This study is aimed act appraising the liquidity problems in commercial banks in Nigeria with a problem in commercial banks in Nigeria with a view of determining how these problem affects commercial banking business as well as determining whether the policies imposed by the central bank has actually solved the liquidity problem of commercials banks or not. In doing this we want to classify the period under review (1980- 1989) in the Pre-SFEM period and the Post-SFEM period. On other words the study interns to discuss the Pre-SFEM and Post-SFEM experience of banks and offer useful suggestion as how to these problem could be alleviated if not eradicated.

For this purpose an empyreal survey and history research was carried on and the statistical tool used is percentages. The source of data for this study is primary and secondary sources. While the primary source consists of questionnaires and oral interview the secondary source is in the form of books journals and news papers.

The research revealed that prior to the introduction of the structural. Adjustment programme with the second tier foreign exchange (SFEM) as its main feature the structural adjustment programme (SAP) brought about the present liquidity crutch in banking system. It was further found out that both excess liquidity and shortage of liquidity affect the banks loans and advance as well as their profits. Further more it was observed.

That the policies imposed by the central bank have not solved the (excess and shortage ) liquidity problem of commercial banks.

As a result of these it is suggested among others that banks should intensify their efforts towards acquiring more deposit- drive for deposits (as it is popularly know )in order to alleviate the present problem of liquidity shortage in system.

More so there should be effective supervision of the follicles impose by the central bank to combat the liquidity problems of commercial banks to ensure that the policies are adequate implement other measure to alleviate either the excess or shortage of liquidity problem include adjustment of interest rate adjustment interest ratio, diversification of commercial banking service establishment of more rural banks to mobilize rural saving and so on. The essences of these are to maintain adequate liquidity and at the same time to ensure profit for the share holders.


As a matter of fact a lot has been written on the liquidity problem in commercial banks in Nigeria. The basic challenge of this text attempts to discuss the two experiences (Excess liquidity and shortage of liquidity) of commercial banks in Nigeria and on a final note offer useful suggestions as to how these problems could alleviated if not eliminated. It is true that liquidity and profitable are among the many problems with bank management struggles constantly. This is because of the need to balance the pursuit of profit with the need to remain liquid.

As indicated above commercial banks in Nigeria have obviously experienced excess liquidity era and are presently going the traumatic experienced of shortage of liquidity. This study therefore aims to fund out the effect of the two experience on the profitability of commercial banks whether the policies impose by the federal government through the central banks have solved the problems or not and how the dual problem have affected commercial banks loans and advances to their customers.

In terms of chapter organization the next is arranged into five chapters. The first chapter is devoted to introduction and some fundamental issues related to the research work. The second chapter contains the review of related literature to the research work. There too the exposition of the liquidity problems of commercial banks in Nigeria is carried out. The approach used here is pre-SFEM and post-SFEM experience of banks. Discussed here also is the policies introduced by the federal government mostly through the central bank in alleviating the liquidity problems of banks. Pre-SFEM policies and Post-SFEM policies approach has been used here too chapter three deals with research design and methodology which include the source of data interview questions sample used method of investigation and scope and scope and limitations of the study chapter four bears the presentation interpretation test and analysis of data.
Finally in chapter five are the summary of finding conclusion and recommendation.
Recommendation is based on the two experiences of banks although it is prevailing situation in commercial banking system in Nigeria.


Title page


Approval page




Table of contents



  • Background of study
  • Statement of the problem
  • Purpose / objective of the study
  • Research questions
  • Research hypotheses
  • Significance of the study
  • Scope limitations and delimitation’s
  • Definitions of terms.



Review of related literature

  • Operational concept in commercial bank in nigeria
  • Liquidity ratio

Significance of liquidity ratio

Computation of liquidity ratio

  • Cash ratio
  • Liquidity risk
  • Liquidity requirement of commercial banks in nigeria liquidity problem of commercial banks in nigeria Pre-SFEM experience post –SFEM experience
  • Policies include by the central banks of nigeria in solving liquidity problem of commercial bank in nigeria




  • Research Design
  • Area of study
  • Population
  • Sample and sampling techniques
  • Instrument of data collection
  • Method of data analysis




  • Data presentation
  • Analysis of data



Finding recommendation and conclusion

  • Summary of finding
  • Recommendation
  • Conclusion





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 regulat3dstrictly 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


There is n o gain saying the prior to the induction of the structural adjustment programme (SAP) of which the second –tier foreign exchange market (SFEM) if the nucleus the commercial banks in Nigeria have been walloping in excess liquidity.

