IMPACT OF LIQUIDITY PROBLEM ON THE NIGERIAN BANKING INDUSTRY

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IMPACT OF LIQUIDITY PROBLEM ON THE NIGERIAN BANKING INDUSTRY

THE IMPACT OF THE Liquidity PROBLEM ON THE NIGERIAN BANKING INDUSTRY
This study work aims to identify the impact of liquidity concerns on the Nigerian banking sector in terms of profit and past efforts made by the government and the Apex Authority to solve the problem.

Secondary data was employed extensively in his research. This project is broken down into five chapters:

Introduction, Background of the study, statement of problem, purpose / objectives of the study, significance of the study, scope and limitation, and definition of terms are all included in Chapter One.

In chapter two, we have a literature review that includes the following topics: liquidity versus profitability in Nigerian banks, equilibrium balance between profitability and liquidity ratio-which is further subdivided into;

significance of liquidity ratio, computation of liquidity ratio, cash ratio, liquidity risks, liquidity preference, liquidity measurement, and rational for liquidity ratio measurement.

Furthermore, there are variables affecting the liquidity of Nigerian banks, efforts taken by the Federal Government to address liquidity issues in Nigerian banks, and guidelines for the creation of liquidity management policies in Nigerian banks.

The third chapter discusses study design and technique, as well as secondary data, its sources, location, and method of collection.

The fourth chapter discusses the research findings.

The fifth chapter is about recommendations and conclusions.

Finally, a bibliography is provided.

THE IMPACT OF THE LIQUIDITY PROBLEM ON THE NIGERIAN BANKING INDUSTRY IN CHAPTER ONE.
Liquidity is critical to any bank’s long-term existence because it can have dramatic and rapid repercussions on even well-capitalized institutions.

When a bank experiences a crisis as a result of other issues, such as deterioration in asset quality, the time available to the bank to resolve the problem is controlled by liquidity; thus, liquidity assessment and management are among the most important operations of banks.

1.4 BACKGROUND OF THE STUDY

The phrase liquidity refers to the ease with which an asset can be obtained.

can be converted to cash with certainty, according to Orjih John (1996:152).

Bank liquidity is defined as the bank’s ability to meet its present obligations, which are the demands of its customers, on time.

A bank is considered liquid when it has enough cash and other short-term financial instruments in its portfolio, such as treasure bills, treasury certificates, and call money, as well as the ability to raise funds quickly from other sources to meet its payment obligations and other financial commitments on time.

How much liquidity to keep and in what shape is a perennial source of consternation for bank management. Banks must also adhere to the Central Bank of Nigeria’s (CBN) cash reserve requirements (CRR).

institutions are frequently faced with appealing loan conditions during periods of rising economic activity, which can only be met if institutions have adequate liquidity.

Banking activities in Nigeria are rigorously governed by the Banking Act of 1969, which was revised under the supervision of the Central Bank of Nigeria.

As a result of these restrictions, banks are required to hold particular assets in liquid form equal to certain other liabilities. This is known as the central bank’s cash reserve requirement (CRR), liquidity ratio, and stabilisation securities.

STATEMENT OF THE PROBLEM.

The most profitable operation of a commercial bank is loan or overdraft lending, but every time a bank raises its loans to customers, it also increases the amount that is likely to be withdrawn in cash.

Most borrowers just want to be able to draw cheques up to the amount of their overdraft, but some may prefer cash, and a certain proportion of loans will be taken in cash. This banker is divided between two competing interests:

on the one hand, he wants to grow his loans in order to generate more profit, and on the other, he wants to keep enough cash on hand to meet his responsibilities to pay cash on demand J.L Hanson (1970:37).

THE OBJECTIVE OF THE STUDY.

The impact of a liquidity problem: The goal of this study is to look at challenges encountered by bank managers in charge of liquidity management.

It will also concentrate on CBN and other regulatory body requirements for the growth of liquidity management in Nigerian banks.

