The Liquidity And Profitability Management In Commercial Bank (A Case Study Of Union Bank Of Nigeria Plc Lagos)
1.1 Background of the Study
A commercial bank is an economic unit which main goal is to maximize profit. Every bank attempts to structure its asset and liabities in such a manner as to field the lightest returns subject to some constrain. When customer deposit money with a bank they are lending the funds to the banks for a specific or indefinite period of time pending on the contract signed with bank. The customer can deposit and withdraw funds at short notice or without notice depending on the type of account being operated.
Bank however knows from experience that on average. Only a small proportion of the funds by the bank depositor at any given to me the bulk of the profit made by the bank arise from those simple transaction. i.e. the different between the cost of funds deposited by customers and the change on loan to customers. Generally depositors are paid lower rate of interest when compared with the rate charged on loan. In addition bank also invest their surplus funds in short. medium and long term securities what makes the task of asset selected difficult is the need. The management of funds in commercial bank or banking is considered liquid if it has adequate resource of liquidity instrument which include asset they are readily sealable without materials loss in advance of maturity
1.2 Statement of Research Problem
As a result of depositing Money into the bank by customer which can be withdraw at short notice or without notice and the lending of money intending borrower has posed a problem of how can the bank maintain profitability and liquidity at the same time. The problem arise due to the fact that bank would like to make profit to cater for its obligations as well the be up doing with the demand of customers who deposit saving having the expectation of withdraw when need arises.
As a result of the a aforementioned situation there is need to extensively find out how banks were able to meet up with their obligation
1.3 Research Question
- What is the average rate of withdraw by deposition per mouth?
- What is the payback period and debit collection period of loans granted to borrow?
- What is the rate of interest on saving?
- What is the interest on loan?
1.4 Objective of Study
Because of the importance of the subject matter (profitability and liquidity management) to the efficiently continuity and evaluation of commercial bank management, the following are objectives of the study.
- To improve the management of commercial bank the essence of profitability and management
- Evaluating the extent to which profitability and liquidity affect other element of bank management
- To gone way for more analysis by study future of the subject.
- To evaluate the existing theories with contemporary and liquidity.
- To identify various component of profitability and liquidity.
1.5 Scope Of the Study
In order for this study to be very meaningful, this study therefore will be limited to basic principles applicable in liquidity and profitability management in commercial banking system using Union Bank of Nigeria Plc, Head Office Marina Lagos as a case study.
This study will also look into the component of profitability and liquidity of commercial banking management glance via through treasure management.
1.6 Significance of the Study
The finding would be of immense benefits to the bank, depositors on customer’s borrowers and the nation a whole.
The research would give relevant information to economic planning team on which sector and area that requires attentions for economic development because the interest rate of lending and minimum capital base of commercial bank determines the economic growth. The finding aids the commercial bank on how to cushion the effect of low liquidity and maintaining of high profitability.
In conclusion, it will serve as a term of reference for further researchers.
1.7 Plan of the Study
The study is divided into five chapters in the following respect and a proposal content is attached.
Chapter two covers brief history of commercial banking
Chapter four covers the commercial banking liquidity management considering all other element of profitability and liquidity of asset.
Chapter five cover the summary of the findings, recommendation, conclusion and bibliography.
Summary Conclusion and Recommendation
Profitability and liquidity is a goal in only commercial bank management, which all other objective are hinged upon. Fund available to the bank is not made for sales of safety but each fund, is related to certain cost which need to be satisfied so that all the stock holder or the bank, yield proper return from the funds invested in the bank.
In commercial banks, the objective of the management team focuses on the operation which satisfies the profitability, security, liquidity and legality which is the main assignment of any treasury department.
Below are major identified in the study:
- Liquidity is not being measured, which has given a great concern to the management of any commercial bank.
- Profitability of banks must depend on loan- able funds. Though profitability and liquidity funds influence each other i.e the more a bank needs to maximize it’s profit, more consideration need to be taken on the amount of outflows involved, the lesser the liquidity trend of the bank.
- Interest rate is on of the factor influencing the profitability of bank in any regulated economy, where the interne rate and the bank tariff are regulated, the overhead expenses of the bank might be above the returns on the services and profitability of loans are highly constrained.
The need to effectively manage a commercial Bank, face with liquidity and profitability problem, need not be over emphasized.
Efficiency and reliability of any commercial bank is nothing but the ability to justify its profitability and liquidity position, to the interest of the shareholders of the bank. Evaluation, observation need to be encouraged on the objectives of commercial bank management.
The regulatory authorities should also guide and enforce all law, relating to the activities of commercial banks.
This is hope would assist, in sanitizing the banking sector of the economy.
Since liquidity yield no income the bank should avoid holding much of them than necessary. management should know the reserve requirement ratio: and liquidity position. Invariable bank procedure to be followed in managing of liquidity position is that of matching the asset with the period for which liquidity is derived. It should also consist asset that can be easily converted to cash with out any effect on the banks customers.
Again, since the advancement of loan to customer of non-liquidity assets in other for the bank to achieve the objective of profitability and liquidity the bank needs to be aggressive in lending, which must be limited by the liquidity position
The regulation authorities of the bank should make available of short liquidity means for bank since liquidity measure in net certain pesure requirement should be closely monitored so that funds also match the outflow as funding in commercial bank management by the by the regulatory body should be checked and corrected.
iii. Preserve requirement ration should be determined accordingly in relation with the peak.
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