EFFECT OF MANAGEMENT AND CONTROL OF CASH IN THE BANKING SECTOR

CHAPTER ONE

INTRODUCTION

1.1            Background of the Study

Banking is generally known to have started by seventeenth century goldsmith, since they has volt facilities. As individual keep their gold coins with the goldsmith, the business expanded and an association was formed. This gives rise to the emergence of merchant and private banks.

Banks have been accused of taking too much risk in unexplored new instrument and line of business. The advice being given to bank is to avoid further exposure of risk in the activities.

The main focus of this research project which is effect of management and control of cash by the banking sector. This topic is very important taking into consideration the fact that cash is the most liquid of the current assets of the bank. Cash is the live wire of banking business, this means that without it there is no way the business can live or proper.

According to van Horne (1980), management of cash deals with “managing the monies of the bank firm in order to attain maximum cash availability and maximum interest income in any idle funds”. In other hand, cash management and control involves the power or ability to guide or decide the  way in which cash work, so that it could be available when needed at the right quantity and time as well as having the idle cash invested in order to enable the bank have maximum possible return on it. That is to say that proper management and control of cash will enable the bank to be in a better position to achieve profitability, liquidity and stability. This is the essence of the banking sector to be both profitable and liquid at all times.

1.2            Statement of the Problem

The First Bank of Nigeria is expected like all other banks to provide quick and efficient service to both customers and  interested parties. The bank should know the value of time and should try as much as possible to discharge its customer in the shortest possible time. This is so because the customers are the business of the bank and that is why they are regarded as the asset of the bank. It is objective of the bank to safeguard the cash and other valuable deposited to them by their customer.

The primary question that come to a customer’s mind is; does the bank have enough and adequate security to protects and safeguard the cash and other valuable of its customers.

How does this bank manage and control its cash? These are some of the question that comes to any potential customer mind.

The study intends to investigate and find possible solution to the above question.

1.3            Objective of the Study

The objectives of this study are listed below:

a.     To identify the causes of customer delay and to find solution to them.

b.     To identify the causes of in efficiency of management and control of cash.

c.      To identify the ways and manner the banks operate in order to effect a very good flow of cash.

1.4            Research Hypothesis

Hypothesis can be seen as assumption that can be proved wrong or right on the collection of facts or observation by the researcher. The following hypothesis will be used for this study.

Ho: That efficient management and control of cash do not lead to profitability and stability in the banking sector.

H1:    That efficient management and control of cash do lead to profitability and stability in the banking sector.

1.5            Significance of the Study

This research work intends to highlight effect of management and control of cash and determine the inefficiency and weakness of the bank management and control of cash. That it will be enormous benefit to the shareholders, customers and potential investors and particular to the national in general to attain the desired economic growth and development. This project when completed will serve as a reference point to researchers who would want to research further on effect of management and control of cash in banks.

1.6            Scope of the Study

In carrying out this research, the researcher has decided to limit the scope of the study to First Bank of Nigeria Plc, Kachia Road Branch Kaduna, from 2009-2013.

1.7            Historical Background of First Bank of Nigeria PLC

First bank of Nigeria is one of Nigeria’s leading commercial banks. It was established in 1894 by Sir Alfred Jones, a shipping magnate from Liverpool, the bank started out as a small operation in the office of elder Dempster and company in Lagos. The bank was incorporated as a limited liability company on 31st March 1894, with a head office in Liverpool. It began trading under the corporate name of the bank for British West Africa (BBWA) with a paid up capital of twelve thousand pound (12,000). Marking the creation of the bank’s international banking operation, a second Nigeria branch was opened in the old Calabar in 1900, and two years later services were extended to northern Nigeria.

To respond successfully to changing conditions over the years, the bank had restructured several times. In 1957, it changed its name from bank for British West Africa to bank of West Africa, and in 1969 it was incorporated locally as the standard bank of Nigeria limited, in line with the companies decree of 1968.

In March 1976, the bank obtained a listing on the Nigeria stock exchange. Further name changes took place in 1979 and 1991 to First Bank of Nigeria Limited, then First Bank of Nigeria Plc. In 1985, the bank introduced decentralized structure with five regional administrations, and this was reconfigured in 1992 to enhanced operational efficiency.

To satisfy the needs of it customers, First Bank has diversified into a wide range of banking activities and services, these include corporate and retail banking registrarship, trusteeship and insurance brokerage. The bank currently has 394 branches throughout Nigeria the largest branch network in the industry. Over the years first bank has experienced phenomenal growth from a share capital of N55.6 million in 1980, to N2.619 billion in March 2006. Also in March 2006, the bank’s total assets base was N540.2 billion, its deposit base was N390.8 billion and market capitalization stood at N193.81 billion.

First bank is quoted on the Nigerian stock exchange (NSE), where its issued and paid up share capital as at March 31, 2009 was 24.86 billion units. For the half year ended June 2010, the bank made a whopping N35.7 billion profit before tax against N31.3 billion recorded the previous year. It achieved this feat with total earnings of N139.7 billion over the given period.

In June 2011, first bank of Nigeria plc has a total assets base of N2.9 trillion representing a 20% growth over the previous years and deposit of N1.4 trillion, first bank is the largest bank in Nigeria and one of the top five banks in Africa in terms of assets. FBN has developed impressively, growth in deposit base, asset size and size of loan and advances. A strong track record of profitability and reliability in sound banking has also helped it maintain a leadership position in the banking industry.

FBN is strongly committed to its social responsibilities and identifies with communities in which it is represented, as at March, 1992 Nigerian interest constitutes 80% of the shareholding of the bank.

1.8            Definition of Terms

Understanding technical terms which have special meanings in the banking sector is very important as far as the sector is concerned.

They are as follows:

a.     Cash management: This refers to the ability to manage cash in order to attain maximum cash availability and maximum interest income on any idle fund.

b.     Cash control: This refers to disbursement method aimed at paying account payable (liabilities) as late as possible taking into consideration the need to maintain credit standing. This is to enable an organization to accelerate the collection of receivables by showing down the payment of its liabilities without impairing the organization credit standing in the eye of its creditors.

c.      Commercial banking: This deals with financial institution relating to monetary transaction for the purpose of making profits. In other words commercial banks are financial institutions established to provide various services to customer particularly for keeping and lending money to customer, organization and government, some of the services being provided by commercial bank include acceptance of deposits, acting as agent for payment, transferring of money, foreign transaction technical advice and acting as a trustee and executor of will.

d.     Banking Sector: That part of business that deals with monetary transaction and matters, generally speaking, it includes the central bank which is the government bank, into which al government bank revenue are paid and the commercial bank that keep account for their customers.