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Abstract
This study investigates the liquidity management practices of selected Nigerian banks by evaluating * the relevance of treasury objectives in bank portfolio management, * causes of asset-liability mismatch in banks, * causes of liquidity crisis * incidence of treasury risk * adequacy or appropriateness of liquidity risk management techniques * liquidity planning practices of Nigerian banks and * extent of liquidity exposure in banks. The rampant reported cases of liquidity crisis and financial distress in the Nigerian banking industry have necessitated a study on how to manage the bank's liquidity exposure. To achieve these objectives, eighty copies of semi-structured questionnaire were administered on bankers charged with liquidity and risk management. With a response rate of 57.5 per cent complemented by an analysis of the liquidity ratios of the selected banks, we found among others that most banks fall somewhere between purchased liquidity and stored liquidity strategies in managing their liquidity risk. However, their liquidity plans do not always detail a sequencing of assets for disposal in anticipation of various degrees or intensities of deposit/fund withdrawals. To survive the turbulence that follows the emerging reforms in the banking industry, bankers need contingence liquidity plans for their contingency liquidity needs. Otherwise sudden unexpected surge in net deposit withdrawals risks triggering a possible bank run which could eventually force a bank into insolvency.
Key Words: Nigerian banks; Liquidty management; Bank run.
JEL Classification: E51; G21; N27
Introduction
As profit-maximizing firms, commercial banks can increase profits, by investing more of their asset portfolios in higher-yielding but riskier investments or loans. Higher profits must not be achieved at the expense of bank safety, however. Bank safety refers to maintaining the bank as a going concern-staying in business. If a bank becomes too risky, stockholders may become dissatisfied with management and sell their stock. Bank regulators are also concerned about bank safety. If the bank's management actions are not consistent with what the regulators believe to be prudent banking practices they may intervene in the management, or, at the extreme, revoke the bank's licence.
Another operational problem facing commercial banks is their need for liquidity. Bank liquidity refers to the bank's ability to accommodate deposit withdrawals and pay off other liabilities as they become due. Normally, some depositors...