CHAPTER ONE

1. INTRODUCTION

BACKGROUND OF THE STUDY

In every system, there are major component that are paramount for the survival of the system. This is applicable to financial system. The banking institution had contributed significantly to the effectiveness of the entire financial system as they offer an efficient institution mechanism, through which resources can be mobilized and directed from less essential uses to more profitable and productive investment. The performance of these financial institutions has proved to be effective channel between savers and borrowers. These important roles are played by merchant banks, savings banks, the control banks and development banks.

The banking industry have overtime function in vital banks units facilitating the transfer of assets that are well desired from the public (fund lenders) into other financial assets which are more widely preferred by grater part of the public (fund sackers). Thus, banking industry becomes the bedrock of the two functions of Nigeria banking system, which are deposit mobilization and credit extension. Therefore, an adequate financial system requires the attention of the banks management of profits and liquidity, which are two conflicting goals of Nigeria banking system. Profits and liquidity are effective indicator of the corporate health and performance of not only the banking system (Elyelty 2004), but all profit oriented ventures.       

Therefore, these roles involves bringing together of people who have money and those who need money is crucial in this discussion. So also certain critical factors that are required to facilitate liquidity management and a stable, sound, competitive, financial system adequate regulating, and supervisory, framework and macro-economics capacity buildup.

1. STATEMENT OF RESEARCH PROBLEM

 Liquidity on banks profit management in banking industry, the problem innocent in Nigeria banking system is inter-mediation roles, the bank of industry idle funds borrow from lenders to investment such funds indifferent classes of portfolio. Such business activities of the banks is not without problems since the deposit from these funds savers invested by the banks profit maximization can be record and demanded when the later is not in position to meet their financial obligation so also considering the public laws of confidence as a result of banks distress which bedeviled the financial sector in Nigeria

 They intensified competition in the banking sector as a result of terrific emergence of large number of new banks. The problems then become how to identify the optimum point or the level at which banks industry can maintain its assets in other to optimize these two objectives; since each of the liquidity has a different effect on the level of profit. So also profit maximization as the resulted liquidity can lead to both technical and legal insolvency with consequence of low patronage and deposit flight; erosion asset base; other problems includes, excess liquidity, balancing the proportion of the deposit that will be demanded by the depositors at any point in time, and finally accurate selection of the factor that influence the level on banks liquidity possess some problems. All these problems are what the study intends to consider.

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