TABLE OF CONTENTS
Title
Certification
Dedication
Acknowledgement
Table
of contents
CHAPTER
ONE
1.0 Introduction/ Background of the study
1.1 statement of Research question
1.2 objective of the study
1.3 significance of the study
1.4 scope of the study
1.5
Limitation of the study
1.6 plan of study
1.7 Definition of terms
CHAPTER TWO
Literature review
2.1 Establishment and growth of CBN
2.2 Nigeria Deposit insurance corporation
2.3 Liquidity versus profitability
2.4 Solvency versus liquidity
2.5 Bank Asset
2.6 Liquidity: A major constration profit
maximation
2.7 Theories of bank liquidity
2.8 Source of liquidity
CHAPTER THREE
Research methodology
3.1 introduction
3.2 Determination of population
3.3 Statement of hypothesis
3.4 Selection of sample
3.5 Sources and collection of data
3.6 Validation of questionnaire
3.7 Selection of analytical method
CHAPTER FOUR
Data Analysis and summary of finding
4.1 Introduction
4.2 Analysis of data
4.3 Questionnaire analysis
4.4 Interpretation of results
CHAPTER FIVE
Summary,
Recommendations and conclusion
5.1 Summary
5.2 Recommendations
5.3 conclusions
Reference
CHAPTER ONE
INTRODUCTION
1.1 EVOLUTION OF COMMERCIAL BANK IN NIGERIA
The history of banking business in Nigeria dated to the colonial era with the establishment of first commercial bank.
THE AFRICAN BANKING
CORPORATION
It opened its first branch in 1892 in liver pool Dempster and co a shiping firm organized a trust and registered in liver pool with Monetary backing from British colonial government. The sole responsibility of African Banking Corporation was the distribution of bank of England notes for the British treasury.
The bank experienced
some initial difficulties and eventually decided to transfer its interest to
elder Dempster in 1983.
This led to the
formation of a new Bank known as the British bank of west African (BBWA) in
1983 with $10,00 capital which was later increased to $100,00 during the same
year. The first Lagos branch was opened in the
year 1894 while the second Nigeria
branch was opened in old Calabar in 1900.
During the early
stage of commercial banking in Nigeria,
the few available banking service were mainly and specifically provided and tailored
to suit the needs and requirement of the colonial administration. In other
words, banking services were largely designed and intended to serve the
interest of the British government in Nigeria. During the period the
British Bank of west African (1894)took over the assets and liabilities of
Afican Banking Corporation. (1894). This Bank is now known and called First
Bank of Nigeria Plc. It remained the sole bank until (1917) when the colonial
bank Barclays bank DCO (Dominion Colonial and Oversea) now union bank of
Nigeria plc enjoyed a virtual monopoly but the banking industry.
Before 1894 have
become used to cowries and manila as units of monetary transaction. This means
that banking system did not come to Nigeria in 1894 as a fresh
experience.
This is supported by
the fact that they has their small trust groups and kept money in safe places.
The idea of cowries and manila was introduced by the merchants of the Royal
Niger Company, the antecedent of the present U.A.C to standardize coinage
system when the British Bank of West African (BBWA) was established people were
very suspicious of its intention.
However, such men as
kind Jaja of Opobo, Taiwo Olowo, Da-Rocha and many other to name after were
largely used in getting the message across to the people (Akinosho 1984p.7)
Another Bank called the Angro-African Bank was established in 1899 in old calabar by the Royal Niger company (U.A.C) to complete with the British bank of west African (BBWA) the bank later change its name to bank of Nigeria and established branches in Buruta Lokoja and Jebba. However due to fierce competition and monopoly for the importation of silver from the Royal mint enjoyed by the british of west African in 1991. to reflect the independent status of most west African countries, the british bank of west African (BBWA changed its to bank of west african). (BWA) in 1956 owing to ownership structure of the present company (standard chartered bank plc in U.K) it again changed its name to standard bank of Nigeria Ltd in 1979 the following Nigeria acquisition of majority chares it becomes First Bank of Nigeria (FBN). Barclays Bank (DCO) joined it in 1916 and opened it branch in lagos in 1917. Barclays Bank DCO was renamed Union Bank of Nigeria Limited (UBN) after 80% Nigerian share, soon after (line (9) other branches were opened.
