Abstract
This study examines the impact of cash
liquidity on the performance of deposit money banks in Nigeria. Cash liquidity
is essential in all banks to meet customer withdrawals, compensate for balance
sheet fluctuations, and provide funds for growth. The broad objective of the
study is find out the effects of account receivable on financial performance of
commercial banks in Nigeria and also to establish the effects of account
payable on financial performance of Commercial banks in Nigeria. The primary
source of data collection was used and the stratified questionnaire was used to
gather relevant information regarding the subject matter. The random sampling
method was used to select 50 respondents which serve as the sample size of the
study. The chi-square statistical tool was used to test the stated hypotheses
and the findings revealed that loans and advances do not have significant
impact on the profitability of Nigerian banks and that liquidity necessary
affects the investment portfolio performance. It was concluded that liquidity
management in the attainment of maximum profitability is indispensable of any
bank that does not place premium on its role. The study recommends among others
that monetary policy should be designed to stimulate growth in the banking industry.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgements iv
Abstract v
Table of Contents vi
Chapter One: Introduction 1
1.1
Background
to the Study 1
1.2
Statement
of Problem 3
1.3
Research
Questions 5
1.4
Objectives
of the Study 5
1.5
Statement
of Hypothesis(es) 6
1.6
Significance
of the Study 7
1.7
Scope
of the Study 8
1.8
Limitations
of the Study 8
1.9
Definition
of Terms 8
Chapter Two: Review of Related Literature
2.1
Introduction
10
2.2
Definition
of Deposit Money 10
2.3
Selected
Theory on Liquidity Management 11
2.4
Impact
of Liquidity Management on Deposit Money 14
2.5
The
Role of Nigeria Deposit Insurance Corporate in Bank Liquidity Management 15
2.6
Problem
of Maintaining Adequate Liquidity 18
2.7
Implication
of Bank Capitalization on the Liquidity of Bank 20
2.8
The
liquidity Position of First Bank Nigeria Plc 21
2.9
Challenges
of Facing First Bank of Nigeria Plc in
Liquidity Management 24
Chapter Three: Research Method and Design 27
3.1
Introduction 27
3.2
Research
Design 27
3.3
Description
of Population of the Study 28
3.4
Sample
Size 28
3.5
Sampling
Technique 28
3.6
Sources
of Data Collection 28
3.7
Method
of Data Presentation 29
Chapter Four: Data Presentation, Analysis and Hypothesis Testing
4.1
Introduction
31
4.2
Presentation
of Data 31
4.3
Data
Analysis 31
4.4
Hypothesis
Testing 41
Chapter Five: Summary of Findings, Conclusion and Recommendations
5.1
Introduction
45
5.2
Summary
of Findings 45
5.3
Conclusion
45
5.4
Recommendations
46
References 48
Appendices 49
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Cash
liquidity reflects a financial institution’s ability to fund assets and meet
financial obligations. Cash liquidity is essential in all banks to meet
customer withdrawals, compensate for balance sheet fluctuations, and provide
funds for growth. Funds management involves estimating liquidity requirements
and meeting those needs in a cost-effective way. Effective funds management
requires financial institutions to estimate and plan for cash liquidity demands
over various periods and to consider how funding requirements may evolve under
various scenarios, including adverse conditions.
Banks
must maintain sufficient levels of cash, liquid assets, and prospective
borrowing lines to meet expected and contingent liquidity demands. Liquidity
risk reflects the possibility an institution will be unable to obtain funds,
such as customer deposits or borrowed funds, at a reasonable price or within a
necessary period to meet its financial obligations. Failure to adequately
manage cash liquidity risk can quickly result in negative consequences for an
institution despite strong capital and profitability levels. Management must
maintain sound policies and procedures to effectively measure, monitor, and
control liquidity risks.
In business,
economics or investment,
market liquidity is a market's
ability to purchase or sell an asset
without causing drastic change in the asset's price. Equivalently, an asset's
market liquidity (or simply "an asset's liquidity") describes the
asset's ability to sell quickly without having to reduce its price to a
significant degree. Cash liquidity is about how big the trade-off is between
the speed of the sale and the price it can be sold for. In a liquid market, the
trade-off is mild: selling quickly will not reduce the price much. In a
relatively illiquid market, selling it quickly will require cutting its price
by some amount.
Money, or cash, is the
most liquid asset, because it can be "sold" for goods and services instantly with
no loss of value. There is no wait for a suitable buyer of the cash. There is
no trade-off between speed and value. It can be used immediately to perform
economic actions like buying, selling, or paying debt, meeting immediate wants
and needs. If an asset is moderately (or very) liquid, it has moderate (or
high) liquidity. In an alternative definition, liquidity can mean the amount of cash and cash equivalents.
If a business has moderate cash liquidity, it has a moderate amount of very
liquid assets. If a business has sufficient liquidity, it has a sufficient
amount of very liquid assets and the ability to meet its payment obligations.
An act of exchanging a less liquid
asset for a more liquid asset is called liquidation.
Often liquidation is trading the less liquid asset for cash, also known as
selling it. An asset's liquidity can change. For the same asset, its liquidity
can change through time or between different markets, such as in different
countries. The change in the asset's liquidity is just based on the market
liquidity for the asset at the particular time or in the particular country,
etc. The liquidity of a product can be measured as how often it is bought and
sold.
1.2 Statement of Problem
Liquidity management has a significant positive effect
on financial performance. Bank companies under going to achieve their goals
have to consider to the liquidity management. Liquidity is the ability of the
business to meet its cash obligations within a specific period. For instant
liquidity is best measured with cash flow statements or budgets.
Liquidity
management plays a significant role in determining success or failure of firm
in business performance due to its effect on firm’s financial profitability
(Eljelly, 2004).
