management on the performance of deposit money banks in Nigeria.


THE IMPACT OF LIQUIDITY MANAGEMENT ON THE PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA
For more Info, call us on
+234 8130 686 500
or
+234 8093 423 853

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  • Type: Project
  • Department: Accounting
  • Project ID: ACC2156
  • Price: ₦3,000 ($20)
  • Pages: 49 Pages
  • Format: Microsoft Word
  • Views: 602
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    Details

    Type Project
    Department Accounting
    Project ID ACC2156
    Price ₦3,000 ($20)
    No of Pages 49 Pages
    Format Microsoft Word

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