ABSTRACT

Today more than ever, the business environment has become highly volatile and this is evidenced by the emphasis on highly automated systems such as computers coupled with the increasing public interest in the affairs of the institutions they are involved with. As a result, every firm wants to build and maintain the confidence of its customers through its increased profitability and management of its liquidity. According to Dwevidi(2001) every business entity has two primary objectives which are to make profit and then to ensure that the business continues to exist and meet its obligations- the word is solvency. He continued by saying that the higher the profitability, the higher the level of commercial success of the organization and the longer the organization can stay. Profitability and solvency therefore forms the major parameters for assessing the performance of an entity. Peterson (1994) on his part says "liquidity" reflects the ability of a firm to meet its short term obligations when they fall due using those assets that are readily converted to cash". Archer(1996) defines "liquidity as cash and other resources as marketable securities and debtors that can be turned into cash within a relatively short period of time without any appreciable concession on original cost upon liquidation". Liquid assets of banks include cash, short term funds from other banks and financial institutions, treasury bills and government bonds. While their current liabilities includes deposits, current accounts, managed funds, dividend payable. Liquidity therefore is a constraint that must be satisfied both directly; in that it reports its ability to continue to do so (in the Annual Report). If a firm reports poor liquidity, it causes such a fall in confidence that its state becomes a self-fulfilling prophesy, a creditor demand an immediate payment, the classic example being "a run on the bank".

TABLE OF CONTENTS

2.10 Measure of profitability: 31

2.11 Effect of liquidly management on the profitability of banks: 33

2.12 Risk management disclosures in banks credit risk management: 33

2.13 Market and liquidity risk management: 33

2.14 Empirical review on effect of liquidity management on the profitability of deposit

rnoney banks in Nigeria. 34

CHAPTER THREE

RESEARCH METHODOLOGY

3.2 Area of study. 38

3.3 Population and sample size. 38

3.4 Sample size determination. 38

3.5 Sample and sampling techniques. 38

3.6 Source of data. 39

3.7 Validity and reliability of instrument. 39

3.8 Data analysis procedure. 39

3.8.1: Model specification. 41

CHAPTER FOUR

DATA PRESENTATIONS AND ANALYSIS

4.1 The liquidity ratio of the banks 42

4.1.1 The liquidity ratio of first bank Nigeria plc. 44

Table 1: First Bank Liquidity Ratio

4.1.2 The liquidity ratio of united bank for Africa (UBA). 46

4.2 The profitability ratios of the banks. 46

4.2.1. The profitability ratio of First Bank Nigeria plc. 47

4.2.2. The profitability ratios of United Bank for Africa (UBA) 47

4.3 Relationship between liquidity ratio and profitability ofthe banks. 48

4.3.1 Test of hypothesis one (FIRST BANK) 48

4.3.2. Test of hypothesis one (UBA). 49

4.4 The Central Bank ofNigeria (CBN) liquidity reserve ratio and the banks liquidity ratio.

4.4.1. The First Bank Nigeria plc and the CBN liquidity reserve ratio. 50

4.4.2: The CBN liquidity reserve ratio and UBA liquidity ratio 50

4.5 The effect of liquidity on the profit of the banks. 51

4.5. 1. Test of hypothesis two (FiRST BANK) 51

4.5.2. Test of hypothesis two (U BA) 52

4.6. The significant difference in liquidity ratios of the banks. 53

CHAPTER FIVE

SUMMARY, CONCLUSION, AND RECOMMENDATION

5.1 Summaries of findings 54

5.2 Conclusions 54

5.3 Recommendations 55

REFERENCES 58

Appendix