CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Liquidity management in financial context means ways with which assets can easily be convertible cash without loss and hence the bank’s ability to pay its depositors on demand (Anyanwu 1993.87). Liquidity management also means the degree of convertibility to cash, and company must all times maintain a reasonable level of cash and near-cash assets to enable it pay its maturity and unforeseen obligations. Also, liquidity management involves controlling the level of money supply in the economy in order to maintain monetary stability. It is judged by the case with which asset can be exchange for money. In other words liquidity is the ability to convert an asset to cash with minimum delay and minimum loss and also the ability of deposit out of cash on readily of deposit out of cash on readility marketable asset without, a bank exist to make profit and at the same time remain liquid.

Thus, liquidity and profitability are two consideration governing a banks investment and since they conflict. It is not easy to reconcile them. If a bank management is interested in profit this might lead them into investing in assets which are highly remunerative but which may not be easily converted to cash it may not earn much profit because safe investments are not remunerative. The secret of should banking consist in the maintenance of adequate reserves while at the same time make profit since to objective of the bank is to maximize his profit, wishing certain strict limitations since deposit banks deals with other peoples money (deposits) inform of demand and time deposited and these represent the obligation of the bank to pay whenever they are requested.

The bank should always allocate their fund in such a way that their portfolios should always contain an adequate level of liquid. Assets. This liquid asset are the most important balance shelf items which have the capacity to maintain the confidence of depositors which is the most valuable intangible asset to the deposit banking rustiness and the liquid assets include the following. Treasury certificate treasury bills call money, commercial paper or bill and bankers unit fund. Bank that maintains adequate reserves are likely to create year on loss of confidence. Among the depositor over the safety of their deposits which might lead to deposit with drawl make provision of customers demand for loan and as well make sufficient profit for their share holder. The ability of banks to meet their financial obligation is usually measured to examining their balance sheet and relating some or all of its current assets to some or all of its current liabilities. In the special cases as a deposit bank, ratio of loan to deposits is the most commonly used measure of bank liquidity for their own safety it governed among other three factors are:

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