Liquidity of banks means “The ease with which banks assets could be converted into cash”. The liquid assets include cash in the banks vault with the central banks and to their government securities that have not been used as these assets is cash.
There are many reasons why a bank should have 0reasonable liquid assets in it assets portfolio, these include to be able to meet prompt demands for deposits withdrawals, that is, the banks must maintain confidence and also be able to utilize profitable opportunities that may come out in future.
However, it should be noted that bank like most other business are profit oriented, operating to make profit for their shareholders. These profits could be realized only if there is enough deposits. The deposits will not come unless the depositors could be assured of the safety of their deposits to be assured. There has to be enough liquidity in the banks.
It is a known fact that action designed to make profit brings about illiquidity in the bank and vice versa.
Therefore, equilibrium has to be sought between the two. These two extreme cases have been the constant concern of bank management.
Liquidity management involves provision for deposits withdrawals, short-term cash requirement and cyclical and circular cash requirements. It also involves provisions to meet with legal requirements.
In Nigeria, the activities of the commercial banks are regulated by the banking act of 1970as amended under the control of central bank of Nigeria. The essence of these regulations was to maintain trust and confidence in banking systems, as well as to achieve a specific economic objective. Thus, in the period of mounting excess liquidity, as was the case in the 1970s, banks were equal to a certain percentage of their deposits in liquid for this is known as legal reserve requirement. The components of legal reserve requirements are: cash stabilizations securities issued by the central banks. The liquidity ratio requirement and special deposits.
The rational for the use of these instruments was to map out he excess liquidity in the economy and also to stop the inflationary trend in the economy. The excess liquidity I n the banking sector give rise to inefficiencies in banks operation.
Bank staff was no longer polite to their customers. They become arrogant since they had little outlets to invest money; banks have devised new method of attracting deposits from their customers thus, the recent innovations in the banking sector.
Title page II
Approval page III
Table of contents VI
1.1 Introduction 1
1.2 Definitions of terms 5
1.3 Significance of the study 3
1.4 Objectives of the study 4
1.5 Scope and limitations of the study 5
2.1 What is liquidity 8
2.2 Liquidity risks 9
2.3 Liquidity versus profitability in commercial banking11
2.4 Significance of liquidity ratio 12
2.5 Rational for liquidity ratio requirement 14
2.6 Factors affecting liquidity in commercial bank federal government steps towards solving liquidity problems in commercial banking. 16
3.1 Summary of findings 24
3.2 Conclusion 25
3.3 Recommendation 26
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(2014, 11). Liquidity Problem In Commercial Bank Institute Of Management And Technology (imt) Enugu.. ProjectStoc.com. Retrieved 11, 2014, from https://projectstoc.com/read/4739/liquidity-problem-in-commercial-bank-institute-of-management-and-technology-imt-enugu-9058
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