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PROJECT TOPIC: THE IMPACT OF LIQUIDITY ON CREDIT MANAGEMENT OF BANKS IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Liquidity management seeks to ensure the attainment of short term objectives of monetary policy, which means maintenance of dose rue monetary aggregate. It is very important aspect of monetary policy implementation and control.

Universal banks create money every day, but when the quantity created is compatible with the absorption capacity of the economy macro economic instability may result. In order to maintain relative macroeconomics stability, mush reliance is placed on liquidity, growth in the banking system.

Lending and investment operation of universal banks have been widely and extensively discussed in various literatures. It has also been stated that anyone who expects to borrow from the universal banks should be most concerned with the loans investment policy and techniques. The concept profit making activity of a universal bank is making loan available to its customers. It faces uncertainties and therefore risk of many kinds. A bank does not consider earning alone instead it seeks some optimum combination of earning; liquidity and safely.

For example to gather higher earnings, a bank has to increase more risk and liquidity and vice versa. However, universal banks are limited in their ability to assure risks because of the very high ratio of their liability to their total assets.

Commercial banking in Nigeria into the nineteenth century started as a means to facilitate the slipping business of a British shipping line Elder Dempster agencies operating in the Nigeria territory. The chairman of the company, Mr. Alfred Jones perceiving the advantages that were acquirable, and its agents in Nigeria Mr. George William Neville to establish a bank in Lagos.

This was how the First Bank of Nigeria Plc was opened in Lagos in 1894.

1.2    STATEMENT OF THE PROBLEM

Liquidity and credit management have implication on bank profitability and the authorities’ depositors and shareholders. It could trigger off mass cash withdrawal thus plunging the bank into deeper crisis. In analyzing the credit and liquidity management of First Bank of Nigeria Plc, I shall examine its assets quality, which includes its performing and non – performing loans. In addition efforts would be made to look into the bank’s capital adequacy ratio and its shocks of risk assets different measures of liquidity and solvency.

1.3    JUSTIFICATION OF THE STUDY STATEMENT OF RESEARCH HYPOTHESIS

The following hypothesis is developed and tasked to ensure a more effective and result oriented research work.

Hi: the liquidity of universal banks could be determined efficiently from the effectiveness of its credit management.

Ho: the liquidity of a universal bank could not be determined efficiently from the effectiveness of its credit management.

Hi: lending and investment operations of universal banks depend widely and extensively on its liquidity.

Ho: Lending and investment operations of universal bank does not depend widely and extensively on its liquidity.

1.4    OBJECTIVE OF THE STUDY

A bank is considered liquid it has sufficient cash and other liquid assets in its portfolio together with the ability to raise fund quickly from other sources to enable it meet its payment obligations and financial commitment in a timely manner, therefore the main purpose is to highlight how liquidity and credit management in this Nigeria Banking Industry is being discovered and the extent to which First Bank of Nigeria Plc is guided in the management of its lending functions.


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