Thursday, 14 July 2016

Liquidity And Profitability Management In Commercial Banks

Introduction
Commercial bank is an economic unit with its main objectives of maximizing profit. The role of a commercial bank is different from that of central bank in the utmost aim of making profit from the public through providing banking-services for personal and commercial customers.
       
There are other factors that can distinguish the commercial bank from the central bank, like ownership of the commercial banks which is owned by the shareholders like any to other stock company.

According to Reed et al (2002), the main role of the commercial bank is converting short term deposit into long term deposits into long term loan and resolves it to generate income to themselves. commercial banks brings together people who are willing to save and they can assured or guaranteed their money any time they need it.


TABLE OF CONTENT
Title Page
Certification
Dedication
Acknowledgement
Table of contents

1.0   CHAPTER ONE: INTRODUCTION
1.0 Introduction
1.2 Statement of the problem
1.3 Objective of the study
1.4 Scope of the study and limitation
1.5 Significance of the study
1.6 Plan of the study
1.7 Definition of terms
1.8 Research Methodology

2.0 CHAPTER TWO: LITERATURE REVIEW
2.1 Historical overview of commercial bank
2.2 Functions of commercial bank
2.3 Treasury management in commercial bank
2.4 Various sources of funds
2.5 Various cost of funds
2.6 Cost control
2.7 Essence of treasury management
2.8 Impact of treasury management in commercial bank

3.0 CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Historical background of the study
3.2 Research Population
3.3 Method of data collection
3.4 Methods of data analysis
3.5 Source of data collection

4.0 CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data presentation techniques
4.2 Liquidity management
4.3 Sources of liquidity
4.4Asset management
4.5Liquidity measurement
4.6Determining liquidity needs
4.7Profitability to liquidity
4.8Table showing the sources of bank liquidity 

5.0 CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1Summary
5.2Recommendations
5.3Conclusion
5.4Bibliography

Chapter one
The commercial banks act as intermediaries of collecting deposits and receiving interest on loan issued out to lenders. Commercial banks due to its great competition faced in the global market, it must struggle to attain profits in other to keep the bank and name in progress and by so doing the following have to be adhered to:


(A) The shareholders funds: which is gotten through the selling and the buying of ordinary shares, preference shares redeemable share etc.

(B) Reserves: As the undistributed profits which belongs to the shareholders and kept with the Central bank of Nigeria (CBN).

(C) Loan Capital or debenture Stock: Are the long and medium term loans to the bank at a fixed rate of interest and repayable over a fixed period of time to finance certain capital project of a bank.

(D)Customer Deposits: Made up of the balance held by the bank on behalf of its customer whether on current accounts or savings in relation to gaining interest commercial banks at the end of the accounting year prepares it financial statement to show the rate of performance the bank could achieve during the year.

The commercial banks have to balance sheets in two categories namely, the assets side and the liability sides.

The assets side indicates the useful of fund i.e. show how the funds generated was used and the liability side indicates the sources of funds for the bank.

Having said all, commercial bank is strictly aimed at maximizing profit at cost.


1.1 STATEMENT OF THE PROBLEMS
The project will look at the problem faced by the commercial banks in managing and checking the equilibrium between liquidity and profitability. Some of the problems that are faced by the commercial banks are managing equilibrium between liquidity and profitability arises from many factors like:

1. The duty of the commercial banks to their shareholders who have invested in the bank with the aim of a good return interim of future dividends. It is clearly seen that the banks assets which produce income substantially higher than that paid on deposit.

2.   The minimum level of liquidity that a bank must maintain as regards to holding cash and other liquidity assets which can be converted into cash. By doing this there would be adequate funds to meet the demands from depositors and to maintain public confidence.

3.   The need to harmoniously balance the indifference motives and maintenance

4.   To adequate liquidity and profitability in the commercial banks would be examined in detailed in the process of the projects.

1.2 OBJECTIVES OF THE STUDY
Due to the great importance of the subject matter, (profitability and liquidity management) to the efficiency, continuity and evaluation of commercial bank management. Also, the project is aimed at bringing out the effect of the regulatory power given to central bank of Nigeria over the commercial banks in Nigeria as contained in the CBN decrees 24 of 2002 and Botin 25 of 1991

In the summary, the objectives of the study are then analyze the effectively and also on the profitability management to sustain the bank activities.

 
  • -  To improve the managers of the commercial banks on the essence of profitability and liquidity management.
  • -  To evaluate the existing theories with contemporary economy
  • - evaluating the extent and liquidity affects other elements of banks management
  • To give way for more analysis by future study of the subject matter
  • -To identify various components of profitability and liquidity management that the commercial bank needs to function effectively.
  1. 1.3 SCOPE OF THE STUDY AND LIMITATION
In other for this study to be very meaningful, this study therefore will be limited to basis principles applicable in profitability and liquidity management in commercial banking.
       
The study will also look into the components of profitability and liquidity of commercial banking management at a glance through treasury management,

The study is a theoretical topic that focuses attention on the centrals of the banks management, reconciling bank goals of liquidity and profitability that will affect the operations of he commercial banks

1.4 SIGNIFICANT OF THE STUDY
Commercial bank management is just the same as found in any other profit seeking organization mainly to maximize the wealth of the owner.

Commercial bank profits are important to every group in the economy. The stock holders are interested in investing capital in order of receive dividend or returns on the sum of capital invested. Bank profit resolves in the benefits of the depositors by producing a strong safer and more efficient banking system through the increased in reserve and improvement in services.

The management of funds is one of the significant of the study which is a complicated factor, however, a bank is considered liquid if it has adequate resources of liquidity instrument which includes assets that are readily saleable without material loss in advance of maturity.

Another significant of the study is the way commercial banks can give an impressing return on their daily activities such as on their balance sheets at the end of the year and so on.

1.5 PLAN OF THE STUDY
The study is divided into five chapters, chapter one which covers the introduction of what is being carried out research methodology.

Chapter two concerns with the literature review and the study of treasury management in commercial banking.

Chapter three focuses on the commercial banking profitability. The Chapter four covers the commercial banking liquidity management, considering all other element of profitability and liquidity of assets.

Chapter five covers the summary of the study and the findings, recommendations, conclusion and bibliography.

1.6 DEFINITION OF TERMS
The study is using different terms in the course of this project and in order to make them clear to all readers, some important of the term have been defined below:

PROFITABILITY
: Is the main motive of the bank to ensure maximum survival of the bank and the keeping asset that can quickly be converted into a substantial analysis of money.

LIQUIDITY
: Is the liability of the bank to meet the demands of their customers. It is the determination of the bank to be able to meet needs of their depositors at any time.

FIXED ASSETS: Is the bank investment in building (premises) equipment and furniture’s etc.

OTHER ASSETS: Are items under the group of prepayments, accrued interest receivables, suspense resource and un-capitalized expenditure


1.7 RESEARCH  METHODOLOGY
In the course of this research into the study, secondary data are being used, that is data from text books, journal, publications and seminars. This is because secondary data are readily available on the topic compared with the other source of data and its also cost effective and quicker.

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