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ABSTRACT
This study examined the Monetary
Policy and Liquidity Position of Deposit Money Bank in Nigeria using Guaranty
Trust Bank of Nigeria Plc. as a case study. The problem identified in this
study is mainly the problem of vibrancy in global financial sector in
performing its roles in the growth and development of the economy. This problem
arises due to maintaining equilibrium between profitability and liquidity in
banking institutions in Nigeria. The primary source of data was used to collect
the data while chi-square method was used to analyze the data. The findings
indicates that there is a positive relationship between liquidity management and
profitability of commercial banks. Based on these findings, the conclusion
states that liquidity has great impact on profitability. It is recommended that
while commercial banks pursue their profit making objectives, the assets of the
bank must be kept at an acceptable level of liquidity so as to meet possible
demand from depositors and maintain public confidence at all time. Scholars and technocrats in the banking
sector argue that liquidity management should not be the focus of banks but
rather risk management, risk management will ensure the bank continues business
in a long time. Further research should be conducted on the effect of risk
management on the activities of commercial banks in the country.
CHAPTER
ONE
INTRODUCTION
1.1 Background
of the Study
The Nigerian economy has undergone fundamental
structural changes over the last four decades (1960 to date). Evidence shows
that the dramatic structural shifts that occurred lately have not resulted in
any appreciable and sustained economic growth and development. Within these
periods, the economy has also experienced stunted growth for the greater part
of the period. The economy exhibited negative growth rates, which indicates
depressed economic situation partly caused by the worldwide economic recession
of the early 80s, the world economic meltdown, and recent fall in oil revenue
which was as a result of over dependence of the Nigeria economy on oil
proceeds, and gross mismanagement of the economy by successive governments
(Biaobaku 2014).
According to Awokiyesi (2011), the aim of every
economy is the attainment of a healthy and sustainable position, for the
critical macro-economic variables, which are the Balance of Payments (BOP),
Gross Domestic Product (GDP), Inflation and Unemployment. The pursuits of these
goals have become one of the major pre-occupations of policy makers worldwide.
This is understandable due to the tremendous impact of developments in Balance
of Payments (BOP), Inflation, GDP, Unemployment and social welfare of the
society. Generally, the outcomes of these critical macro-economic variables
provide a useful guide for appraising the appropriateness of current policy
measures designed to bring about a well-ordered economic structure.
The objectives of macro-economic policy for the
government of a contemporary mixed capitalist country (like Nigeria) have come
to be formulated as the maintenance of high employment levels, without
inflation consistently with the achievement of an adequate rate of economic
growth, and the preservation of Balance of payments equilibrium. In this
context, a major contribution to the theory of economic policy is the Philips curve.
In Nigeria, the realities of the current
economic situation have drowned monetary authorities to focus on the framework
for sustainable growth, encompassing stabilization as a component of this
framework. This conviction is informed by the fact that the country, since the
early 1980's, embarked on the stabilization of the economy, when it became
apparent that the economic policies of the 1960's and 1970's were no longer of
any relevance to the realities of the economy at that time.
In the world of finance, no country can indeed
act in isolation. The last few years Nigerian Banking Industry have witnessed
the creation of the world's banking group through mergers and acquisitions,
this trend has been influenced by factors such as prospects of cost savings due
to economies of scale as well as more efficient allocation of resources,
enhanced efficiency of resource allocation and risk reduction arising from
improved management. In 2005, the-then CBN Governor Charles Soludo visualized
the Nigerian and world economy in the year 2025 and 2050, with no more than
10-20 'mega' banks, noting that countries that fail to take proactive
positions, will wake up and continue to complain of marginalization.For him,
Asia was consolidating as well as Europe, North America and South America; even
in South Africa consolidation was taking place resulting in mega banks such as
Amalgamated Banks of South Africa (ABSA) which has asset base, larger than all
of Nigerian Deposit money banks put together(Fakanye, 2006).
Before the advent of economic reforms,
Nigeria-Africa'smost populous country and with the largest economy had 89 banks (International Business
Management, 2011;Aregbeyen andOlufemi, 2011) with many having a capital base of
less than 10 million US Dollars and about 3300 branches, while countries like
South Korea had 8 banks with about 4500 branches. The Nigerian banking system
has undergone remarkable changes over the years, in terms of the number of
institutions, ownership structure, as well as depth and breadth of operations.
