A Case Study of Selected Commercial Banks in Port Harcourt.

Abstract

To insure successful business operations, the commercial banks, one of the active operators of financial system need to maintain enough cash level for the withdrawal need s of the depositors. While trying to achieve that, the commercial banks in most cases find themselves in a situation of keeping excess cash which is detrimental to their efficient operations and growth. The commercial banks are therefore faced with 1\\'0 conflicting requirements namely liquidity optimization and profitability optimization to contend with. The problem created by these two conflicting requirements become too complex in modern banking sub-sector such as ours which is characterized by competition. Based on this problem, the study on the effect of liquidity management on commercial banks' profitability was carried out so as to determine ways of resolving the problems associated with the conflicting requirements. The total of fifty copies of questionnaires were administered on the executive officers of ten selected commercial banks that operate in Port Harcourt . Apart from the questionnaires, other primary data were collected through oral interview conducted on some of the executives of the commercial banks. The secondary data were gathered from the financial rep orts of the banks, NDIC and CBN reports as well as library research. Both primary and secondary data generated were subjected to analysis with the use of some statistical tools such as correlation and regression analysis, student + -test ordinal ranking scale etc . Analyses provided the bases for the acceptance or otherwise of the four null hypotheses 'were formulated. Generally, the hypotheses proved that optimum profitability is only achieved when commercial banks adopt efficient liquidity management. The major finding revealed by the analysis of the data was that commercial banks in Nigeria are holding excess liquidity or huge idle cash at the expense of high yield investment. That means there is poor management of liquidity among the commercial banks. As a result, the profitability level of the banks in Nigeria are considered to be less than optimum level. Based on the findings, the researcher recommended that commercial banks should adopt other effective measures of meeting the unexpected withdrawal demands of the customers, such as borrowing and discounting of bills instead of holding excess cash while the central bank should encourage commercial banks to adopt such measures by maintaining a minimum discount rate. The monetary authority should encourage and legitimize the use of credit cards and other instruments in the day to day business transaction by restoring the public's confidence on the cheques and also by instituting effective clearing system. These will in no doubt solve the problem of maintaining huge idle cash in vault .