THE EFFECT OF CASH MANAGEMENT IN ENSURING PRODUCTIVITY IN BANKING INDUSTRY A CASE STUDY OF DIAMOND BANK PLC, UYO

THE EFFECT OF CASH MANAGEMENT IN ENSURING PRODUCTIVITY IN BANKING INDUSTRY(A CASE STUDY OF DIAMOND BANK PLC, UYO

TABLE OF CONTENTS

CHAPTER ONE

This study will be reported under the following sub heading:

1.1   Introduction

1.2   Statement of the problem

1.3   Objective of the study

1.4   Research Question

1.5   Significance of the study

1.6   Scope of the study

1.7   Limitation of the study

1.8   Definitions of terms and acronyms

CHAPTER ONE

1.1  INTRODUCTION

The success of any business today is largely determined by the liquidity position and the way in which it manage its cash to ensure productivity. Solomon (2002) as the main purpose of establishing business is to make profit and not only to make profit but to optimize it therefore all necessary factors responsible for  such should be controlled and manage in order to achieve the objective (2001).

Liquidity position of bank could be considered in terms of cash and cash equivalent; loans advance prepayment, debtors, creditors etc, which could be readily ascertained to meet up with the financial obligation of banks in short term and long term (2003).

Abonede (2004) idle cash which some could refers to as surplus reserves and which could be also seen as part of the liquidity of a company could be used in such a way that it will make profit to accrue to it, therefore adequate care should be taken in the aspect of managing cash lucey (2003). There is a cost involved in maintaining a balanced liquidity position. This is especially so where the interest rate is low and credit demand is sluggish however, those cost can be minimized through the use of spread management when interest rate and credit demand are increasing a balance liquidity can be very profitable because liquidity is available to meet the loan demand maintaining a balance productivity. Joseph (1971).

John (1998) argue that by management his liquidity position a bank may be able to afford the cost that often accompany an excess as well as deficit liquidity position. In addition it can display to regulatory as well as investors a logical controlled method of ensuring that the need of the community and the asset of the shareholders are being well managed. It can be reasonably inference quoted above that there exist on important relationship between the concept of liquidity and productivity.

Efficiency in banks in terms of liquidity and productivity could be measure through trend analysis and ratio analysis. Some of the ratio includes capitals adequacy asset utilization productivity, liquidity, and cash flow ratio.

A proper consideration and analysis of this will give us a base for determining the best position for liquidity and cash management to ensure productivity in banking industry. Aborede (2004).

 1.2  STATEMENT OF THE PROBLEM

Through these financial roles, the commercial banks use the idle funds in other classes of financial assets investment. These business activities of the bank is not done without problem facing it, since these deposit which have been invested by the banks for profit maximization can be demanded for at any time. When the bank is not able to meet their financial obligations, the public begins to loss confidence and these will cause a lot of competition to the financial sector. With the high increase of competition in the banking industry, every commercial bank should strive to operate on profit and at the same time meet the financial demand of its depositors by maintaining adequate liquidity. The problem then becomes how to select the optimum point at which commercial bank can maintain its assets in order to optimize these two objectives. These problems become more difficult as a large numbers of banks are basically engaged with profit maximization and tend to neglect the importance of liquidity management and these can lead to technical and legal insolvency.

This research work will also see to other problems such as the effect of excess liquidity and the problem of estimating the population of the deposits that can be demanded for at any specific time, selection of factors that will affect or influence the bank liquidity level and finally problem of satisfying the two major publics of the commercial bank simultaneously. With these solutions will be prescribe and recommendations will be made where necessary.

 1.3  OBJECTIVE OF THE STUDY

The competition environment of the financial institutions is to tense that any commercial bank that aims to survive must be aware of the challenges of its liquidity and productivity obligation as both variable can make or destroy its future.

This study is largely centered on liquidity objective and ensure its ability to meet up the depositors demand thereby maximizing its value and there is also uncertainties in the asset management of the commercial banks as the new deposit does not correspond with the customer’s withdrawals, since demand is made at short notice. Therefore this study is aimed at the following goals.

• To know liquidity management will handle these uncertainties and determine their effect on productivity.
• Discovering the specific factors that are useful in improving productivity and liquidity position of the commercial banks.
• To examine the cost of liquidity and liquidity levels at the performance of commercial banks and length at which this liquidity can be used as competitive instruments.
• To take a critical view of the adopted liquidity measures of the commercials banks and attempt to see how it has achieved.
• Finding out the effect of changes in liquidity levels on productivity.
• Aimed at discovering the credit and portfolio policies of the commercials banks.
• Finally it will attempt to identify the basic causes of liquidity problems in Nigeria commercial banks and to recommend appropriate measures to solve such problems.

 1.6  RESEARCH QUESTIONS

Based on the study the following research questions are asked:

1. Is optimal liquidity in Diamond Bank Plc constrained by robust dividend policy?
2. Is optimal liquidity in Diamond Bank Plc constrained by excess fixed asset acquirement?
3. Is optimal profit in Diamond Bank Plc constrained by idle cash availability?
4. Is optimal profit in Diamond Bank Plc constrained by love productivity of staff?
5. Is optimal profit in Diamond Bank Plc constrained by idle time-man-hour losses?
6. Is optimal profit in Diamond Bank Plc constrained by wasteful fraudulence expenditure?

1.6  SIGNIFICANCE OF THE STUDY

For the fact the commercial banks operate on liquidity and productivity motives in the mind to satisfy their major publics, the shareholders and depositors, the need arise for them to bring into agreement these two motives wit the aim of satisfying these two public concurrently. With this the commercial bank need effective and efficient liquidity management approaches and principles that will help them realize these motives. The result gotten from this study will reveal the level of attachment of the commercial banks to the monetary policies (liquidity ratios) establishing by the government and these will help the government to set appropriate liquidity ratio’s and cash ratio’s that will not be harmful to the operation and survival of the commercial banks. It will also liquidity management and credit policy guidelines will affect minimize the effect of liquidity and help in providing effective liquidity formulations.

 1.6  SCOPE OF THE STUDY

This study on the impact of liquidity management on commercial bank productivity is carried out to check the possibility of liquidity management brining a huge of profitable to the commercial bank. It uses oceanic bank international Plc Effurun Delta state as its scope and it is carryout within 2007 to 2010 that’s a time frame of 4 years.

1.7  LIMITATION OF THE STUDY

These covers the problem encountered. Limitation which the researcher anticipates will have some negative effect on the findings of the study. The study is prone to some constraints.

1. Finance: Considering the economic situation in the country coupled with the limitation of fund for executive of the project the chance of traveling together sufficient fact might be hamped.
2. Time: This study is likely to be limited by time constraint considering the need attend lectures and perform other activities like domestic chores.
3. Co-operation of Respondents: Some respondent might not be co-operative and this might the extent of the fact gathered.

Confidentially: The project might be limit by inability together relevant information because of the sensitively of some of the information which requires high degree of confidentiality

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THE EFFECT OF CASH MANAGEMENT IN ENSURING PRODUCTIVITY IN BANKING INDUSTRY(A CASE STUDY OF DIAMOND BANK PLC, UYO