Finally, the impact of liquidity issues on profitability, loans and advances to commercial bank customers, and the Nigerian economy will be examined.

1.4 OBJECTIVES OF THE STUDY

The goal of this study on the impact of the liquidity situation is to discover.

1. Whether the CBN has enough policies or procedures in place to assist banks in dealing with this issue.

2. To locate our banks in order to fix this situation.

3. The total impact of liquidity issues on commercial bank loans and advances to consumers.

4. Determine the liquidity issues associated with consumer deposits.

5. The profitability of Nigerian commercial banks.

1.5 RESEARCH QUESTIONS

1. What is the impact of liquidity issues in Nigeria’s banking industry?

This focuses on how excess cash held by banks in their vault affects their advancement, as well as how cash non-holding affects their transportation. This effect could be harmful in the sense that it encourages banks to make loans.

2. How significant is liquidity management?

Liquidity management is critical because liquidity transcends the particular bank, with a liquidity shortfall in a single institution having system-wide ramifications.

As a result, liquidity analysis necessitates bank managements measuring not just their banks’ liquidity situations on an ongoing basis, but also examining how finding requirements are expected to grow under crisis circumstances.

3. WHAT IS THE RELATIONSHIP IN THE NIGERIAN BANKING INDUSTRY BETWEEN LIQUIDITY AND PROFITABILITY?

Both are intertwined in a unique way in that in order to provide liquidity, one must also investigate ways to be profitable.

Banks maintain liquidity for the primary aim of servicing depositor demand, which helps the bank retain a solid status and reputation with the public.

Banks, on the other hand, are designed to produce a profit, and their profitability component serves as an indicator of the bank’s performance. This will also assist them in meeting their own financial obligations. John Orjih (1996:152-154).

IMPORTANCE OF THE STUDY.

The significance of this research work is to obtain important information and solutions to liquidity concerns confronting Nigeria’s banking sector.

The researcher expects it will be extremely beneficial to the following industries.

i. The Nigerian financial system, particularly bank managers concerned in liquidity management.

The government sector is the second.

iii. The Nigerian Central Bank’s monetary and fiscal policy section.

Finally, for countries experiencing comparable issues.

1.8 DEFINITION OF TERMS

LIQUIDITY:- This is a bank’s ability to meet its present obligations on time. This simply refers to the bank’s ability to meet its clients’ demands as and when liquidity issues arise.

In this instance, a bank may be experiencing a cash shortfall in its vault in order to meet its current obligations liquidity ratio:

It is the CBN-mandated cash requirement retained by banks. It is the ratio above which banks are not permitted to increase their loans and advances compared to their liquid assets.

This is cash that the consumer deposits with the bank and can withdraw at any moment.

ADVANCES AND LOANS:

These are by far the commercial banks’ most valuable assets. Commercial banks’ lending systems can take the form of loans and overdraft facilities. This is a significant source of profit.

CASH:

This is the total quantity of notes and coins maintained in the strong rooms of all bank headquarters and branches to accommodate customer demands for cash withdrawals. Cash reserves do not generate income. It has the highest liquidity of any asset.

PHONE MONEY:

Money is the shortest maturing instrument and the second most liquid item after cash. It is an arrangement in which banks lend money to one another on an overnight basis.

THE TREASURY BILL:

These are short-term instruments issued by the Nigerian central bank to raise funds for the federal government; their duration is typically 91 days.

CERTIFICATE OF TREASURY:-

These are government-issued short-term instruments with maturities ranging from one to two years.

ECONOMIC POLICY:

The CBN defines it as a set of measures meant to regulate the value and supply of money in an economy in accordance with the projected level of economic activity.

FINANCIAL POLICY:

The employment of government revenue and expenditure mechanisms to regulate the economy is known as fiscal policy.

REQUIREMENTS FOR CASH RESERVES;

This is the percentage of a bank’s total deposit liabilities (demand, savings, and time deposits), certificates of deposit, promissory notes, and other goods held in cash with the CBN.

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