In
Nigeria, the commercial banks are faced challenges of financial performance.
This is seen in the fact that the firms have problems with financial
performance they may defer their payments to creditors which is a harmful for
companies and can result in several consequences such as worse credit terms in
the future. This in the long run adversely affects profitability. When working
capital is the money needed to finance the daily revenue generating activities
of the firm. So, if this continues will cause the a number of problems to not
only the firm who depend so much on this liquidity management, but also the
various stakeholders in the banking industry. It was evident that research in
the area of Liquidity management has not been done in a more comprehensive
approach. The study research gap is demonstrated by the scarcity of empirical
studies on determinants of liquidity management. Empirical studies (Nwakaego,
2014) and (Lawrence, 2013), Zir and Afza (2009) were inadequate as they
concentrated on liquidity management other industries in Small and Medium
Enterprise. Banks to remain competitive emphasis should be made on liquidity
management and profitability with regards to how their ability to manage
financial performance and should be provided to the organizational achievement.
This study will focus on the Effect liquidity management on financial
performance of commercial banks in Nigeria.
1.3 Research Questions
The essence that the respective bank
should manage their balance sheet in such a way as to operate within that
maximum range and still remain liquid. The basic questions this research
attempt to answer includes;
i.
What
extent does excess cash liquidity affect the profitability of Nigerian banks?
ii.
What
extent does shortages in cash liquidity have significant effect on
profitability of the Nigerian banks?
iii.
How
do loans and advances affect the profitability of Nigerian banks?
1.4 Objectives of the Study
The
broad objective of this study is to examine the impact of cash liquidity on the
performance of deposit money in Nigeria. However, the following are the
sub-objectives;
i. To find
out the effects of account receivable on financial performance of commercial
banks in Nigeria.
ii. To establish the effects of account
payable on financial performance of Commercial banks in Nigeria.
iii. To determine the effects of cash management
on financial performance of commercial banks in Nigeria.
1.5 Statement
of Hypotheses
On the
basis of the above views, the researcher hereby proposes the following
hypotheses;
Hypothesis One
HO: Excess cash liquidity does not have a
significant impact on the profitability of Nigeria banks.
HI: Excess cash liquidity have a significant
impact on the profitability of Nigeria banks.
Hypothesis
Two
HO: Shortage in cash liquidity does not have a
significant impact on the profitability of Nigerian banks.
HI: Shortage in cash liquidity has a
significance impact on the profitability of Nigeria banks.
Hypothesis
Three
HO: Loans and advances do not have significant
impact on the profitability of Nigerian banks.
HI: Loans and advances have significant impact
on the profitability of Nigerian banks.
1.6 Significance of the Study
The study justification arises given the unsavory
experience of the deregulated banking era in Nigeria and the present global
economic meltdown. Apart from this liquidity has always been a source of
concern with some Nigeria banks. The importance of liquidity has even acquired
a new dimension in the advanced countries of the world in recent years. This is
basically because of responses to structural changes and funds management
techniques in these countries. The development of new technical innovations
that do not necessarily fit into the world of the age long liquidity tests.
The key role played in
any banking set-up further epitomizes it importance. Right from time liquidity
has been associated with allocation of assets. According to their capacity to
generate the cash necessary to satisfy creditors and depositor calls on the bank
liabilities.
However, with the
emergence of active liability management strategies liquidity has been more
than a function, particularly in some instance of the of the banks capacity to
acquire additional funds in the market place.
1.7 Scope of the Study
Due to time and resources constraints the study at hand has been
limited to First Bank of Nigeria Plc. A time frame of 5 years was used (i.e. 2011 – 2015).
1.8 Limitations of the
study
a. Time constraints were one of the limitations encountered in
the case of the study.
This is because, this
study was carried out during an academic session, the researcher did not have
enough time to properly concentrating on this particular study.
b. Finance was yet another problem that put a check on the extent
of investigation.
c. There was the problem of inadequate information and
unavailable material or information for the study.
1.9 Definition of Terms
Liquidity Management: Is the ability to meet cash and collateral obligations
without incurring substantial losses.
Financial System: Is the system that enables lenders and
borrowers to exchange funds.
Profitability Ratio: This compares income
statement accounts and categories to show a company's ability to generate
profits from its operations.
Liquidity Assts Theory: This theory argues that
banks should hold large sum of liquid assets to avert sudden payment request
that might be received.
Call Money: They are banks excess
reserves on daily or short-term basis with the correspondent banks.
Short-Term Government Securities: These are gifted
securities with short-term maturity which are being bought and sold in active
market.
Marginal Loans: This is a loan made by a
brokerage house to a client that allows the customer to buy stocks on credit
Liquidity Ratio: This is a class of
financial metrics that is used to determine a company ability to pay off its
short term debts obligation.
Liquidity Portfolio: Is the ability for the
bank to have sufficient capital in it account or cash deposited by individuals
and portfolio.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Buyers has the right to create
dispute within seven (7) days of purchase for 100% refund request when
you experience issue with the file received.
Dispute can only be created when
you receive a corrupt file, a wrong file or irregularities in the table of
contents and content of the file you received.
ProjectShelve.com shall either
provide the appropriate file within 48hrs or
send refund excluding your bank transaction charges. Term and
Conditions are applied.
Buyers are expected to confirm
that the material you are paying for is available on our website
ProjectShelve.com and you have selected the right material, you have also gone
through the preliminary pages and it interests you before payment. DO NOT MAKE
BANK PAYMENT IF YOUR TOPIC IS NOT ON THE WEBSITE.
In case of payment for a
material not available on ProjectShelve.com, the management of
ProjectShelve.com has the right to keep your money until you send a topic that
is available on our website within 48 hours.
You cannot change topic after
receiving material of the topic you ordered and paid for.
Login To Comment