IMPACT OF LIQUIDITY MANAGEMENT ON COMMERCIAL BANK
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
IMPACT OF LIQUIDITY MANAGEMENT ON COMMERCIAL BANK
Chapter one
1.1 Introduction
Any business’s success today is heavily influenced by its liquidity situation and how it manages its cash to ensure profitability. According to Solomon (2002), the primary goal of starting a business is to generate a profit, and not just a profit, but to maximise it, hence all aspects that contribute to this should be controlled and managed in order to reach this goal.
The liquidity situation of a bank may be viewed in terms of cash and cash equivalents; loans advance prepayment, debtors, creditors, and so on, which could be easily determined to satisfy banks’ financial obligations in the short and long term (2003).
Abonede (2004). idie cash, which some may refer to as surplus reserves and which could also be considered as part of a company’s liquidity, might be employed in such a way that it would make profit to accrue to it, hence enough care should be made in the aspect of managing cash. Lucey (2003).
Maintaining a balanced liquidity position is not without costs. This is especially true when interest rates are low and credit demand is slow; however, those costs can be reduced by using spread management.
When interest rates and credit demand rise, balance liquidity can be very profitable because liquidity is available to meet loan demand while maintaining balance profitability. Joseph (1971).
John (1998) contends that by managing his liquidity position, a bank may be able to bear the costs that frequently accompany both an excess and deficit liquidity situation.
Furthermore, it can demonstrate to regulators and investors a logical, controlled manner of ensuring that community needs and shareholder assets are appropriately handled. It is reasonable to conclude from the preceding that there is an important relationship between the concepts of liquidity and profitability.
Bank efficiency in terms of liquidity and profitability can be measured using trend and ratio analysis. Some of the ratios are capital adequacy, asset utilisation, profitability, liquidity, and cash flow ratio.
A thorough evaluation and analysis of this will provide us with a foundation for identifying the appropriate liquidity and cash management posture to ensure profitability in the banking business. Aborede (2004).
1.2 Statement of the Problem
Commercial banks employ idle funds from these financial roles to invest in other types of financial assets. These bank’s commercial activities are not without problems, because the deposits that have been invested by the banks for profit maximisation can be claimed at anytime.
When a bank fails to pay its financial responsibilities, the public loses confidence, resulting in increased competition in the financial sector. With the banking industry’s high level of competition, every commercial bank should endeavour to operate profitably while also meeting the financial demands of its depositors by keeping appropriate liquidity.
The challenge therefore becomes determining the optimal position at which a commercial bank can hold its assets in order to achieve these two goals.
These issues become increasingly complex as a big number of banks are primarily concerned with profit maximisation and often overlook the need of liquidity management, which can lead to technical and legal insolvency.
This research will also look into other issues such as the effect of excess liquidity and the problem of estimating the population of deposits that can be demanded at any given time, the selection of factors that will affect or influence the bank liquidity level, and, finally
the problem of satisfying the two major publics of the commercial bank simultaneously. These remedies will be prescribed, and recommendations will be made as appropriate.
1.3 PURPOSE OF THE STUDY
The rivalry environment for financial institutions is so intense that any commercial bank that wants to continue must be conscious of the problems of its liquidity and profitability obligations, as both can make or break its future.
This study is primarily concerned with the liquidity objective and its ability to meet depositor demand, thereby maximising its value. There are also uncertainties in commercial bank asset management because new deposits do not correspond with customer withdrawals, which are made on short notice. As a result, the following objectives guide this research.
To understand how liquidity management will handle these uncertainties and assess their impact on profitability.
Discovering particular characteristics that can help commercial banks improve their profitability and liquidity.
To investigate the cost of liquidity and illiquidity levels in commercial bank performance, as well as the duration of this liquidity’s use as competitive tools.
To examine critically the commercial banks’ adopted liquidity measures and determine how they have been implemented.
Determine the impact of changes in liquidity levels on profitability.
Aims to discover commercial banks’ credit and portfolio policies.
Finally, it will aim to identify the root causes of liquidity problems in Nigerian commercial banks and offer effective solutions to these concerns.
Need help with a related project topic or New topic? Send Us Your Topic