These changes have been influenced by challenges posed by deregulation of the
financial sector, globalization of operations, technological innovations and
adoption of supervisory and prudential requirements that conform to
international standards.
As at January 2005, 89 banks were operating in
Nigeria comprising institutions of various sizes and degrees of soundness, with
the largest bank in Nigeria having a capital base of 240 million US Dollars
compared to 526 million US Dollars for the smallest banks in Malaysia. CBN,
Economic and Financial Guidelines (2013) explained that the small size of most
of Nigeria banks each with expensive headquarters, separate investment in
software and hardware, heavy fixed costs and operating expenses, and with
bunching of branches in few commercial centers leads to high cost of
intermediation, affects the spread between deposit and lending rates, and puts
undue pressures on banks to engage in sharp practices as means of survival,
which ends in the unhealthy state of the nation’s economy.
The first phase of bank reforms in the fourth
republic was concluded on 31 December 2005, with emergence of 25 banks and
further consolidation within the year resulting to merger of two other banks
bring the number to 24 banks, this marked the era of modern banking in Nigeria.
Recent reforms put the industry on a sound
footing and improve over the situation, prior to the impact of the global
financial crisis. Four banks were adjudged not able to be recapitalized; hence
three of these banks were nationalized and one was taken over by African
Capital Alliance Consortium. Thus the following are the remaining banks in
Nigeria as at now: Citibank Plc, Diamond Bank Plc, Fidelity Bank Nigeria, First
Bank of Nigeria, Guaranty Trust Bank, Stanbic IBTC Bank Nigeria Limited,
Standard Chartered Bank, United Bank for Africa, Unity Bank Plc, WEMA Bank Plc,
Zenith Bank Plc, Skye Bank Plc. Later, Access Bank acquired Intercontinental Bank
Plc, Ecobank Nigeria acquired Oceanic Bank Plc, First City Monument Bank
acquired FinBank and Sterling Bank acquired Equatorial Trust Bank. Other banks
were nationalized with Bank PHB becoming Keystone Bank Limited, Spring Bank Plc
becoming Enterprises Bank Limited and Afri Bank Plc becoming Mainstreet Bank
Limited.
1.2 Statement
of the Problem
Nigerian banking came into the 21st
century with very high hopes, especially since the apocalyptic millennium
computer glitches that were predicted globally never happened. At that time,
most of the banks were not internationally competitive, both in terms of size
and the volume and the kind of transactions they handled. The 90 banks in
operation in year 2001 had 2,994 branches, aggregate total assets of 2.167 trillion
naira, total deposits of 947.18 billion Naira,andcapital and reserves of 172.42
billion. Their contribution together with other financial sector, sub sector to
national economic growth was limited to 12.13% of the GDP in 2001.
The problem identified in the global financial
sector is mainly a problem of vibrancy in performing its roles in the growth
and development of the economy. This has attracted international comments
because of its importance in the facilitation of fund transmission in the
domestic economic and international trade. The problem arises due to problems
of maintaining equilibrium between profitability and liquidity, in most or all
the banking institutions in Nigeria. These problems curtail banks from meeting
up with current obligations and costs incurred, due to large Non Performing
Loan in all the banks which have effect on the shareholders who have invested
in the banks with the aim of making good returns in form of future dividends.
The relationship between liquidity of the banks and their profit has been the
focal point of this work.
The survival and growth of other sectors of the
economy are intrinsically linked with fund transmission in the local economy,
of which the banking sector plays a significant role in any nation. Hence the
problem of study rests on the effect of recent global financial crisis, on the
component member of financial system in the economy of Nigeria, and on whether
changes in the global financial system affect the activities of Nigerian
financial system. From these points of view,
banks need assets, which will produce income substantially higher than that paid on deposits. At the same
time, the assets of a bank must be kept reasonably liquid, so as to meet
possible demands from depositors and to maintain public confidence.
1.3 Objectives
of the Study
The main aim of this study, is to analyze the
impact of liquidity management on banks’ profitability, with a case study of Guaranty
Trust Bank Plc. Thus the specific objectives will be the following:
v
To
examine the correlation between liquidity management and performance of Guaranty Trust Bank Plc.,
v
To
examine the correlation between liquidity management and Guaranty Trust Bank
Plc.’s profitability,
v
To examine the correlation between liquidity
management and growth of Guaranty
Trust Bank Plc.
Format: MS Word
Chapters: 1 - 5
Delivery: Email
Delivery: Email
Number of Pages: 76
Price: 3000 NGN
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