1.1BACKGROUND OF THE STUDY
Liquidity is the ability to current financial liabilities in cash. Liquidity is the word that bank use to describe the ability to satisfy demand for cash in exchange for deposit. A bank is considered to be liquid when it has in various forms and locations plus arrestment in securities that are easily available at a short notice without loss or much loss to the bank, it could be conventional to refers to a bank as being liquid when it has enough liquidity better to meet any financial emergency, for instance, during a run off, the bank have the question of how much liquidity to hold and in what from is of great concern to any prudent bank manager. Manager are also face with the requirements to comply with liquidity to meet seasonal and unexpected run on the bank for cash be anticipated and met in advance form expected each in flow, deposit loan repayment or earnings.
In light of the above, the role of liquidity in our commercial banks becomes all to real its importance cannot therefore be overemphasizes liquidly is needed to take advantage of unexpected favorable and profitable opportunity or for aggressive purpose. If a bank is needed of liquidity, it becomes difficult for it to take opportunities like this. A bank might run into difficulties when a firm that they want to secure as a customer family presents a loan application or particular desirable investment development, it becomes for them to do this, it is not sufficiently liquid, usually the bank approach is to identify two liquidity needs of banks, one is the need for immediate liquidity to ensure the continual day to day operations (e.g) Liquidity, to meet with drawls of deposits by customers, clients, and the other, he need to meet unforeseeable problems in financial the banks know future commitments the balance sheets relationship which is most relevant to this view of liquidity is that of deposit liability.
In order for the ban k to distinguish between the following:
1.Liquidity and assets, which are maturity are certain (e.g short deposit and overdraft)
2.Liquidity and asset, which are maturity certain (e.g loan and deposit, which are for friend’s terms).
3.Assets, which have friends maturity but by nature can be sold easily and safely e.g Treasure bills, extricate of deposits.
In Nigeria, Commercial bank activities are regulated by a lot is required of the commercial ratio liquidity ration stabilization secrets issues by the Central bank of Nigeria (CBN) for secial de[posited. Liqudity probem for the purpose of this study are divided or looked at as problems for the purpose encouraged by banks management. Where there is either excess or shortage of liquidity on the banking system or is commercial banking System.
It will be noted that since the end of Nigeria Civil war, the Nigerian Financial System has been experience economic transaction, which emanated from the inflow of foreign exchange via the oil sector. Emphasis were gradually shifted from other sector like agriculture to oil, the performance in this sector entered prudent influence on the liquidity of the economy, the Federal government was equally welcoming in liquidity so it had no use if certain borrowing instruments like treasury bills, treasury, certificates and development stick. As a result bank vaults swelled uncontrollably.
This resulted in arm-chain banking by choosing which deposit to accept and which not be the bank were walling in excess liquidity and where was little outlets for short term resources and yet banks were not ready to long investment. Commercial Banks were faced excess be profitable employ. But it is believed that the situation is reviewed. Banks are now faced with the problem of liquidity cannot be hidden for long.
A bank may succeed in canceling low profitability or capital inadequacy for long, but a bank that becomes illiquid may not be able to conceal it for more than one day. Once there is an increased demand foe currency the problem pf liquidity will surface.
TABLE OF CONTENTS
Title Page i
Table of contentsvi
1.1Purpose of the Study
1.2Significance of the Study
1.3Objective of the Study
1.4Scope of the Study
1.5Limitations of the Study
1.6Definition of Terms
2.0Definition of Liquidity in C.B
2.1Functions of Liquidity in C.B
2.2Way of Regulating the Activities
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