Problems And Prospect Of Cash Management In Commercial Banks (A Case Study Of Union Bank Of Nigeria Plc, Ilorin)
Problems And Prospect Of Cash Management In Commercial Banks (A Case Study Of Union Bank Of Nigeria Plc, Ilorin)
Chapter One
1.0 Introduction
The concept of management was evolved as a result of existence of man. Hence, it could be traced back to the evolution of money. In this case, the origin of money which brings about cash management in our contemporary commercial backs really comes as the aftermaths of the difficulties of trade by barter. Trade by barter is a system and practice where goods are exchanged for goods and services. Barter system has many defects and drawbacks. These include the difficulty of double coincidence of wants, time and energy wastage, difficulty in ascertaining the value of commodities, discouragement of large quantities and variety of purchases, deferred payment, installment payment and borrowing large scale production and such like.
Having identified the defects inevitable by barter system, people were false to fashion out a generally acceptable means of exchange i.e. money. It worthy to note that the paper money presently in use was originated from the receipt the goldsmith issued to people who kept gold and other valuables with them. As goldsmiths were taught to be honest, merchant people started keeping their gold with them for safe custody. In retain the goldsmith gave the depositors receipts promising to return the gold on demand. These receipt of the goldsmith were substitutes for money, such paper was back by gold and was convertible on demand into gold. This ultimately led to the development of bank note and today, money has another form other than paper called coin.
Thus, money is anything that is generally acceptable as medium of exchange for making payment, settlement of debt or other business obligations. The qualities of money such as generally acceptability, portability, durability homogeneity, divisibility, recognizatbility and scarcity make money and prudent management. Paper money and coins are collectively called cash. Today, customer deposit money with banks and banks give a promise to pay on demand the amount deposited by the customer. The customer can withdraw all his or her money in cash for the purpose of settling his or her debts or he or she can issued cheque by asking the bank to transfer the stated sum form his deposit to beneficiary.
So, the continued patronage of a bank by a customer depends on some important factor among which are the following:
- Availability of cash to meet the immediate and urgent needs of customers.
- The qualities of services rendering.
- The proximity of the back to the customer’s business premises.
- The approach ability and business acquisitive of its manager e.t.c.
Of all the reasons listed above, there is one which ranks supreme to all other reasons and that is the ability to strike balance between the shareholder and customer i.e. problem of profitability and liquidity are equally the utmost. The bankers has to keep enough cash in order to meet customers demand at the time will serve the interest of the shareholder who are expecting returns over the investment.
1.1 Statement of Problem
In course of the study, the research is centered on ineffective cash management in our country’s commercial banks with particular attention to Union Bank that which deprives our country’s banking industry of competing with banks of developed countries of the world.
The following recommendations are suitable for the solution to the problems of cash management.
- There should be experienced and honest personnel employed into the bank for effective and efficient management of cash.
- The idle balance should be properly invested in economy income.
- There should also be supervisor and implementation of loans by banks so as to ensure that the loan is well utilized for the intended purpose.
- Cash inflow and outflow overtime period should be adequately prepared and adhered to.
- Adequate supervision to branches without notice should be undertaken to ascertain that they operate in efficient way to improve cash management.
1.2 Research Questions
This paper intends to find answer to these questions so as to achieve it objective and for the purpose of this research work.
- What are the saving services of the banks and their operation?
- What are the native of operation of the bank?
- What are the conditions to grant loan and on what type of collateral do you grant loan?
- How does cash manager meet the demand of the deposit and the shareholder?
- What is the policy of bank on the shortage or surplus declared by the central banks?
- Does your bank has any has investment in other bank or industry?
1.3 Objectives of the Study
The main objective and aim is to examine the problems and the suggested prospects of cash management in commercial banks. It also aims the following objectives.
- To meet payment schedule.
- To minimize the finds committed to cash balance.
- To proffer strategies techniques to ensure efficient cash management as this could by the commercial banks as modem financial organization.
- To determine the appropriate target cash balance.
- To determine how cash can be manager efficiently and effectively.
1.4 Research Hypothesis
- H0: Cash management does not have positive effect on the profitability of commercial banks.
- Hi: Cash management has positive effect on the profitability of commercial banks.
1.5 Significance of the Study
The study of this research work is particularly of great importance to the bank, government, researcher and to the public.
