CHAPTER ONE

1.0     INTRODUCTION

            Liquidity management seeks to ensure the attainment of short term objectives of monetary policy, which means maintenance of dose rue monetary aggregate. It is very important aspect of monetary policy implementation and control.

            Universal banks create money every day, but when the quantity created is compatible with the absorption capacity of the economy macro economic instability may result. In order to maintain relative macroeconomics stability, mush reliance is placed on liquidity, growth in the banking system.

            Lending and investment operation of universal banks have been widely and extensively discussed in various literatures. It has also been stated that any one who expects to borrow from the universal banks should be most concerned with the loans investment policy and techniques. The concept profit making activity of a universal bank is making loan available to its customers. It faces uncertainties and therefore risk of many kinds. A bank does not consider earning alone instead it seeks some optimum combination of earning; liquidity and safely.

            For example to gather higher earnings, a bank has to increase more risk and liquidity and vice versa. However, universal banks are limited in their ability to assure risks because of the very high ratio of their liability to their total assets.

1.1     BACKGROUND OF THE STUDY

            Commercial banking in Nigeria into the nineteenth century started as a means to facilitate the slipping business of a British shipping line Elder Dempster agencies operating in the Nigeria territory. The chairman of the company, Mr. Alfred Jones perceiving the advantages that were acquirable, and its agents in Nigeria Mr. George William Neville to establish a bank in Lagos.

            This was how the First Bank of Nigeria Plc was opened in Lagos in 1894.

1.2     STATEMENT OF THE PROBLEM

            Liquidity and credit management have implication on bank profitability and the authorities’ depositors and shareholders. It could trigger off mass cash withdrawal thus plunging the bank into deeper crisis. In analyzing the credit and liquidity management of First Bank of Nigeria Plc, I shall examine its assets quality, which includes its performing and non – performing loans. In addition efforts would be made to look into the bank’s capital adequacy ratio and its shocks of risk assets different measures of liquidity and solvency.

1.3     RESEARCH HYPOTHESIS

            The following hypothesis is developed and tasked to ensure a more effective and result oriented research work.

Hi: the liquidity of universal banks could be determined efficiently from the effectiveness of its credit management.

Ho: the liquidity of a universal bank could not be determined efficiently from the effectiveness of its credit management.

Hi: lending and investment operations of universal banks depend widely and extensively on its liquidity.

Ho: Lending and investment operations of universal bank does not depend widely and extensively on its liquidity.

1.4     THE PURPOSE OF THE STUDY

            A bank is considered liquid it has sufficient cash and other liquid assets in its portfolio together with the ability to raise fund quickly from other sources to enable it meet its payment obligations and financial commitment in a timely manner, therefore the main purpose is to highlight how liquidity and credit management in this Nigeria Banking Industry is being discovered and the extent to which First Bank of Nigeria Plc is guided in the management of its lending functions.

1.5     SCOPE OR DELIMITATION OF THE STUDY

            Universal banks act as intermediaries by collecting deposits and paying interest on them and granting loan charging the borrowers interest at the higher rate. Improving these services to borrowers and the depositors the main goal of the bank is to make profit. Apart from granting loans bank also generate profit on investments. In order to maximize their earnings every bank attempts to structure its assets and liabilities such a manner as to yield the highest returns, subject to some constraints.

            A bank is considered liquid if it has sufficient cash and other liquid assets in its portfolio, together with the ability to raise fund quickly from other sources to enable. It meets its payment obligation and financial commitments in a timely manner. This study therefore aims to cover the extent to which First Bank of Nigeria, Plc is guided by the above enumerated theories in t he management of it lending functions and know now it has been able to survive over years in spite of the global liquidity problems to supplement his effort the lending practices and procedure of the bank will also be evaluated.

1.6     LIMITATIONS OF THE STUDY

            The research was faced with many problems in the course of collecting information relating to this project, as many staff is not willing to divulge related information. The directions at various departments dealing with credit management and liquidity in first bank refuse to disclose detail information relating to liquidity and credit management. Access to departmental ledger account was denied through verbal information relating to questions, asked was given another limitation was the inability to cover various branches of Nigerian banks, which are throughout the federation. This was mainly due to the financial and logistical difficulties that such exercise of this would entail.