The British and
French Bank now called the United Bank for African Plc (UBA) a subsidiary of
banquet national depairs was incorporated on February 23, 1961-67 year after to
take over the banking business with paid up capital of over N5 million these
made it the third expartriate bank to dominate early Nigerian commercial
banking.
The foreign bank comes principally to render service in connection with the international trade so their relation at that time was chiefly with the expatriate trading companies and with the government. The largely ignored the development of local African entrepreneurship. Together these three (3) banks controlled closely to 90% aggregate bank deposit from 1894 to the early 1930s. Several abortive attempts were made to established locally owned and managed bank to break foreign monopoly.
In 1929 the industrial and commercial bank was set up by a handful of patriotic Nigerian. It folded up in 1930 due to under capitalization, poor management and aggressive competition from expatriate banks.
In 1931 another
indigenous bank. The Nigeria Mercantile Bank was established like its
predecessor it went into liquidation in 1936, three years after another set of
patriotic Nigerian like Messrs Akintola maja, theophilus, Adisa subar Akinremi
Adeshinyin, Alfred latunde Johnson, Adisa Subair, akinremi Holloway and Issac
Ayoola Ogunlana owned the credit of establishing
National Bank of Nigeria (NBN) with initial capital of about
N10,00, making the third commercial bank indigenously owned and also the first indigenously
owned bank to make a successful debit into the banking industry (it has
liquidity problem but has recapitalized).
The next private
indigenous bank to be established was the Agbonmagbe Bank founded by chief
Okufe in 1945. the bank was taken over by the western state government in 1969
and its name was changed to WEMA Bank Plc. The fifty bank.
The Nigeria Penny
Bank was set up in the early 1940s and collapsed in 1946 under the weight of
mis management. This was followed by the Nigeria farmers and commercial bank
in 1947 which later failed in 1952.
LIQUIDITY VERSUS
PROFITABILITY
At the micro-level,
the individual commercial bank is viewed as an economic unit whose goals is to maximize profit. Banks hold port
folio of assets and given the characteristics and distribution of their liability
they attempt to structure their portfolio of asset in such a manner as to unheld
the greater return.
The assets are the
two (2) group of balanced sheet items called loan and investments, while
non-interest earning deposit with central bank.
Profits are generated by earning assets (loan and investments) while liquidity is provided partly by earning assets like short-term investment and partly by non-earning assets e.g cash balanced held in the bank vault and allot at the central bank, call money reserves etc.
1.2 STATEMENT OF THE RESEARCH QUESTION
The project will analyzed
the problem by the commercial banks in maintaining equilibrium between
profitability and liquidity some of the problems beings faced by the commercial
banks maintaining equilibrium between profitability and liquidity are form.
Like other companies
banks also income substantial cost and must earn an income at least sufficient
to meet their cost. They are also accountable to their share holder who have
invested in them with the aimed of good return interim of future divided from
these point of view banks need assets which produce income substantially higher
them that paid on deposits.
At that sometimes,
the assets of a bank must be kept reasonably liquid so as to meet possible demands
from depositors and to maintain public confidence. This is why central bank
prescribes minimum level of liquidity that a bank must maintain both as regards
cash and as regards other liquid assets which can be converted to cash.
1.3 OBJECTIVE OF THE STUDY
This project aims at
bringing out the effect of the regular power given to central bank of Nigeria over the commercial banks in Nigeria
as contained in the CBN decree 24 of 1991 and BOFIA decree 25 of 1991. This
project will analyzed the effect of liquidity on profitability of commercial
banks in Nigeria
so as to determine whether the control is effective the purpose of the control
of the economy in general will be corrected in this project.