To The Bank:
The study of this research work allows the bank to develop strong internal control of cash receipts and disbursement so as to manager the inflow and outflow of cash in order not be face liquidity crunch i.e. borrowing at disadvantage.
To The Government:
The study of this work gives a means of eradication of the difficulties in the implementation of monetary policy by the central bank also recommend a capacity building framework for developing countries and to find loans to some government parastatals e.g. farmers.
To Other Researchers:
It gives the advantage to a researcher to look at the float management 4 techniques, disbursement control and investment of idle cash, specifically relevant data from Union Bank of Nigeria Plc
To The Public:
To maintain adequate level of cash to meet operational and capital requirements and to obtain the maximum yield on short term investments of pooled, idle cash and to maintain adequate monies at hand to meet daily cash requirement of the municipality while maximizing the amount available for investment and to obtain maximum earning in invested finds while ensuring their safety.
1.6 Scope and Limitation of the Study
The scope of this study focuses attention on cash management in commercial banks problems and prospects with a case study of Union Bank of Nigeria Plc.
The researcher faced so many limitations while conducting the research which includes insufficiency of data as some officials could not respond to the questionnaire as they have to attend to their primary assignment.
Insufficiency of data is also part of the limitation faced in the course of this research work as the bank officials being unable to disclose some information.
Another problem or limitation in the course of this research work is inadequacy of fund because the researcher needs some amount of cash to do one or two thing (i.e. Transportation) in the process of the researcher work. Uncooperative attitude of respondents is another limitation the researcher faced while conducting the research work.
1.7 Definition for Key Terms
Coins:
A coin is metal money with definite amount and weight issued and stamped by the central authority responsible for the issuing of money in a country.
Paper Money:
As the name implies, it is a form of paper money which was originated from the receipt of the goldsmith issued to people who kept gold and other valuables with them.
Bank Money:
This is the money one keeps in his or her bank account for safe keeping also called deposit which can be given back to the owner or demand.
Customer:
This is refers to as an individual, organization or club who keeps money and other valuables with the bank for safe keeping and for future purpose.
Bank:
This is an institution set up purposely for safe keeping of money, valuable goods and essential documents.
Cash:
This refers to coin and paper form of money people and organization keeps in the bank for safe keeping.
Cheque:
This is an institution or a bill of exchange made upon a bank to pay a given sum of money to a named person or bearer at a specific date.
Deposit:
This entails the amount of money i.e. cash every individual or organization keeps in the bank over a period of time.
Transitionary Motive:
It is the desire of holding money in order to meet day to day needs of individual or organization.
Precautionary Motive:
This is the desire for holding money in order to meet up with unforeseen development or contingencies or unexpected expenditure.
Speculative Motive:
This is a desire for holding money with the hope of using such money kept in making quick money.
1.8 Organizing/Plan of the Study
The organization or plan of the study contain what each chapter is all about.
Chapter one contain the introduction of the study, statement of problems, the research questions, objectives of the study, research hypothesis, significance of the study, scope and limitation of the study, definition of terms and the organization of the study.
Chapter two contains the literature review, historical background of the case study (Union Bank of Nigeria Plc.) corporate objectives of Union Bank of Nig, Plc, appraisal of cash management application, control of loan and advances in Union Bank, definition of cash management and motive of holding cash, principle of cash management, instrument of cash management, procedure in management of cash, monetary policy, instruments of monetary policy and readiness to hold additional deposit.
Chapter three reveal the research methodology, the sources of data collected sample and sampling, the restatement of research problem, data analysis and techniques, the design of the study and the population of the study.
Chapter four reveal the data presentation and analysis, analysis of results, discussion or result and the result relating to the hypothesis and the policy statement.
Chapter five which is the last chapter consists of the findings, conclusion, summary, recommendation and references.
Chapter Five
Findings, Summary, Conclusion and Recommendation
5.1 Findings
Management of cash is one of the most critical aspects of financial management.
Cash is described as the most important tool business operation. It is also described as the lubricant that provides for the smooth and efficient running an organization. Too little cash can cause problems the firm in both short and long run which may lead to the firm insolvency or bankruptcy. On the other hand, too much of cash can also lead to idleness of experience resources.
The objective of cash management is defined broadly as keeping the amount of cash as a level that sufficient to operate the company. This means that the cash flow and the cash balance must be monitored.
This research paper highlighted the important of effective cash management in an industry. It also highlighted the steps in management of cash, also gathered that in order to solve the uncertainty and cash flow projection and lack of cash, the company should develop some strategies of the management of its cash.
