LIQUIDATION MANAGEMENT IN COMMERCIAL BANKS

CHAPTER ONE
1.0    INTRODUCTION
Liquidity is the word that bankers used to describe its ability to satisfy the assets for cashing exchange for deposits. Liquidity, debt and profitability position are the three parameters that are used in determining a firms strength and weakness. The ability to turn assets quickly into cash is known as liquidity. The assets of the bank must be kept reasonable liquid so as to meet possible demands from depositors and maintain minimum level of liquidity that a bank must maintain, both as regards cash and other liquidity assets, which can be turned into cash easily. Liquid assets are made up of treasury bills, call money, discounted bills, etc.
In additions, a bank is said to be liquid when it is very capable of meeting promptly the demands by its customers of their deposits with the bank. It is noteworthy that one of the unique the characteristic of commercial banks is their ability to maintain liquidity in the face of loans and advances for investment as well as the perceived demand of legal and social responsibility. This, no doubt requires air maintenance of a balance between assets and liabilities and between liquidity and profitability.
In other words, it is the responsibility of management to prevent liquidity crisis by ensuring maximum liquidity stability at all times.
Liquidity management aims at scoring optimum investment in securities, optimum interest, income and determining the total amount of cash and marketable security the bank would hold on any point in time.
Be that as it may, liquidity management and all its ramifications is geared towards avoiding two main danger points namely, excess investment and under investment in current assets.
In efficient management leads to excess liquidity is one hand and to insolvency on the other hand. Excess liquidity is an indication of under utilization of assets while technical insolvency indicates lack of funds. Both of them spell in healthy business situation. Insolvency leads to loss of confidence, goodwill and profitability.
If one should ask do Nigerian commercial banks manage their liquidity efficiently and wisely?
Simply put, this question relates to weather or not Nigerian commercial banks are using the right procedures and strategies in managing their liquidity, thereby ensuring efficiency in the entire organization.
1.2    SIGNFICANCE OF STUDY
This research is of particular relevance to the monetary and fiscal policy department of the central Bank of Nigeria. It should enable banks to how to insert their liquid assets in other to maximize profits. It will also enable banks to be able to meet the statutory requirement of the central bank and meet the social responsibilities of the public as well.
It will serve as a responsible managerial tool and it will also be a secondary data to whoever may wish to carryout further research under-utilization also is an undesirable alternative as it erodes profitability. Efficient liquidity management is therefore the only solution to the above problems as it is instrumental to solvency, goodwill and profitability. Hence, this study is geared towards finding how banks management their liquidity position as well as examining the practical problems of bank liquidity
1.1    STATEMENT OF PROBLEM
Strictly, this study/project is liquidity management in commercial banks (A case study of first bank Nigeria Plc in Ozoro). The principle problem being investigated is to determine:
i.    How liquid commercial banks have been and the extent to which they give out loans and advance to their customers.
ii.    How best commercial banks can access their customers to guide them against the risk of default in loan repayment.
iii.    The extent of goodwill enjoyed by banks among their customer.
iv.    How profitable banks have been over the years.

OBJECTIVE OF STUDY
Granting that a bank is liquid, a bank management who is incompetent as regards the branch maybe so skeptical about using up depositors that he finds his branch overloaded with idle cash when there are very profitable investments that could be taped with such cash.
This suggest that there is a great need for a sound liquidity management in commercial banks as liquidity can be rightly said to be the basis for a bank.
It is in the light of the foregoing that this study is being conducted with principal objectives of:
i.    Ascertaining how effectively commercial banks have managed or utilized their liquidity to promote their corporate image and win the patronage of the public.
ii.    To ascertain how the banks maintain their liquidity to enable them respond to potentially profitable credit or investment opportunities.
iii.    To investigate ways in which the banks cash can be managed efficiently so as to contribute to the overall objective of the bank.
iv.    To find out the impact of economic policies on commercial banks.
v.    To identify causes of insolvency and to maintain good cordial relationship with depositors. 

SCOPE OF STUDY
This study is designed to give insight into how banks manage their liquidity. There are a lot of banks in the country, and as a result, it will be extremely difficult and impossible for the time given to study all of them. The researcher decided to use first bank Plc Ozoro to enable her carryout an in-depth study of the research topic.
The researcher will ask the staff of the bank, to find out and the ways they have been managing their liquidity.

LIMITATION OF STUDY
Obviously, the data collection stage of the study has not been all together easy. However, deposit the time contract, the limited financial resources and proximity rigorous efforts were still made to collect data relevant to the study.
Firstly, the work is limited by inadequate finance to cover a greater part of the country in the case of personal interview.
There are also restrictions posed by the unwillingness of some interviewed bank officials to give out information freely because they felt that giving answers to such questions may tan amount to a revelation of official secrets.
More importantly, the researcher was handicapped with the problem of getting up to data about banks generally.

RESEARCH HYPOTHESIS
The assumptions made one viewed and designed to achieve the objectives of effective liquidity management which ultimately will lead to making a good profit.
These assumption are stated below
1.    Has adequate liquidity management by banks lead to adequate profit making?
2.    Does banks ability to manage its liquidity ensure customers confidence?
3.      How insolvent banks meet up with the withdraws obligation and borrowing requirement of their customer

DEFINITION OF TERMS
1.7.1    ASSETS: are defined as economic benefit, the right which have been acquired by the enterprise as a result of some current or past transaction. They are the resources of the business. It is divided into two, fixed and current Assets.
1.7.2    FIXED ASSETS: these are long huge resources and are normally acquired by the enterprise for the purpose of producing goods and services e.g. plants and machinery, and buildings, motor vehicles, etc.
1.7.3    CURRENT ASSETS: These are those assets, which within a short period of time normally one year will change their form e.g. debtors receivable, cash, stock, etc.
1.7.4    CASH: Is the money which the firm can disburse immediately without any restriction.
1.7.5    INSOLVENCY: This demotes the inability of a bank to meet delots when they become due.
1.7.6    LIQUIDITY: This is the ability of a bank to provide cash to meet the claims and obligations of the bank.
1.7.7    MARKETABLE SECURITIES: These are securities dealt with on the stock exchange or otherwise readily turned into cash.
1.7.8    PROFITABILITY: This demotes the excess of returns over expenditure. It is the pecuniary gain in any transaction.
1.7.9    INVESTMENT PORTFIELD: This demotes a list of securities held by or on behalf of an investor.
1.8.0    LIQUIDATION: This demotes a situation where a company’s assets and liabilities are rounded up and the debts paid up.