TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study
1.2 Statement of Problem
1.3 Objective of the Study
1.4 Research Questions
1.5 Hypothesis
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Operational Definition of Term
CHAPTER TWO: REVIEW OF LITERATURE
2.0 Introduction
2.1 Theoretical Framework
2.1.1 Concept of Liquidity
2.1.2 Concept of Loan Portfolio
2.1.2.1 Loan Performance
2.1.2.2 Loan Classification
2.1.3 Evolution of Banks in Nigeria
2.1.4 Nigerian Banking Reforms and Policies
2.1.4.1 G.D. Paton Report
2.1.4.2 Central Bank Act, 1958
2.1.4.3 Companies Act of 1968
2.1.4.4 The 2004-2005 Banking Capitalization Reform
2.1.4.5 Cash-less Nigeria policy 2012
2.2.0 Review of Variables
2.2.1 Liquidity
2.2.1.1 Loan-To-Deposit Ratio – LTD
2.2.1.2 Liquidity Ratio-LQDR
2.2.2 Profitability
2.2.2.1 Lending rate
2.2.2.2 Deposit rate
2.2.2.3 Lending Spread
2.3 Theoretical Review
2.3.1 Commercial Loan Theory
2.3.2 Shiftability theory
2.3.3 Anticipated Income Theory
2.3.4 Liability management Theory
2.4 Empirical Review
2.4.1 Summary and gap in the literature
CHAPTER THREE: METHODOLOGY
3.0 Introduction
3.1 Research Design
3.2 Population
3.2.1. Sample size and sampling Technique
3.3 Method of Data Collection
3.4 Method of Data Analysis
3.5 Model Specification
3.6 Model Estimation Technique
3.7 A priori Expectation
Content
3.8 Ethical issues
CHAPTER FOUR: DATA ANALYSIS, RESULTS
AND DISCUSSION OF FINDINGS
4.0 Introduction
4.1 Descriptive Analysis of variables
4.2 Trend Analysis of Liquidity Position of Nigerian Banks
4.2.1. Comparative Analysis of Bank Liquidity Ratio in Nigeria
4.3 Correlation Analysis
4.4 Panel Regression Results Analysis
CHAPTER FIVE:SUMMARY, AND CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
5.1 Summary
5.1.1 Findings from the descriptive analysis
5.1.2 Findings from the empirical analysis
5.2 Conclusion
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The importance of liquidity and profitability of banks has received tremendous attention in the corporate world in recent years. The management of corporate liquidity is one of the most critical areas in determining whether a firm will be profitable or not. Liquidity of a firm represents its ability to carry out all its financial obligations without affecting the business operations. A business cannot run smoothly without the presence of adequate working capital. Therefore, the importance of liquidity makes it necessary for banks to maintain a reasonable amount of their assets in the form of cash in order to meet their short term obligations. According to Saleh, (2014), profit is the bottom line or ultimate performance result showing the net effects of bank policies and activities in a financial year.
Profitability being a measure of loan performance also refers to excess of firm’s revenue over her operational cost or measurement of the rate of return on investment. Enhancement of profitability is one of the ultimate goals of every firm, and generally, banks strive to strike a balance between profitability and liquidity (Niresh, 2012).
The Basel Committee on Banking Supervision (2008) defined liquidity as the ability of a bank to fund increases in assets and meet obligations as they fall due, without incurring unacceptable losses. Liquidity could be risky when a financial firm, though solvent, either does not have enough financial resources to allow it to meet its obligations as they fall due, or can obtain, such funds only at excessive cost (Vento & Laganga, 2009).
Liquidity risk appears when there are differences between the size and maturity of assets and liabilities on the balance sheet. There are generally two types of liquidity risks which are funding liquidity risk and market liquidity risk. Funding liquidity risk is the risk that the bank is not able to respond effectively to current needs as well as future cash needs without affecting its daily operations and financial condition. Market liquidity risk is defined as the risk that a bank cannot easily offset or eliminate a position without significantly affecting the market price (Ferrouhi & Lehadiri, 2014).
Profitability and liquidity as performance indicators are important to the major stakeholders of any firm and banks in particular. The shareholders are interested in the profitability of banks because it determines their returns on investment. Depositors are concerned with the liquidity position of their banks because it determines the ability to respond to their withdrawal needs, which are normally on demand or on a short notice as the case maybe. The tax authorities are interested in the profitability of the banks in order to determine the appropriate tax obligation (Olagunji, Adeyanju & Olabode, 2011). This study examined the effect of liquidity on the loan portfolio performance (profitability) of Nigerian banks in other to contribute to the gaps in the previous studies as stated below.
1.2 Statement of the Problem
In Nigeria and the competitive world, the banking sector has emerged as a key player, contributing its best to create employment, and improving the financial sector of the country. With the current and growing trend in Nigeria economy, it has become a challenge for the sector to create employment and contribute meaningfully to the economy due to inability to earn maximum profitability. Therefore, it is necessary for banks to take dynamic decisions to effectively manage their assets, particularly loan portfolio in order to bring about the needed improvement in their profitability.
Moreover, considering the public loss of confidence as a result of distress which bedevilled the financial sector especially banks in the recent past; and the intensity of competition in the banking sector due to the emergence of new banks, every deposit money bank should ensure that it operates profitably and at the same time meets the financial demands of its depositors by maintaining adequate liquidity (Olagunji, Adeyanju, & Olabode, 2011).
Deposit money banks are often confronted with the problem of how to choose and identify the optimum point or the level at which it can maintain its assets in order to optimize the set objectives (Ajibike & Aremu, 2015). This investigated the effect of liquidity (the proportion of the deposits that may be demanded by the depositors at any particular time) on the profitability of banks. It will investigated liquidity position of banks in Nigeria.