Cash inflows and outflow should be planned and received cash surplus and deficit for each other budget should also be prepared, the flows of cash be it inflows or out flows should be properly managed.
Furthermore, it was gathered that idle cash balance should be properly invested to earn interest which will actually improve the revenue the bank or company.
5.3 Summary
In this research work, the researcher has extremely elaborate cash management in commercial bank and especially in Union Bank of Nig. It also assessed the problems and prospects of cash management of commercial bank. The analysis revealed what is meant by cash management, monetary policies and it revealed the process of money creation by commercial bank.
The problems involved in cash management that were left unexplained in relation to the owner of the cash, the shareholder and the depositor. Th. facts there is no project or business organization without lapses or weakness in any of its interface and proper cash management the essence of excessive cash management is to keep idle cash at an absolute minimum.
The problem of cash management of commercial bank linked with the management problem of multinational with many divisions. Banks have two major options for cash management. They can either do it on regional division or decentralize basic or systematic centralized basic. This means that, it may operate national control of cash balance out. However, it is widely believed that a profitable company is on record that is well finance bank are among, may be distressed bank who are unable to meet their daily obligation as a result of their liability to manage their cash effectively.
These banks may have prospects substantial growth but due to lack of adequate planning of their cash, they fall into primitive liquidation.
However, the importance of cash planning in banks can not be over emphasized, in cloning the project, there is need to consider the percentage increase in deposit as liabilities of any branches of bank are generally refer to as cash centers which mean they are referred well require to as cash for their day to day operation that they receive form theft customers. Hence cash is needed by the bank to satisfy both the urgent and unexpected requirement for the customer.
Finally this research work was also able to note the loan and advances to customer without adequate collateral security to cover both the loan and interest when a customer defaults.
5.2 Conclusion
The vitality of cash management to the welfare of a business or organization cam-tot be overemphasized. A firm may be making a product or service which out sell its competitors, it may be immensely profitable but unless its cash is well managed, these earning might never be utilized efficiently.
Therefore, cash which is regarded as the most liquid assets in any organization must be managed effectively to yield the expected returns to their investor organization must maintain certain level of liquidity must take first priority in bank preferences in maintaining the level of equilibrium followed by profitability.
The behavior of cash can be anticipated and control can be effected by suitable planning. If it is know that a certain sum must be paid out at the end of a period, steps can be taken to ensure that the money is available at the require time.
The purpose for which loan is to be utilized is to ensure that loan is not suborned for gambling or any illegal activities.
At the end of each working day, cash deposits are evaluated by CBN by the commercial bank. At the beginning of each working day, the bank normally withdraws cash from CBN when they are in need of it. Each bank has a facility with the CBN known as (CDF) cash drawing facility which enables the bank to have access to cash when they don’t have enough.
Cash management in commercial bank problem and prospects are based on the comments of respondents through questionnaire. Loan must be supervised and implemented so as to ensure that the loan is well utilized for the purpose of collecting loan and it should be supervised by the bank.
5.4 Recommendations
Cash as an input and out for the smooth running of an organization must be effectively managed in order to curb shortage as well as utilization of its excess.
For the efficient management of its cash, the company must take to the following steps:
- Provide accurate accounting for cash receipt, payment and cash balance in order to determine the accurate one.
- The bank must know how the customer operates his/ her account, whether he is credit worthy, the amount the customer has in his I her account and how long the customer has been operating the account in order to prevent losses or theft.
- The bank should also request for the guarantor if the customer is a new customer and if the guarantor must sign that is guarantying the customer. so as to meet up the demand of customers that has deposited their money in the bank.
- To prevent unnecessary large amount of cash form being held idle in the banks account which produce no revenue i.e. idle cash must be invested in proper mix of bank deposit and marketable securities to earn profits.
- Expended cash inflow outflow overtime period should be adequate prepare and adhered to so as to create an unlimited number of cash flow cast in different ways to obtain the weekly detail or monthly calendar reports.
- These should be adequate supervision of loan and advances, so that the loan and advances received by the customers will be used for the intended purpose of collecting the loan and the bank must ensure that the loan is not used for illegal activities e.g. gambling and the bank should monitor the project which he or she wants to use the loan for so as to know how the project will yield profit to repay the bank in order that the customer will not defraud the bank.
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