AN APPRAISAL OF LIQUIDITY PROBLEMS IN COMMERCIAL BANK IN NIGERIA

CHAPTER ONE

INTRODUCTION

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 obligation 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 earning.

Cash reserves also are needs to take advantages to unexpected profit opportunities. 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.

In Nigeria 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

1.2 STATEMENT OF THE STUDY OR PROBLEM IDENTIFICATION

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. One 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.

1.3    OBJECTIVE 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.

1.To identify the causes of liquidity problem in the Nigeria commercial banks.

2. To assess the effect of liquidity problem in the Nigeria commercial banks.

3.To determine the rate of the incidence of liquidity problem in the Nigeria commercial banks,.

4.To identify the possible measure to prevent or resolve liquidity problem in the Nigeria commercial banks.

5.To identify the reaction to the various policies of the government through the C.B.N to correct the two anomalies.

6. To determine overall impact of these tow situation n loan and advance to customers of the commercial bans.

1.4   RESEARCH QUESTION

· What are the causes of liquidity problem I n your banks?

· What effect have your bank encountered as a result of liquidity problem?
At what rate is the incidence of liquidity problem to your banks?

· How have your banks been able to resolve liquidity problem facing it?

1.5   RESEARCH HYPOTHESIS

i)  Ho: fraud is not a major cause of liquidity problem in Nigeria commercial banks.

ii) Hi: fraud is a major cause of liquidity problem in Nigeria commercial banks.

iii) Ho: liquidity problem do not result to banks distress and failure.

iv) Ho: the incidence of liquidity problem is not high in the Nigeria commercial banks.

v) H1 the incidence of liquidity problem is high in the Nigeria commercial banks.

1.6    SIGNIFICANCE 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 further researchers.

1.8   DEFINITION OF TERMS

BANKS 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.

DEPOSIT 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 certification

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 federal government.

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 time.

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