CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Liquidity is the word that the banks use to descried their ability to satisfy demand for cash in each rang for deposit it can also be deficit as the capacity of the bank to meet promptly demand that it pays its obligation
A bank is considered to be liquid when it has sufficient cash and other liquid assets to gather with then ability to raises funds quickly from the source to enable it to meet its payment obligation and financial commitments in a timely manner. In addition there should be a sufficient liquidity before to meet all mostly financial emergencies.
How much liquidity to held and in what forms to hold it are a constant concern of bank management. Banks are required to comply with legal reserve requirement.
In addition banks need liquidity to meet seasonal and unexpected loan demands and deposit fluctuation. The majority of the traditions can be anticipate in advance and met from expected cash inflow from deposition repayment or earning.
Cash reserves also are needs to take advantages to unexpected profit opportunities.
Or for what might be farmed aggressive purposes when a business from which the banks has been working secure as a customer finally presents a loan application or a particularly desirable investment develops the banks must have funds available to seize these opportunities. During periods of expanding economic actively banks are frequently presented with attractive loan situation which can only be met if banks maintain adequate liquidity. To determine a banks need at a particular time is to fund the ration of loan to deposits. The higher the ration is the lees willing banks will be in lending out and vice versa.
In Nigeria commercial banks activities are regulated strictly by the banking act of 1969 as amended under the control of the central banks of Nigeria. As a result of those regulations by the central banks the commercial banks are required to hold specific assists equal to a certain percentage of their deposits and certain abilities is liquid form. This is known as the legal reserve requirement. In the legal reserve requirements are liquidity ration requirements cash reserve requirement stabilization securities issued by the central bank and liquidity problem for the purpose of this study are looked at as the problem encountered by bank managers who are responsible for liquidity management when there is either excess liquidity squeeze in the banking system or in community banks