CHAPTER ONE
INTRODUCTION
BACKGROUND
OF THE STUDY
The impact of liquidity position in
management of financial institution and other economic unit have remained
fascinating and intriguing, though very elusive in the process of in investment
analysis visa- visa Bank port folio
management.
There appears to
be an interminable argument in the literature over the years on the roles,
meaning and determinants of liquidity and credit management. The Nigeria
financial environment has noticed increase in credit which has become a problem
to the country.
Credit control described as to
maximize the value of the firm by achieving a trade a trade off purpose of
credit control is not to maximize sales or to minimize the risk of bad debt.
In fact the firm
should manage it credit in such a way that sales are expanded to an extent to
which risk remains within an acceptable unit. These costs include the credit
administration expenses bad debt, losses and opportunity cost of the fund field
up in receivables, the aim of liquidity management should be to regulate and
control these cost that cannot be eliminated together.
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According to
Begg, fisher and Rudiger (1991:130) liquidity refers to the speed and certainty
with which an asset can be converted back into money (cash, income) whenever
the
Asset holder desires, money itself is
the most liquidity asset o all liquidity management seeks to ensure attainment
of the short term objective.
A liquid Bank is one that stores enough liquid assets and
cash together with the ability to raise funds quickly from other source to
enable it meet its payment obligation and financial commitment in a timely
manner.
Therefore according to Ngwu (2006:36)
liquidity management is the act of storing enough funds and raising funds
quickly from the market to satisfy depositor loan customer and other parties
with a view to maintain public confidence.
STATEMENT
OF THE PROBLEM
Liquidity is considered as the
success of as Bank , therefore ay ineffectiveness in its management
consuetude’s a huge problem i.e. it encounter a huge problem that affect the
affairs of the financial institution. This problems is therefore analyses here
as the basis for this research study.
The analysis commence from the era of
Bank in inception in Nigeria through it growth stages and till what is it
today. The initial Bank failures
recorded were principal dues to inefficiencies in the management of the
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liquidity of such
Bank which in one way or the other had
something to do with either liquidity inadequacy and the relative inefficiency
in their management.
As an
institutional problem, it has persisted over the years, in determining the
survival or otherwise of Bank s. Although it must be said that some relative
degree of Bank it is believed that any Bank institutions that is properly
managed and has adequate liquidity should be able to swim above troubled
waters.
Problems sometimes also evolve from Bank
s inordinate urge to make phenomenal profit. In the process of doing this there
is the tendency for these Bank s to get carless in the resources utilization
and particularly their management of liquidity.
The resultant effect is usually loss
substance and consequently, loss accumulation, a situation which can lead to Bank
failure. The marginal loans in the Bank system calls to mind the important
factor that national government of all` time preoccupy themselves with Bank s.
This shows the degree of importance attached to liquidity and its management by
these governments and deviation from its ratio or inadequacy of it management
always spells trouble for the Bank concerned.
The far reacting
consequences of inadequate liquidity management can also be examined. Apart
from profit declines. Other of attendant consequences to a Bank includes loss of confidence in the particular Bank
its inability to