Working Capital Management in Nigeria Banking Industry

Filed in Banking and Finance Project Topics by on September 21, 2020

Working Capital Management in Nigeria Banking Industry.

ABSTRACT

Working capital management is very crucial in this period of global financial turmoil.

This is because illiquidity is prevalent world wide necessitating that effective and efficient management of any available cash will be needed to ensure that company breaks even and survives this distressed time since credit is not easily come by.

This project presents empirical evidence of the effect of working capital management and liquidity in Nigeria banking industry using annual financial report data for the period 2000-20 10.

These data were analyzed using descriptive statistics and Financial Analysis Techniques of working capital ratios

. Contrary to most previous empirical works, cash operating cycle has a significantly positive relationship with banks’ working capital management, just like debtors’ collection period; whiles creditors’ payment period exhibits a significantly opposite relationship.

However Nigeria banks appear to perform poorly in these working ratios.

TABLE OF CONTENTS

Page
Title Page – – – – – – – – – i
Certification Page – – – – – – – – – ii
Dedication – – – – – – – – – – iii
Acknowledgement – – – – — – – – – iv
Abstract – – – – – – — – – – v
Table of Contents – – – – – – – – – vi

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study – – – – – – – – 1
1.2 Statement of the Problem – – – – – – – – 3
1.3 Objectives of the Study – – – – – – – – 4
1.4 Research Questions – – – – – – – – 4
1.5 Scope of the Study – – – – – – – – 4
1.6 Significance of the Study – – – – – – – – 4
1.7 Definition of Terms – – – – – – – – 5

CHAPTER TWO:

2.0 Review of Related Literature – – – – – – – 7
2.1 Meaning of Capitalization- – – – – – – – 7
2.1.1 Over Capitalization – – – – – – – – 7
2.1.2 Under Capitalization – – – – – – – – – 8
2.1.3 Watered Capitalization – – – – – – – – 10
2.2 Working Capital Management – – – – – – – – 10
2.2.1 Liquidity and profitability Trade-Off – – – – – – – 12
2.2.2 Inventory Management and Profitability – – – – – 13
2.2.3 Debtors’ Management and Profitability Objective – – – – 14
2.2.4 Creditors Management and Profitability – – – – – – 15
2.2.5 Cash Management and Profitability – – – – – – 15
2.3 The Cash Conversion Cycle and Profitability – – – – – 16
2.4 Working Capital Management Efficiency – – – – – 18
2.5 The Nigerian Economy and Working Capital Management – – – 21
2.6 Cost Reduction Approaches in banks – – – – – – 22
2.7 An Overview of Nigeria Banking Sector Capital Regulation – – – 23
2.7.1 Banking Sector Liquidity and Financial Crisis in Nigeria – – – 26
2.7.2 Factors Affecting Banking Performance in Nigeria – – – – – 28

CHAPTER THREE:

3.0 Research Methodology – – – – – – – – 35
3.1 Research Design – – – – – – – – – 35
3.2 Sample size/ Sampling Technique – – – – – – 35
3.3 Method of Data Collections – – – – – – – 36
3.4 Techniques of Data Analysis/Interpretations – – – – – 36
3.5 Anticipated Problems and Limitations of the Study – – – – 37

CHAPTER FOUR

4.0 Introduction – – – – – – – – – 38
4.1 Data Presentation – – – – – – – – – 38
4.2 Data Analysis – – – – – – – – – 57
4.3 Statement of Findings – – – – – – – – 58
4.3.1 Analysis of Composition of Workihg Capital Items – – – – 61

CHAPTER FIVE

5.0 Summary, Conclusion and Recommendation– – – – – – 64
5.1 Summary – – – – – – – – – – 64
5.2 Conclusion – – – – – – – – – 65
5.3 Recommendation – – – – – – – – – 65
References – – – – – – – – – – 67

INTRODUCTION

1.1 Background of the Study

Working Capital management is a prime concern in a banking environment and a working  capital deficiency (that is excess of current liabilities over current assets) has often been a trigger for bank failures. Working Capital of a Bank simply represents the operating liquidity available to run the bank.

Management of working capital is an important component of corporate financial management because it directly affects the profitability and liquidity of all firms, irrespective of their sizes. Working capital management refers to the management of current assets and current liabilities.

Researchers have approached working capital management in numerous ways but there appear to be a consensus that working capital management has a significant impact on returns, profitability and firm value Deloof, (2003).

Thus, efficient working capital management is known to have many favourable effects: it speeds payment of short-term commitments on firms (Peel et. al, 2000).

It facilitates owner financing; it reduces working capital as a cause of failure among small businesses (Berryman, 1983); it ensures a sound liquidity for assurance of long-term economic growth and attainment of profit generating process (Wignaraja and O’Neil,1999).

It ensures acceptable relationship between the components of firms working capital for efficient mix which guarantee capital adequacy, (Osisioma, 1997).

On the other hand, there is also a general agreement from literature that inefficient working capital management also induces small firms’ failures (Berryman, 1983), overtrading signs (Appuhami, 2008), inability to propel firm liquidity and profitability, (Eljielly, 2004; Peel and Wilson, 1996; and Shin and Soenen, 1998), and loss of business due to scarcity of products, (Blinder and Maccini, 1991).

REFERENCES

Access Bank Plc Annual report and accounts 2010, 77-86

Abor J. (2005). The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana. Journal of Risk Finance.

Agyei, S. K. (2011), Capital Structure and performance of Banks in Ghana. Lap Lambert Academic Publishing.

A Shah, “why capital adequacy regulation for banks”, (1996) 3 journal of Financial Regulation and Compliance 279.

BankPHB Plc Annual report and accounts 2008, 77

Central Bank of Nigeria, Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for 1997 Fiscal Year (Monetary Policy Circular Number 31) 21 January, 2010, 21–22.

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