THE IMPACT OF FUND MANAGEMENT AND CORPORATE SURVIVAL IN DEVELOPING NIGERIAN BANKING INSTITUTION. (A CASE STUDY OF CENTRAL BANK NIGERIA, ILORIN.)

CHAPTER ONE

1.1                                 INTRODUCTION

It is necessary to firstly talk about the definition of fund, function and aspect of fund management in manageable decision.

Also to mention sources of fund in banking institution is all about.

A fund is available or ready money with which an asset can be converted to cash in order to meet the withdrawal needs of depositors on demand.

There are needs for planning and controlling the fund (money) of an organization for the purpose of achieving the financial objective of the organization.

          Fund management is a managerial decision: these could be categorized into three aspects.

Firstly, investment decision which is how funds are thus allocated and committed of the banking institution capital fund into project that will yield future benefits in life with the expectation of the owner, it is significant because of the future cannot be predicted with the reasonable certainty, then there will be element of risk. Apart from identifying an investment for new project, the financial management considers with the maintenance of existing asset to enable them continue to generate return. This means that investment as well as short term investment (Working Capital).

Secondly, financial decision: this is a process of selecting suitable fund to finance long-term asset and short term assets.

          Having decided on what project and how much is needed in term of money (fund) then the problem is how to raise the fund to meet the investment, therefore, the source of fund raising could be internally generated fund, (retain earning) or externally generated fund, in form of equity share (ordinary share holding capital).

Thirdly, dividend decision, this has to do with what proportion of company’s profit is paid out as dividend return to the capital provider of economy fund, therefore, care has to be taken in considering optimum decision. Whatever is paid out as dividend will not long be retained in the business for further growth funding.

SOURCES OF FUND AVAILABLE TO THE BANKING SECTOR

The sources of bank funds are as follows:

1.     PRIMARY SOURCES

This is the talking about short term asset and other liquidity instrument such as treasury bills, commercial paper, certificate of deposit, bank deposit, treasure certificate and eligible stock.

2.     SECONDARY SOURCES

This is talking about short term loan advances, however, a bank will have its liquidity more replenishment and the more the replenishment of its loan and advance are made.

3.     THE APEX BANK

The apex bank (i.e. CBN) serves as a source of fund to the banking sector as its last resort. The banks always approach CBN for short term fund whenever they are short of funds. The CBN also facilitate the financial instrument. However, fund management in banking sector could be necessary in order to meet customer withdrawal, to satisfy the monetary authority policy necessary. Therefore, it could be said that the bank is having fund when it could meet the above requirement.

          Central Bank of Nigeria specifies in monetary policy from time to time what the liquidity ratio should be and the asset that has to be considered liquid. The liquidity assessments enable us to determine the effectiveness and efficiency of fund management of the bank where the bank is rich a verse or badly managed.

1.2     BACKGROUND OF THE STUDY

The case study is on Central Bank of Nigeria; Central Bank of Nigeria was established as a result of WACB in 1992 which was automatically linked the British system which make investment policy rather conservation in the sense that sterling reserve were invested only in British and WACB could no longer engage in monetary management and in order to eliminate the efficiency and to promote the growth of domestic money and capital market, the need for establishment of CBN data book to 1981 when three study as conducted in every degree and incentives and the study were:

i.                   The Dr. Mors unpolished study on the need for the establishment of a CBN. The study was on the Dr. Denis only made a passing mention of the desirability of CBN;

ii.                 The Trevor report was the second study. Trevor however focused his effort on attention on the gold cost and the he recommended against the establishment of CBN in Nigeria;

iii.              David Rovan conducted the third study suggested in his conclusion that the need for CBN was not an urgent one.

