OF CONTENTS VI
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 3
1.3 OBJECTIVES OF THE STUDY 3
OF THE STUDY 5
OF THE STUDY 5
OF THE STUDY 6
OF TERMS 6
CHAPTER TWO: LITERATURE REVIEW
2.1 INTRODUCTION 9
2.1.2 ILLIQUIDITY 10
2.1.3 INSOLVENCY 10
2.1.4 CAUSES OF ILLIQUIDITY AND INSOLVENCY 11
2.1.5 SYMPTOMS OF DISTRESS 13
2.1.6 OVER CAPITALIZATION 13
2.1.7 OVER TRADING 14
2.2 THEORETICAL BASIS FOR BANK DISTRESS 15
2.3 THE BUSINESS CYCLE THEORY 16
2.4 CREDIT MARKET CONDITIONS APPROACH 16
2.5 MONEY APPROACH 16
OF PRUDENTIAL GUIDELINES AND
OF ILLIQUIDITY 17
2.7 GENERAL FUNCTIONS OF COMMERCIAL BANKS 22
2.8 MONEY CREATING FUNCTION 22
2.9 SERVICE RENDERING FUNCTION 24
2.10 SPECIAL FUNCTIONS OF COMMERCIAL BANKS 25
2.11 REVIEW OF DECREE NO 25 OF 1991 26
2.12 SUMMARY 31
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 INTRODUCTION 32
3.2 RESEARCH DESIGN 32
3.3 POPULATION AND SAMPLE OF THE STUDY 33
3.3.1 POPULATION SIZE 33
3.3.2 SAMPLE OF THE STUDY 33
3.4 SAMPLE TECHNIQUES 34
3.5 RESEARCH INSTRUMENT 34
3.6 VALIDATION OF INSTRUMENT 35
3.7 METHOD OF DATA COLLECTION 35
OF DATA ANALYSIS 36
FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 INTRODUCTION 37
ANALYSIS AND INTERPRETATION OF
FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
OF FINDINGS 49
5.2 CONCLUSION 50
5.3 RECOMMENDATIONS 50
OF THE STUDY
business of modern banking started in Nigeria in 1892 with the incorporation of
African Banking Corporation. British Bank of West Africa later absorbed this
bank in 1894. The early period of commercial banking in Nigeria was
characterized by lack of legislation which made it an all-comers affair.
the absence of any banking legislation in 1892, when the first bank was
established in Nigeria (African Banking Corporation) anybody could set up a
banking company provided the bank is registered under the Ordinance Act which
section 2(i) prohibited the formation of a banking company or partnership consisting
of more than ten (10) persons for the purpose of carrying on a banking
business, unless it was registered as a company, hence it was referred to as
the “free banking era”.
period also saw the establishment of three foreign banks and two indigenous
banks. The foreign banks were; The British Bank of West Africa Limited in 1894
(now known as First Bank Plc), the Barclays Bank Dominion colonial and overseas
in 1917 (now known as Union Bank Plc) and the British and French Bank, in 1949
(now known as United Bank for Africa Plc). The two indigenous banks were
National Bank of Nigeria in 1933 and the Agbonmagbe Bank (now known as Wema
Bank Plc), as well as the African Continental Bank Limited in 1947.
appointment of the Paten commission of enquiry on 7th September,
1948 was another feature of this free banking era. It was to enquire generally
into the business of banking in Nigeria and make recommendation to the
government on the form and extent of control, which should be introduced into
the banking system.
on the report of this commission, the first ever banking legislation in the
country was promulgated in 1952. Increase in the number of indigenous banks in
the country was another major event during this period. However, some banks
established during this period could not survive.
second phase (i.e. the second era) in the origin of commercial banking in the
country opened with the establishment of the Central Bank Plc (CBN) in 1959.
After the establishment of the Central Bank and prior to independence in 1960,
new commercial banks were established. 1959 to 1962 saw the enactment and
amendments of banking legislations. These were 1958 Banking Ordinance which
became effective in 1959, the 1961, 1962 and 1964 amendment and the Banking
evolution of commercial banking in Nigeria brought about the Financial System
Review Committee set up by the Federal Government under the chairmanship of a
distinguish economist; Dr. Pius Okigbo. The committee known as the Okigbo
committee was review the Nigerian Financial System. Consequently, in a white
paper published on the committee with respect to the commercial banks (the
establishment of a state bank in each state and the amalgamation of the three
biggest indigenous banks into one entity). The Okigbo report, and the white
paper on it nevertheless, marked a new era in the evolution of commercial
banking system in Nigeria (Yunisa and Kehinde2010 ).