Consequently they maintained excess liquidity rations and were in the habit of refusing deposits from the public. These may be accountable to some deficiencies in the management policies of the central banks of Nigeria and the overall under-developed nature of the entire economic system.

However the structural adjustment programme   with SFEM as the chief feature changes the trend. The situation became that of shortage or liquidity crunch as it is popularly called.

In any cases for the purpose of these treaties the liquidity problem 9f commercial banks have been identified from two perspectives.

One is that they had excess liquidity before the absent of SFEM.

The other is that shortage of liquidity has been telling hard on them since the existence of SFEM under SAP in other   words this treatise takes a PER-SFEM and POST-SFEM change on the liquidity problems of commercial banks.

With respect to the excess liquidity situation this study intends to fund out the effects of the excess liquidity in the banking system on the profitability of commercial banks it investigates whether or not the policies imposed on the moping up the excess liquidity in the banking in commercial banks effects loan and advance to their customers.

On the hand the shortage of liquidity perceptive focus in its (shortage of liquidity) effect on the profit ability of the central banks whether or not the policies of the central banks can actually currents the shortage of liquidity affects loan and advances to customers.


Having identified the problem to which this study addressed itself, I shall in this work make a critical insight into the dual problem of excess and shortage of liquidity in commercial bank of the two situations on the followings.

  1. To identify the causes of liquidity problem in the Nigeria commercial banks.
  2. To assess the effect of liquidity problem in the Nigeria commercial banks.
  3. To determine the rate of the incidence of liquidity problem in the Nigeria commercial banks,.
  4. To identify the possible measure to prevent or resolve liquidity problem in the Nigeria commercial banks.
  5. To identify the reaction to the various policies of the government through the C.B.N to correct the two anomalies.
  6. To determine overall impact of these tow situation n loan and advance to customers of the commercial bans.


  • What are the causes of liquidity problem I n your banks?
  • What effect have your bank encountered as a result of liquidity problem?
    At what rate is the incidence of liquidity problem to your banks?
  • How have your banks been able to resolve liquidity problem facing it


  1. i) Ho: fraud is not a major cause of liquidity problem in Nigeria commercial banks.
  2. ii) Hi: fraud is a major cause of liquidity problem in Nigeria commercial banks.
  • Ho: liquidity problem do not result to banks distress and failure.
  • Ho: the incidence of liquidity problem is not high in the Nigeria commercial banks.
  • H1 the incidence of liquidity problem is high in the Nigeria commercial banks.


This research project is of particular relevance to the monetary and fiscal policy department of the   central banks of Nigeria various commercial and (to some extent) merchant banks in Nigeria. It will also serve as a readable material for further researchers.


This research project s designed to cove the project of PRE-SFEM and POST-SFEM era.   These two periods are to be used for comparative purpose.

Furthermore for easier collection data a bank particularly known was chosen from the white commercial banks of Nigeria limited.

I wish to express that I encountered great difficulties in collecting information through the questionnaire.

Another constraint was time that is then duration given within the semester is very short and again another is financial problem these problem also lingered me from covering more bank branches other than the one in this study.


BANKS DEPOSIT: The amount outstanding to the credit of the customers of a bank Deposit becomes the property of the banker but must be refunded when ask for.

DEPOSIT ACCOUNT: An account with a banks withdrawals from which usually require period of notice be given and on which interest is paid

TIGHT MONEY: An alternative term for the money banks unites funds. This was introduction in 1975 to mop up excess liquidity in the economy. The need for this additional money market instrument arose because of the excess liquidity in the economy following the oil born and the government reluctance to increase its borrowings trough the issue of borrowing certification

BANKERS ACCEPTANCE: It is a draft has been accepted by the drawer bank. The changed into an acceptance y the stamping of the word acceptance across he face of the draft the signatures of a   bank officer who has been authorized to sign such document and draft description that rise to it.

TREASURY CERTIFICATE: Are issued for the purpose with maturity on one or two years.

TREASURY BILLS: Are short-term debt instrument (91days maturity ) issued by the central bank of Nigeria to raise financial for the federal government.

MONEY AT CALL: This is money lent to the borrowing bank from over-night to about seven days and is repayable on call it is thereby as good as cash but unlike cash it earns some interest.

TIME DEPOSIT: A bank deposit that can only bee withdrawn of prior notice is given or after the expiry of a fixed time.


Sayers R. S.(1960) Modern Banking London Oxford University Press P 150.

Chandler L. V. (1986) The Economic of Money and Banking New York, Harper and Row Publisher Inc, p.151

Hanson J. L. (1974) A Dictionary of economic and commerce Great Britain: Richard Clay the Chancre Press Lit Bun Gay Suffolk. p.30

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