The Impact Of Liquidity On Banks Profit In Nigerian Banking Industry (A Case Study Of Union Bank Of Nigeria)

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The Impact Of Liquidity On Banks Profit In Nigerian Banking Industry (A Case Study Of Union Bank Of Nigeria)

Chapter One

1.0 Introduction

1.1 Background of the Study

In every system, there are major component that are paramount for the survival of the system. This is applicable to financial system. The banking institution had contributed significantly to the effectiveness of the entire financial system as they offer an efficient institution mechanism, through which resources can be mobilized and directed from less essential uses to more profitable and productive investment. The performance of these financial institutions has proved to be effective channel between savers and borrowers. These important roles are played by merchant banks, savings banks, the control banks and development banks.

The banking industry have overtime function in vital banks units facilitating the transfer of assets that are well desired from the public (fund lenders) into other financial assets which are more widely preferred by grater part of the public (fund sackers). Thus, banking industry becomes the bedrock of the two functions of Nigeria banking system, which are deposit mobilization and credit extension. Therefore, an adequate financial system requires the attention of the banks management of profits and liquidity, which are two conflicting goals of Nigeria banking system. Profits and liquidity are effective indicator of the corporate health and performance of not only the banking system (Elyelty 2004), but all profit oriented ventures.

Therefore, these roles involves bringing together of people who have money and those who need money is crucial in this discussion. So also certain critical factors that are required to facilitate liquidity management and a stable, sound, competitive, financial system adequate regulating, and supervisory, framework and macro-economics capacity buildup.

1.2 Statement of Research Problem

Liquidity on banks profit management in banking industry, the problem innocent in Nigeria banking system is inter-mediation roles, the bank of industry idle funds borrow from lenders to investment such funds indifferent classes of portfolio. Such business activities of the banks is not without problems since the deposit from these funds savers invested by the banks profit maximization can be record and demanded when the later is not in position to meet their financial obligation so also considering the public laws of confidence as a result of banks distress which bedeviled the financial sector in Nigeria.

They intensified competition in the banking sector as a result of terrific emergence of large number of new banks. The problems then become how to identify the optimum point or the level at which banks industry can maintain its assets in other to optimize these two objectives; since each of the liquidity has a different effect on the level of profit. So also profit maximization as the resulted liquidity can lead to both technical and legal insolvency with consequence of low patronage and deposit flight; erosion asset base; other problems includes, excess liquidity, balancing the proportion of the deposit that will be demanded by the depositors at any point in time, and finally accurate selection of the factor that influence the level on banks liquidity possess some problems. All these problems are what the study intends to consider.

1.3 Objectives of the Study

The primary objective of the study will be to examine the significance of the liquidity and profit management to efficient, continuity and evolution of Nigeria banking industry.

Other objective includes;

  1. To investigate the issue of profit and liquidity management.
  2. To evaluate the extent to which profit and liquidity affect other elements of the banks managements.
  3. How banks can enhance their liquidity effect on other element of the bank management.
  4. How banks can enhance their liquidity and profits position.

1.4 Research Methodology

This study is predominantly base on data derived from both primary and secondary source. The primary data shall be collected through questionnaire because it provides a cheap means of collecting information from a greater number of people. Also it enables us to reach out respondent who are otherwise inaccessible.

In respect of secondary data which shall be collected, will consist mainly extraction of information from performance service report of the banks and the journal, the secondary data will be collected from newspaper, textbook, unpublished lecture note, internet research work, seminal official publication and historical document which hope will provide an insight into the history of liquidity and profit management in banking industry and its effects on the banks.

In analyzing data, the descriptive method of analyzing data shall be used. This involves simple calculation of data and interpreting the graph and charts.

1.5 Significance of the Study

The importance of the study will be to account for factor responsible for inherent challenges confronting banks of industry in managing liquidity and profits in the bank. Also it will contribute to human knowledge and complement other literature in the field of accounting, economics and banking.

1.6 Scope of the Study

The main purpose of this research work is to study the general basic principle applicable in liquidity and profits management in Nigeria banking industry. Therefore, the study will critically examine the component of profits and liquidity of banks of industry at a glance through treasury management.

