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Issues in Business Management and Economics
Vol.3 (5), pp. 81-86, May 2015
ISSN 2350-157X
Available online at https://www.journalissues.org/IBME/
DOI:http://dx.doi.org/10.15739/IBME.2014.018
Article ID /BM/14/030/06 pages
Author(s) retain the copyright of this article. Author(s) agree that this article remain permanently open access under the terms of the Creative Commons Attribution License 4.0 International License



Review

Risks and liquidity management issues in Nigerian banks

Sunday C. Nwite

Department of Insurance and Risk Management Enugu State University of Science and Technology ESUT– Enugu

Author’s Email: nwitewhite2006(at)yahoo.com
Tel:+23480-37743134



date Received:     date Accepted: May 24, 2015     date Published:


 Abstract

The paper evaluated various risks and liquidity management issues in Nigerian banks. Liquidity management involves the routine control of the level of liquidity in the economy in order to maintain monetary stability. This will help to strike a balance between inflation and deflation. The source and size of liquidity would suggest the type of securities the Central Bank of Nigeria (CBN) would need to introduce. In Nigeria, the main sources of liquidity include, the federal government fiscal operation, earning from oil; especially the monetization and sharing of the oil windfall; and the excess creation of credit by Deposit Money Banks. The broad objective of liquidity management in Nigerian banks include to facilitate efficient operations as well as to foster overall development of the money market and maintain a stable banking system and to maintain an optimum level of liquidity that is consistent with non-inflationary growth, through the use of market-based techniques, among other things. However, it was discovered that the major challenges confronting monetary policy liquidity management in Nigeria are excess liquidity and dearth of appropriate intervention securities. This study further examines the various strategies used by CBN to combat these challenges. These include, Open Market Operation (OMO), Cash Reserve Requirement (CRR), discount window operations, Interest Rate Regulation, Deposit Insurance and the withdrawal of public sector funds from Deposit Money Banks to the CBN. Liquidity and the distress syndrome in Nigerian banks were traced, while stating the implications of effective liquidity management in Nigerian banks. This paper recommended that CBN should design more durable instruments, ensure that Fiscal Responsibility Bill (FRB) is passed and fully implemented, build more branches and always publish realistic data to enable CBN formulate up-to-date monetary policies to ensure effective liquidity management in Nigerian banks.


Key words: Liquidity risk, CAMEL rating, monetary policy, fiscal policy, reserve requirements, distress syndrome


Nwite’