This study is aimed act appraising the liquidity problems in commercial banks in Nigeria with
a problem in commercial banks in Nigeria
with a view of determining how these problem affects commercial banking business as well
as determining whether the policies
imposed by the central bank has actually solved the liquidity problem of
commercials banks or not. In doing this
we want to classify the period under review (1980- 1989) in the Pre-SFEM period
and the Post-SFEM period. On other
words the study interns to discuss the Pre-SFEM and Post-SFEM experience of
banks and offer useful suggestion as how to these problem could be alleviated if
For this purpose an empirical survey and history
research was carried on and the statistical tool used is percentages. The source of data for this study is primary
and secondary sources. While the primary source consists of questionnaires and
oral interview the secondary source is in the form of books journals and news
The research revealed that prior to the introduction
of the structural. Adjustment programme
with the second tier foreign exchange (SFEM) as its main feature the structural
adjustment programme (SAP) brought about the present liquidity crutch in
banking system. It was further found out
that both excess liquidity and shortage of liquidity affect the banks loans and
advance as well as their profits.
Further more it was observed.
the policies imposed by the central bank have not solved the (excess and shortage ) liquidity problem of
As a result of these it is suggested among others that
banks should intensify their efforts
towards acquiring more deposit-
drive for deposits (as it is popularly know )in order to alleviate the
present problem of liquidity shortage in system.
More so there should be effective supervision of the
follicles impose by the central bank to combat the liquidity problems of
commercial banks to ensure that the policies are adequate implement other
measure to alleviate either the excess or shortage of liquidity problem include
adjustment of interest rate adjustment interest ratio, diversification of
commercial banking service establishment of more rural banks to mobilize rural
saving and so on. The essences of these are to maintain adequate liquidity and
at the same time to ensure profit for the share holders.
As a matter of fact a lot has been written on the
liquidity problem in commercial banks in Nigeria. The basic challenge of this text attempts to
discuss the two experiences (Excess liquidity and shortage of liquidity) of
commercial banks in Nigeria
and on a final note offer useful suggestions as to how these problems could
alleviated if not eliminated. It is true
that liquidity and profitable are among the many problems with bank management struggles
constantly. This is because of the need
to balance the pursuit of profit with the need to remain liquid.
As indicated above commercial banks in Nigeria have
obviously experienced excess liquidity era and are presently going the
traumatic experienced of shortage of liquidity.
This study therefore aims to fund out the effect of the two experience
on the profitability of commercial banks
whether the policies impose by the
federal government through the central banks have solved the problems or not
and how the dual problem have affected commercial banks loans and advances to their customers.
In terms of chapter organization the next is arranged
into five chapters. The first chapter is devoted to introduction and some
fundamental issues related to the research work. The second chapter contains
the review of related literature to the research work. There too the exposition
of the liquidity problems of commercial banks in Nigeria is carried out. The
approach used here is pre-SFEM and post-SFEM experience of banks. Discussed here also is the policies
introduced by the federal government mostly through the central bank in
alleviating the liquidity problems of banks. Pre-SFEM policies and Post-SFEM
policies approach has been used here too chapter three deals with research design and methodology which include the
source of data interview questions sample used method of investigation and scope and scope and limitations of the study chapter four bears the presentation
interpretation test and analysis of data.
in chapter five are the summary of finding conclusion and recommendation.
Recommendation is based on the two experiences of
banks although it is prevailing situation in commercial banking system in Nigeria.
TABLE OF CONTENTS
Background of study
Statement of the problem
Purpose / objective of the study
Significance of the study
Scope limitations and delimitation’s
Definitions of terms.
of related literature
Operational concept in commercial bank in nigeria
Significance of liquidity ratio
Liquidity requirement of commercial banks in nigeria
liquidity problem of commercial banks in nigeria Pre-SFEM experience post
Policies include by the central banks of nigeria in
solving liquidity problem of commercial bank in nigeria
DESIGN AND METHODOLOGY
Area of study
Sample and sampling techniques
Instrument of data collection
Method of data
PRESENTATION AND ANALYSIS
Analysis of data
recommendation and conclusion
Summary of finding
1.1 BACKGROUND OF THE STUDY
Liquidity is the word that the banks use to descried
their ability to satisfy demand for cash in each rang for deposit it can also
be deficit as the capacity of the bank to meet promptly demand that it pays its
A bank is considered to be liquid when it has
sufficient cash and other liquid assets to gather with then ability to raises
funds quickly from the source to enable it to meet its payment obligation and
financial commitments in a timely manner. In addition there should be a
sufficient liquidity before to meet all mostly financial emergencies.
How much liquidity to held and in what forms to hold
it are a constant concern of bank management.
Banks are required to comply with legal reserve requirement.
In addition banks need liquidity to meet seasonal and
unexpected loan demands and deposit fluctuation. The majority of the traditions can be anticipate
in advance and met from expected cash inflow from deposition repayment or
Cash reserves also are needs to take advantages to unexpected
Or for what might be farmed aggressive purposes when a
business from which the banks has been
working secure as a customer finally presents a loan application or a
particularly desirable investment
develops the banks must have funds available to seize these opportunities. During periods of expanding economic actively
banks are frequently presented with attractive loan situation which can only be
met if banks maintain adequate liquidity.