OF THE PROBLEM
are very brilliants ideas, projects, concepts, businesses that are viable,
feasible and bankable still waiting for angel investors. There seem to be lack
of faith in the Nigeria Entrepreneur, bank and financial institution business
owners by custodians of loanable funds i.e. banks and other financial
institutions. Therefore the statement of problem is how all these business
owners can have access in establishing this type of business. More so,
inventors find it difficult to access credit.
OF THE STUDY
main objective of this study is to focus on the problems of liquidity in
commercial banks in Nigeria so as to provide the information required to make
decisions as to how fund should be mobilized effectively and one such decisions
is made, to provide the data necessary to adequately manage the available fund.
Other objectives of this study includes;
To determine whether fund mobilization
has effect on liquidity problem.
To find out whether illiquidity hold
customer to loose confidence in commercial banking.
1.4 RESEARCH QUESTIONS
fund mobilization has effect on liquidity problem?
illiquidity hold the customer to loose confidence in commercial bank?
1.5 RESEARCH HYPOTHESES
mobilization has effect on problems of liquidity.
mobilization does not have any effect on problems of liquidity.
holds the customers to loose confidence in commercial banking system.
does not holds the customers to loose confidence in commercial banking system.
1.6 SCOPE OF THE STUDY
scope of this study is restricted to the effect of liquidity problems on
commercial banking system in Nigeria with United Bank for Africa Plc. (UBA) as
the case study. The research work is limited to the staff and customers of the
1.7 SIGNIFICANCE OF THE STUDY
A study of this kind is expected to make
significant contribution to organization’s development. The study will provide
the basis for scrutiny for liquidity problems on commercial banking in Nigeria,
which aids bank under study (United Bank for Africa) and other commercial banks
to solve the problems faced in the area of liquidity and mobilization of funds.
It will assist other banks to solve similar problems. It also provides various
indicators and methods used to measure organizational performance.
1.8. LIMITATION OF THE STUDY
As expected this study may not
be without its limitations.
The study was limited by a
number of factors, which include the following:
numbers of the recent literature on the subject topic.
time and financial resources to carry-out the study extensively.
of some relevant data.
1.9 DEFINITION OF TERMS
The liquidity of an organization is measured by the ability of that
organization to meet its short term debt and liabilities.
Liquidity can be measured through
the following ratios:
ratio: current asset
liabilities (in which the ratio is
test ratio: Current asset – stock
(in which the ideal acid test ratio is 1:1)
interest ratio: Profit before
interest and tax
Fixed interest rate
on Capital Employed (ROCE):
before interest and tax
per share ratio:
ordinary share issued
2. Illiquidity: An establishment or bank
is said to be illiquid when it can no longer meet its depositors demands or its
obligations as at when due. It is numinous sign of insolvency and when the
problem of illiquidity persists for a very long time, it could lead to forceful
sale of assets below their market value.
3. Commercial Banks: Commercial banks are
institutions where people, corporate bodies, statutory corporation etc keep
money and other valuables for security reasons.
4. Insolvency: An establishment or bank is
said to be insolvency when the value of its realizable assets is less than the
total value of its liabilities.
5. Over-Capitalization: This is an
inefficient working capital management that results in excessive stocks,
debtors and cash and very few creditors. This implies that working capital will
be excessive. The return on capital employed would be unnecessarily tied up,
which could have been invested elsewhere to earn profits. The systems of over
capitalization include high working capital turnover, high liquidity ratio (a
current ratio in excess of 2:1) (or a quick ratio in excess of 1:1) low stock
turnover, high average collection period and low creditors payment period.
6. Over –Trading: This occurs if a
business is trying to support large volume of trading with little long-term
capital at its disposal. An over – trading business might be a profitable going
concern but it could easily run into a serious problem because of illiquidity.
symptoms of over trading include; a rapid growth in turnover, high stock
turnover and low average collection period, a rapid growth in current and fixed
assets, low liquidity ratios, liquidity deficits, creditors payment period is
getting higher etc.