In March 1982, Dr. K.O. Mbadikwe move a motion during the first session of the new constituted house of representative that has a practical means of consolidating the financial resources (including regulation of good and current) of this country, for the purpose of rapid economy growth ad as strengthening the existing African Bank that the government should initiate organize, established CBN with two years from the passage of this motion. On April, 19th 1952, the Bill was revisited and discussed with financial secretary the Hon. E. Hunsworth who objected the establishment with the following reasons:

i.                   A constituted of a WACB Africa;

ii.                 Establishment of a Nigeria bank for issue;

iii.              A gradual transmission of Central Bank establishment in 1953, a group of officials of the IBRD visited Nigeria and reviewed Fisher’s report and disagreed with some of his proposal as it is too traditional. In 1956, Mr. J.B. Loynes concluded in his report that Central Bank should be established in Nigeria. The recommendation lead to the passage of CBN ordinance in 1958 with a board of directors appointed. The board was made up of governor and deputy governor both appointed by governor general and prime minister of the federation. For other members of the board, Mr. R.P. Fenton was the first governor and official of the Bank of England. The responsibility to issuing currency and managing the country’s debt. The secretary department who was responsible for administration, research and statistics.

1.3     STATEMENT OF THE PROBLEM

The decision to be undertaken on impact of fund management on corporation survival in banking institution as problem to study could be made under the imperfect knowledge of thus following factors like, bad loans and advances to customers, fraudulent practices of management under capitalization, bad management, lack of proper supervision, granting of unsecured credit facilities to owners, director and related companies, etc. and if the perfect knowledge existed, these problems would disappear and there would be perfect fund management which would lead to perfect corporate survival of every banking institution.

1.4     OBJECTIVES OF THE STUDY

The aims of study is to find out the impact of fund management on corporate survival in banking institution (A case study of CBN)

The objective of fund management can be categorized into the following aspect:

       i.            To maximize profit (i.e. profitability) which means expanding revenue and keeping down cost which make profit to be maximized for the benefit of equity holder.

     ii.            Satisfying of shareholder, loan to creditors, supplier of labour supplier of management of skill and customer no one should be seen having preeminent of each other.

  iii.            Suitability in term of adequate financing of the project for which the fund is undertaken

  iv.            The physical and mental growth of the banking institution.

     v.            Maximization of shareholder wealth who are  the legal owner of sector.  Therefore, increase in value of ownership of wealth will manifest if the market price of the sector share increase.

  vi.            The safety of the fund given out by bank to their customers.

1.5     SIGNIFICANCE OF THE STUDY.

The significance of this study is to critically examine the important or fund management in the corporate survival in the banking instruction. The study is performed from the banking supervision annual report of year 2008 produced by C.B.N. however, it is not possible for me to go to all institution as a result of various constraints and limitations which are as follows.

       i.            Time available for the research work

     ii.            Finance to carry out the research work

  iii.            Inconvenient encountered during the research

1.6     RESEARCH HYPOTHESES

In order to achieve the objective stated, the research tested the following hypotheses is represented by the H_o. These types of hypotheses are a testable state which asserts that the observed result is completely due to chances. It is always stated in positive from and subjected to statistical testing.

Alternative hypothesis prevented by H_i the types of hypothesis clearing that population parameter value are different from hypothesized. If is always stated in positive from and not subjected to statistical testing of any form.

HYPOTHESIS

H_o: find management has to impact on certificate survival in the Nigeria banking institution. The study is written to mention generally the impact of fund management on the profitability position.  Liquidity position credit facility and balance sheet and growth rate of banking sectors as well as to show effect of corporate survival to the banking sector.

This study will also be of an assumed of their fund invested or deposited with bank on how the fund is been utilized and safety at the investment in the bank to know the question of their benefit as a return of their interest in the bank. It also assists the banking sector to know how to utilize the credit fund of the deposit or in terms of lending to the borrowers in order to meet urgent demand of the depositors. To the economy at large, the research work will be of good interest to the national economic problem that urgent attention on the banking sector through formulation of various laws and policies that will strengthen the banking sectors by the government and apex bank (C.B.N).

