STRATEGIES FOR MANAGING BANK LIQUIDITY (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)

CHAPTER ONE

1.0     INTRODUCTION

Virtually, all economic units need liquidity, and banks are no exception. Demand deposits, which represent a major proportion of bank liabilities, constitute a large percentage of the nation’s money supply. Each bank must therefore maintain a substantial part of its assets in cash or in cash assets that can be converted into cash quickly. Since demand deposit represent a high proportion of bank’s liabilities, they at all times, try to prevent a rush on their liquid position. When therefore a bank is faced with infrequent loan demands, the banker is guided by what is known as liquidity ratio. The banker has to determine the ratio of loans to deposit cash ratio and legal requirements. The banker must be sure that at all times, it complies with the central bank of Nigeria liquidity requirements. The banks will put into consideration the ratio of loans to deposit liabilities. When the ratio of loan to deposit liabilities rises to a relatively high level bankers become less inclined to lend and to invest.

Commercial Banks employ different strategies to maintain adequate liquidity and these strategies include:

1.       Lending only for short term commercial purposes.

2.       Maintaining liquid assets, which ranges from cash to money at call and bills discounted.

3.       They also hold deposit at the central bank.

The combination of earning of liquid is especially relevant for commercial bank managements in Nigeria. This is because the ultimate objectives of a commercial bank is to make profits at all, the banker must maintain confidence, and to maintain confidence he must maintain an adequate degree of liquidity in highs assets.

It is therefore against this bank ground that the researcher wishes to examine the concept of liquidity management strategies adopted by First Bank of Nigeria Plc.

1.1            STATEMENT OF PROBLEM

The major problem inherent in strategies for managing bank liquidity in this research work is how to determine the extent of liquidity holdings of a bank at a particular point in time in order to meet up the various financial obligations of the bank to their borrowing customers.