LIQUIDITY MANAGEMENT IN BANKS: A STUDY OF SELECTED COMMERCIAL BANKS IN NIGERIA (2000-2009)

By

OKAFOR PASCAL CHINEKWU M.Sc 2012416019P

Presented To

Department of Banking and Finance

This study sought to examine the challenges of Liquidity Management in Nigeria’s Commercial banks. The study identified some of the notorious factors responsible for most banks’ liquidity problems such as high ratio of Non-performing loans (NPL), excessive risks concentration, fluctuations in statutory Reserve requirements; Assets mismatch in portfolio selection, and Poor Corporate Governance. In order to tackle the magnitude of the problems, the researcher limited the scope of the study to ten year period (2000-2009) in First Bank, Access Bank and United bank for Africa PLC and established three specific objectives and related research questions to guide the study. The secondary data generated from the Financial Statements Reports and Accounts of the selected banks as well as the Central Bank of Nigeria (CBN) reports for the period was used to test and analyze the three hypotheses, based on the stated objectives and the related research questions, using a Parametric statistical sample paired t- test model and Pearson’s Correlation coefficient as the statistical tools. Based on the research findings, it was recommended among others that banks should strengthen their institutional capacity, exercise prudence in credit administration and avoid excessive risk exposure.CBN should also re-appraise the existing corporate governance code necessary and also embrace more pro-active mechanisms in the discharge of their oversight functions for sustainable banking sector liquidity, public confidence, safety and professionalism in banking practice.   

Title Page                                        i
Approval Page                                    ii
Certification Page                                 iii
Dedication                                        iv
Acknowledgements                                v
Abstract                                        vi
List of Tables                                    vii

CHAPTER ONE: INTRODUCTION
1.1    Background of the Study                     1
1.2    Statement of the Problem                     4    
1.3    Objectives of the Study                        6
1.4    Research Questions                              7
1.5    Research Hypotheses                            7    
1.6    Significance of the Study                      8
1.7     Limitations of the Study                       10
1.8    Definitions of Operational Terms          11   

CHAPTER TWO:  REVIEW OF RELATED LITERATURE
2.1     Introduction                                                 13
2.2     The Theoretical Framework                        13
2.3   Empirical Literature Review                          19
2.4     Poor Corporate Governance Issues and Effects on Banking Sector Liquidity      30
2.5     Effects of Poor Banking Supervision and  Regulatory Lapses on Banks’ Liquidity Management          37
2.6     The Need for Liquidity Management and Banking Sector Solvency         42
2.7    Potential Sources of Commercial Banks’ Liquidity         45
2.8    Planning and Solving Liquidity Management Problems in Crisis Situations         48
2.9    Measurement and Governance of Liquidity Risk        50
2.10 The  Determinants of Liquidity Position                52
2.11 The Liquidity and Profitability Controversy             55
2.12 Corporate Vision and Issues of Liquidity for the Selected Commercial Banks   57            
 2.13 Synopsis of Commercial Banking Activities in Nigeria         65

 CHAPTER THREE: RESEARCH METHODOLGY
 3.1      Research Design                              68
 3.2     Area of the Study                             68
 3.3       Population Sample and Sample Techniques        69
 3.4     Sources of Data Collection                     69
 3.5        Model Specification                            70
 3.6        Techniques for Data Analysis             71        
 3.7      Reliability of Test Instrument                71

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
 4.1       Introduction                                                73
 4.2       Data Analysis /Hypothesis Testing            73
 4.3      Presentation of Result                                 74   
                                    
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
 5.1       Introduction                                88
 5.2       Summary and Discussion of Findings            88
 5.3       Implication of Findings                        92
 5.4        Conclusion                                 93
 5.5       Recommendations                             95                                                     
 5.6    Contribution of the Study to Future Knowledge        97                                          
 5.7        References                                10
 5.8       Appendix                                  103

 
Tables Pages
4:1     Condensed Financial statement Reports on Non- Performing Loans (Asset Quality) of the selected Banks for the study         82    
4:2     Summary of Paired sample t-test Result for Hypothesis One on the Extent Non –Performing Loan Affect Bank’s Liquidity       83
4:3    Condensed Annual Growth Rates of Profitability and Liquidity of Commercial Banks. 84
4:4    Total Deposits and Statutory Reserve Requirements (Liquidity& Cash Ratios) of the selected Nigerian Commercial Banks (2000-2009)      85
4:5  Summary of Paired Sample t-test Result for Hypothesis Two
on the Extent  Bank’s Liquidity Position affects its profitability      85    
4:6     Summary of Paired sample t –test for Result on the extent Statutory  Reserves affect Commercial bank’s Liquidity          86