ABSTRACT

This research study investigates how Liquidity Management has been used as a tool for improving efficiency in Nigerian commercial banks, using United Bank for Africa (UBA) Plc and Union Bank of Nigerian (UBN) Plc as case study. It seeks to: ascertain how effectively the banks have managed their liquidity to meet the borrowing requirements of their customers, ascertain how the banks maintain their liquidity in order to enable them respond to potential profitable credit or investment opportunities, investigate ways in which1 banks cash can be managed efficiently so as to contribute to the over all objective of banks, and to determine how banks prevent insolvency and maintain good cordial relationship with deposit customers. 1t also makes recommendations and gives reasonable solutions that will enhance the management with the sole aim of safeguarding the banking system in Nigeria. The study bids to explore: to what extend liquidity management serve as a tool for improving efficiency in commercial banks in Nigeria, the relationship between liquidity management and effective bank performance in commercial banks in Nigeria, as well as the extent the stringency of monetary policy rates affect banks liquidity position in Nigeria. This study is significance as it shall help to crate understanding on how banks can enhance their liquidity management so as to improve their performance in the area of creating confidence in their depositors and as well make profit for their shareholders. For the hypotheses formulated for the purpose of this study, Liquidity, Loan-to-Deposit Ratio, Return on Capital Employed, and Loans and Advances were used as variables. Regression Analysis was employed in the study as secondary data were used for the analysis. From the analyses carried out in this study, it was revealed that: the loans and deposits of commercial banks are enhanced with the availability of adequate liquid assets; an illiquid bank cannot give out enough loans, and as a result such banks cannot have enough returns from loans; the liquidity of a bank has an inverse effect on the profitability ol the bank; the ability of a bank to issue loans is positively influenced by the availability of enough liquid assets; liquidity is not the only factor that brings about efficiency in the activities of commercial banks. Following the findings, the researcher conclusions that; the profitability of a bank lies on how efficient the bank manages its available liquid assets; a balanced distribution or allocation of the liquid assets of' commercial banks brings about excellent performance as there will be funds for loans to borrowers and funds for investment in other securities; banks whose target is to maximize profit will not see accumulation of cash as a good ethics for operation as that will mean high liquidity but low profitability; banks who want efficiency in their operation would not only focus on liquidity, but would corI'sider other factors that bring about efficient performance. It is therefore recommended that: Banks should adopt the system of balanced allocation of their liquid assets for investment which will bring about return on equity as well as return on assets — profitability; and for current assets which will enable the banks attend to their financial obligations, so as to keep the bank on going. Commercial banks should not rely only on the deposits of their current customers. They should embark on primary demand marketing campaign aimed at mobilizing Nigerians on the desirability of savings — this will enable them attract potential customers who will run their savings with the banks. The banks should see this promotional activity, not only as part of their position, but as an avenue for generating fund from outside environment, as this will improve the banks liquidity position. Commercial banks should ensure matching their cash inflow with ash outflow as the resources of funds are mostly in short term basis. They should invest mostly on short term investments which generate returns within a short period of tinie, so as to avoid liquidity problem. The government should ensure that monetary policies stabilize before adjustments are made. This will help to avoid inconsistency in policies, which will lead to the problem of inefficient liquidity management on the commercial banks. Commercial banks should ensure that they adhere to the CBN liquidity and cash ratio policies so as to avoid unforeseen decline in liquidity assets.