The purpose of liquidity control by the CBN will be examined, so
that it may be conducted whether the control is really achieving its objectives
or not. The project will make suggestions on how to solve the problem of
balancing liquidity and profitability determiner. The problem of optimal assets
selection to yield maximum profit will also be analyzed in this project. 1.4 SIGNIFICANCE
OF THE STUDY
Working
on the promise that the days of cheap profits are gradually being eclipsed and
that in future, bank would need to complete more fiercely for limited business,
only those bares show innovative approaches to treasury and find management
will be capable of surviving the
competition ahead. Although the Nigeria
service had remained up till now a sellers market, with banks returning
impressive results, strong balanced sheet, huge profit and impressive divideds.
This trend in
unlikely to continue much longer, hence it has now become expedient for banks
to reappraise their assets mix policies goals and procedures, so that they are
not out changed by the time unless new and relevant portfolio management
strategies are brought into place, bank might in future be left in the vurch.
Apart from the
foregoing consideration, the present treasury and fund management techniques
used by Nigeria Bank are often time based on haphazard and subject factor which
tends to increase the rish of goals achievement the generally accepted
techniques of quantitative and scientific techniques are very rarely used in a publication by Adekanye Femi (1986)
he noted that up till now, there is no report of the use and application of
management science/operation research technique in banking where as
considerable integration of these technique for banking decision have been
evoke in American, Europe and Japan.
The main focus of
this project is therefore to develop a decision model in asset more (Treasury
and Fund management) for the policy making and serve programming model. The
model will hopefully assist bank in enhancing their profitability effectively
from its present low ebb, thus unproven target planning and achievement.
1.5 SCOPE OF THE STUDY
The control weapon of
the CBN-liquidity ratio affects the profitability of all banks and other
financial institution but this project will be limited to any effect of
liquidity on profitability of commercial banks in Nigeria because this control weapon
of central bank usually affect commercial bank more than the other financial
institution. This study is a theoretical exposition within focuses attention on
the central problem of banks management reconducting the conflicting bank goal
of profitability, liquidity and solvency which in all effect the operation of the bank.
1.6 LIMITATIONS OF THE STUDY
Finance is the main
constraint facing this research work, coupled with short available time. The
researcher is self sponsored and so could not afford the cost of elaborate area
of coverage.
Another major limitation is the difficulties in obtaining material information as there are reluctances from sources.
1.7 PLAN OF THE STUDY
The plan of the study
is how the research work is to be done; these plans spelt out the research work
and contain five Chapters.
The first chapters of
the research work contain the background of the study, statement of the
research question, objective of the study, significant of the study, scope and
limitation of the study, definition of term and plan of the study.
Chapter two treated
theoretical frame work literature review.
Chapter three deal
with research methodology, determination of population, statement of
hypothesis, selection of sample, sources and collection of data, validation of
questionnaire and selection of analytical method.
Chapter four deals
with the data presentation and analysis, Questionnaire analysis and
interpretation of results.
Chapter five, these
finally discuss the summary of the finding, conclusion and recommendation.
1.8 DEFINITION OF THE TERMS
Liquidity: Bank liquidity is the ability of a bank to be in a position to
meet the demands of depositors and borrowers. Virtually all economic units need
liquidity.
Profitability: it can be considered as the main motive of bank as its
maximization ensure the survival and growth of the economic unit
Solvency: its. Often used as a synonym for liquidity it is the ability of
bank to meet its day-to-day obligations to deposits and credit customers,
solvency is the ability of the bank to meets its long terms obligation
Portfolio: these are losts of securities and investment (stock, shares)
owned by a bank.
Demand Deposit: These are money saved by customers of a bank subjected to
recollection on demand
Monopoly: this is the existence of one or few economic unit in a
particular industry thereby enhancing the few economic units to have
uncompetitive control over the industry
Expantriate banks: these are foreign owned banking institutions
Indigenous banks: these are locally owned banking institution.
THE EFFECT OF LIQUIDITY ON THE PROFITABILITY OF COMMERCIAL BANK IN NIGERIA (A CASE STUDY UNION BANK OF NIGERIA PLC)