1.7     RESEARCH QUESTION

These are logically derived from the problem statement and the objective and more for instance, using privatization example, research question can  be generated from a much more refined topic such, pre  and post privatization in Nigeria. The effect on the citizens’ standard of living and the economy as a whole.  Research question such as the following can be generation for the study.

       i.            What is the difference in the level of standard of living of the citizen before and after privatization?

     ii.            What is the difference in the supply or distribution of the relevant good or service before and after privatization?

1.8     DEFINITION OF TERMS

C.B.N

Central bank of Nigeria:- is a national  bank that operates to establish monetary and finical policy and to control the money supply and interest rate. In 1948 an inquire under the leadership of G.D paten was established by the colonial administration to investigate banking practices in Nigeria. Prior to the inquiry, the banking industry was largely uncontrolled. The |G.D paten report, an offshoot of the inquiry became the cornerstone of the first banking legislation in the country, the banking ordinance of 1952. The ordinance was designed to prevent non viable bank from mushrooming and to ensure orderly commercial banking. The banking ordinance triggered a rapid growth in the industry, with growth also came disappointment. By 1958 a few number of bank had failed. To curtail further failures and to prepare for indigenous control, in 1958, a bill for the establishment of central bank of Nigeria was presented to the house of representatives of Nigeria. The act was fully implemented on July 1, 1958, when the central bank of Nigeria came in to full operation. In April n1960, the bank issued its first treasury bills.  In may 1961. The bank launched the Lagos bankers clearing house, which provided licensed bank a frame work in which to exchange and clear checks rapidly. By July 1, 1961 the bank had completed issuing all denominations of new Nigerian notes and coins and redeemed all of the West African currency board’s previous money.

WACB

West African currency board:- they explore copper money objects at the time of the Sehelian empires of ancient Ghana  and Mali, glass beads as money in 19th century  east Africa’s central caravan road, gin currency in colonial southern Nigeria, bank and east African currency board established in 1912 and 1919 respectively.

IBRD

International bank for reconstruction and development:- is an international financial institution which offers loans to middle income developing countries. The “IBRD” is the first of five member institutions which compose the world bank group and is headquartered in Washington, D.G united states. It was established in 1944 with the mission of financing the reconstruction of European nations devastated.

Money MARKET: - it is a financial market per short term fund i.e. fund that has less than 1 year duration.

Capital MARKET: - this is a financial market per long term fund i.e. fund that has more than 1 year duration.

TREASURY CERTIFICATE

It is a money instrument used for federal government of Nigeria debt obligation between 3 and 12 months durations.

CERTIFICATE OF DEPOSIT

It is an inter bank obligation used to acknowledge any fund surplus deposits among them.

ELIGIBLE STOCK

It is a federal government of Nigeria or state government development stock or bonds.

DEPOSIT

It is fund deposited with a bank by its customers for investment purpose

COMMERCIAL PAPER

This is a promissory note issued by company that has shortage of fund to funds to borrow. The maturity is between 2 and 6 months and it can be presented to bank for discounting.

CAMA

Company and Allied Matter Act

SBN

State Bank of Nigeria

BOFID

Bank and Other Financial Institution Decree

MONETARY POLICY

Means all measure put in place by the government in order to regulate the value, surplus and cost of money in an economy in agreement with the level of development of the financial market of the country.

1.9     ORGANIZATION OF THE STUDY

For the effectiveness of the works, this study will be divided into five chapter of topic. The impact of fund management on corporate survival in the Nigeria banking institution.

Chapter two is on literature review which deals with the review of relevant and related literature works of several scholars relating to the study.

Chapter three is research methodology which is based on analysis and sources of data.

Chapter four contains historical background of case study. The impact of fund management on corporate survival in the Nigeria banking institution, optimum fund management and nature of fun motive for holding ash

Chapter five contains summary of findings, conclusion and recommendations.