To determine a banks need at a particular time is to fund the ration of
loan to deposits. The higher the ration
is the lees willing banks will be in lending out and vice versa.
commercial banks activities are regulat3dstrictly by the banking act of 1969 as
amended under the control of the central banks of Nigeria. As a result of those regulations by the
central banks the commercial banks are required to hold specific assists equal
to a certain percentage of their deposits and certain abilities is liquid
form. This is known as the legal reserve
requirement. In the legal reserve
requirements are liquidity ration requirements cash reserve requirement
stabilization securities issued by the central bank and liquidity problem for
the purpose of this study are looked at as the problem encountered by bank
managers who are responsible for liquidity management when there is either
excess liquidity squeeze in the banking system or in community banks
STATEMENT OF THE STUDY OR
There is n o gain saying the prior to the
induction of the structural
adjustment programme (SAP) of which the second –tier foreign exchange market (SFEM)
if the nucleus the commercial banks in Nigeria have been walloping in excess liquidity.
Consequently they maintained excess liquidity rations
and were in the habit of refusing deposits from the public. These may be accountable to some deficiencies
in the management policies of the central banks of Nigeria and the overall
under-developed nature of the entire economic system.
However the structural adjustment programme with SFEM as the chief feature changes the
trend. The situation became that of shortage
or liquidity crunch as it is popularly called.
In any cases for the purpose of these treaties the liquidity
problem 9f commercial banks have been identified from two perspectives.
is that they had excess liquidity before the absent of SFEM.
The other is that shortage of liquidity has been
telling hard on them since the existence of SFEM under SAP in other words this treatise takes a PER-SFEM and
POST-SFEM change on the liquidity problems of commercial banks.
With respect to the excess liquidity situation this
study intends to fund out the effects of the excess liquidity in the banking
system on the profitability of commercial banks it investigates whether or not
the policies imposed on the moping up the excess liquidity in the banking in
commercial banks effects loan and advance to their customers.
On the hand the shortage of liquidity perceptive focus in its (shortage of liquidity) effect
on the profit ability of the central banks whether or not the policies of the
central banks can actually currents the
shortage of liquidity affects loan and advances to customers.
OF THE STUDY
Having identified the problem to which this study
addressed itself, I shall in this work make a critical insight into the dual
problem of excess and shortage of liquidity in commercial bank of the two situations
on the followings.
To identify the causes of liquidity problem in the Nigeria
To assess the effect of liquidity problem in the Nigeria
To determine the rate of the incidence of liquidity problem
in the Nigeria
To identify the possible measure to prevent or resolve liquidity
problem in the Nigeria
To identify the reaction to the various policies of the
government through the C.B.N to correct the two anomalies.
To determine overall impact of these tow situation n loan and
advance to customers of the commercial bans.
What are the causes of liquidity problem I n your banks?
What effect have your bank encountered as a result of
At what rate is the incidence of liquidity problem to your banks?
How have your banks been able to resolve liquidity problem
i) Ho: fraud is not a major cause of liquidity problem in Nigeria
ii) Hi: fraud is a major cause of liquidity problem in Nigeria
Ho: liquidity problem do not result to banks distress and
Ho: the incidence of liquidity problem is not high in the Nigeria
H1 the incidence of liquidity problem is high in
OF THE STUDY
This research project is of particular relevance to
the monetary and fiscal policy department of the central banks of Nigeria various commercial and (to
some extent) merchant banks in Nigeria. It will also serve as a readable material for
1.7 SCOPE AND LIMITATION OF
DELIMITATION OF THE STUDY
This research project s designed to cove the project
of PRE-SFEM and POST-SFEM era. These
two periods are to be used for comparative purpose.
Furthermore for easier collection data a bank
particularly known was chosen from the white commercial banks of Nigeria
I wish to express that I encountered great
difficulties in collecting information through the questionnaire.
Another constraint was time that is then duration
given within the semester is very short and again another is financial problem
these problem also lingered me from covering more bank branches other than the
one in this study.
DEPOSIT: The amount outstanding to the credit of the customers of a bank
Deposit becomes the property of the banker but must be refunded when ask for.
ACCOUNT: An account with a banks withdrawals from which usually require period
of notice be given and on which interest is paid
TIGHT MONEY: An alternative term for the money banks unites
funds. This was introduction in 1975 to
mop up excess liquidity in the economy.
The need for this additional money market instrument arose because of
the excess liquidity in the economy following the oil born and the government
reluctance to increase its borrowings trough the issue of borrowing
BANKERS ACCEPTANCE: It is a draft has
been accepted by the drawer bank. The changed into an acceptance y the stamping
of the word acceptance across he face of the draft the signatures of a bank officer who has been authorized to sign
such document and draft description that rise to it.
TREASURY CERTIFICATE: Are issued for
the purpose with maturity on one or two years.
TREASURY BILLS: Are short-term debt
instrument (91days maturity ) issued by the central bank of Nigeria to raise financial for the
MONEY AT CALL: This is money lent to
the borrowing bank from over-night to about seven days and is repayable on call
it is thereby as good as cash but unlike cash it earns some interest.
TIME DEPOSIT: A bank deposit that can
only bee withdrawn of prior notice is given or after the expiry of a fixed