1.7 Plan and Organization of the Study

This research work will be organized into five chapters.

  • Chapter one is the introductory aspect of the work which deals with background of the study, statement of the problem, objective of the study, scope of the study, research methodology and organization of the study.
  • Chapter two will also include literature review breakdown into sub-heading.
  • Chapter three will also contain research methodology of the bank used as a case study.
  • Chapter four is basically the body of research. It examined the liquidity and profits management in banks of industry.
  • Chapter five will consist of the summary and the conclusion of the whole chapter of the project and the recommendation.

Chapter Five

5.0 Summary, Conclusion And Recommendations

5.1 Summary

Liquidity and banks profit is a good item in any banks management, which all other objective are hugged open funds available to the banks is not made for the sake of safety but funds are related to certain cost which need to be satisfied so that all the stakeholder of the bank viewed proper in banks of industry.

The objective of the management team focuses on the operation which satisfied the profits, secure liquidity and legality which is the main assignment of a treasury department.

Below are the major problems identified in the study?

  1. Liquidity can not be measure, which has given a great concern to the management of any bank of industry.
  2. Profits of banks must be depend on long able funds, through profits and liquidity influence each other i.e. the more a bank need to maximize its profit, more consideration is needed to be taken on the amount of outflow involved and the period of return. The higher the fund involves, the lesser the liquidity trend of the banks.
  3. INTEREST RATE: Interest rate is one of the factors influencing the profits of banks in any regulated economy where interest rate and the bank tariff are regulated. The over head expenses of the bank might affect the return on the service and the profits of loan are highly constrained.
  4. RATIO: Requirement of reserve ratio affect the profits of bank of industry due to high or low ratio.
  5. THE ECONOMY: A healthy economy for instance gives the investors to their excess fund on the available opportunity.

5.2 Conclusion

From the foregone analysis, the management of profits and liquidity in banks of industry are of great important to the bank itself and the customer. There is no doubt that effective and efficient management of liquidity and profits in bank of industry is of great benefit to the economy.

Although the need to effectively manage of banks of industry with liquidity and profits problems and need to be over emphasized efficiency and reliability of any bank of industry is nothing but ability to justify the profits and liquidity position to the interest of the shareholders of the bank.

Evaluation, observation need to be encourage on the objective of banks of industry management. The regulatory authorities should also guide and enforce all laws relating to the activities of banks of industry.

This would assist in sanitizing the banking sector of the economy.

5.3 Recommendations

Since liquidity yield no income, the banks should avoid holding much of them than necessary, management should know the reserve requirement ratio and liquidity position.

Invariably, bank procedure to be followed in managing of liquidity position, is that of matching to assess with the period for which liquidity is divided. It consists of assets that can be easily converted to cash without any effect on the bank customer.

Since the advertisement of loan to customer consist of non-liquidity assets in order for the bank to achieve the objective of the profits and liquidity. The bank needs the aggressive lending which must be limited by the liquidity position.

The regulatory authorities of the banks should make available of share liquidity maintain. The requirement should be loosely monitored that funds are not misused. The regulatory authority should also watch the inflow of funding in banks of industry management so that funds that are used are stipulated by the regulatory body should be checked and corrected.

The requirement ratio should be determined accordingly by relation with peak period. A high reserve period, a period of massive deposit usually deprives banks to make use of funds for profit purpose before the maturity date of payment. It should be determined with the same rate on deposit bank variation. It should be made between fixed deposit savings and current deposit.

Interest should also determine in consideration of all micro-economics variation together with the impact of banking management, during the period of inflationary trend, a reasonable rate which is not relation with the economic currency should be determined so that the bank do not rail as a result of regulated rate o interest.

Policies and the society have direct impact on the business activities of the economy for any government to coverage investment, there must be a long term planning policy.

The Impact Of Liquidity On Banks Profit In Nigerian Banking Industry (A Case Study Of Union Bank Of Nigeria)

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The Impact Of Liquidity On Banks Profit In Nigerian Banking Industry (A Case Study Of Union Bank Of Nigeria)


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