THE STUDY OF MANAGEMENT OF WORKING CAPITAL IN BANKING INDUSTRY (A CASE STUDY OF UNITED BANK FOR AFRICAN PLC) ENUGU
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THE STUDY OF
MANAGEMENT OF WORKING CAPITAL IN BANKING INDUSTRY
(A CASE STUDY OF
UNITED BANK FOR AFRICAN PLC) ENUGU
ABSTRACT
Working capital is
known to be the background and life wire of any business organizations in every
part of the world. This makes it imperative that there should be
efficient management of working capital, to help in reducing constant
incidents/cases of banks distresses (i) Banking industry since this has been a
source worry to the users of financial statements. Consequently this
project has attempted to give an expository discussion on the management of
working to enhance the continuity industry to enhance the continuity of banking
industry, with a particular interest in united bank for Africa plc Enugu.
It thus gave hits on
how bank managers should manage financial distress banks where such signs of
distress situations tries to occur.
Conclusions arising
form this research are both outstanding and helpful too.
TABLE OF CONTENT
CHAPTER ONE
Introduction
1.1
Background of the
study
1.2
Statement of
problem
1.3
The purpose of objective of the
study
1.4
Research
questions
1.5
Hypothesis where
application
1.6
Significance or rationale of the
study
1.7
Scope of the
study
1.8
Definition of
terms
CHAPTER TWO
2.0
Review Of Literature
CHAPTER THREE
3.0
Research design and Methodology
3.1
Research design
3.2
Area of the study
3.3
Population of the study
3.4
Sample and sampling procedure
3.5
Instrument for data
collection
3.6
Validity of the instrument
3.7
Reliability of the instrument
3.8
Method of Administration of the instrument
3.9
Method of data
analysis
CHAPTER FOUR
Data presentation and results summary
of result/findings
4.1 Summary of
result/findings
4.2 Test of
hypothesis
CHAPTER FIVE
5.0 Discussion
Implication and Recommendations
5.1
Discussion of results
5.2
Conclusions
5.3
Implication of the Results
5.4
Recommendations
5.5 Suggestion for Further
study
5.6 Limitation
of the study
References
Appendices
CHAPTER ONE
INTRODUCTION
1.1 BACK GROUND
OF THE STUDY
The
management of working capital is vital in the management of the bank’s current
account which include current assets and current assets and current
liabilities. This explains the various forms of current assets and
current liabilities adjustments which a bank can make in order to meet its
required working capital. Working capital is of two types, gross type and
net type.
The gross type refers to the bank’s investments in current assets, this
means those assets which can be means those assets which can be converted into
cash within accounting year, like short term securities, debtors bills
receivable, stock and cash.
The net type is the difference between current assets and current
liabilities. Current liabilities means those claims of outsiders which
are expected to mature for payment within an accounting year, such as creditor,
bank overdraft and bills payable. Net working capital occurs when current
assets exceeds current liabilities.
The management of
working capital is one of the important aspects of the bank’s overall financial
management. This is because efficiency in this area is necessary in order
to ensure the bank long-term success and achieve its overall goal which is the
maximization of owners wealth.
A certain level of
working capital is required for operation in the banking industry. This
level of working capital of a bank constitutes the cash holding or near cash
holding or near cash assets required of a bank by a statue of the government or
it should be noted however, that the level of working capital do not directly
earn the bank any income when it is all allowed to be held in cash form, that
is idle cash.
The main purpose of
establishing commercial banks to operate is to make profit for the
shareholders. In that regards, banks as well as other profit seeking
enterprises strive to increase their net income and presence value of their
assets. While recognizing this, the immediate concern of the bank manger
is to provide satisfactory returns for the shareholders, and this requires
holding a sufficient volume of safe and productive assets as well as sourcing
for funds through the fast volatile and expensive available sources.
It should be noted
however, that a bank does not possess full control over its assets and also a
greater part of its liabilities, the reality it that it possesses partial
control on some current assets and current liabilities absolute control on some
and still lack total control over others. It is within this business
environmental constraints and prospect that banks have to carry out their various
adjustments to suit their long run objectives objectives.
In the earlier
paragraph, it was mentioned that there are two concepts of working capital (the
gross and net working capital ) They have equal significance from the
management view point, the gross working capital concept focuses attention on
the two aspects of current asset management.
(a)
optimum investment in current assets
(b)
Financing current assets.
The consideration of
the level of investment in current assets should avoid two danger points, the
excessive and inadequate investment on assets. The investment in current
assets should be in adequate form to enhance better performance. While
the excessive investment in current asset should be avoided because it impairs
a bank’s profitability since idle investment earns nothing to the investor.
On the other hand,
inadequate availability of working capital can threaten the solvency of the
bank when it fails to meet its current obligations. Thus the financial
managers should have knowledge of the source of working capital funds as well
as the investment avenues, where the idle funds may be temporally
invested. The net working capital on the other hand has indicated
liquidity position and suggests that current assets should be sufficiently in
excess of current liabilities in order to constitute a margin for maturing
obligations within the ordinary operation cycle of a bank’s business.
The need for working
capital to run the day to day activities of a bank business cannot be over-emphasized.
We will hardly find banks or other firms which does not require any amount of
working capital. Banks should earn enough return from their operations in
order to be able to achieve their set goals, which of course includes the maximization
of shareholders wealth and as such to avoid the recent distress problems in
today’s banks which has its root basically from inadequate working capital
caused by inefficient management of working capital. The banks have to
invest enough in current assets for success of their business.
The need for working capital to run the day to day activities of a bank
business cannot be over-emphasized. We will hardly finds bank or other
firm which does not require any amount of working capital. Banks should earn
enough return from their operations in order to be able to achieve their set
goals, which of course includes the maximization of shareholders wealth and as
such to avoid the recent distress problems in today’s banks which has its root
basically from inadequate working capital. The banks have to invest
enough in current assets for success of their business.
The inability of the bank to honour claims from individuals/customers demand
start a spiral of technical insolvent, it was for the avoidance of such
embarrassing situation as liquidity, technical insolvency, high risk and low
profit that such theory, the profit ability theory, the liability management
theory have been formulated in banking to guide bankers in their decision
making process.
1.2
STATEMENT OF THE PROBLEM
There
are many banks that are not able to meet the demands of their customers owing
to their inability to manage their working capital effectively and
efficiently. Their bank managers are consistently confronted with
formidable problems in striving to meet their level of working owners
investment in their banks. The problem is really related to the following
(1)
Inadequate cash reserves
(2)
Poor management of the available funds.
(3)
Non compliance to rules and regulations in giving loans to their customers
(4)
Non payment of loans extended to customers on time and sometimes not paying at
all.
(5)
Constant withdrawals of money deposited in bank by their depositors owning to
lack of confidence by customers.
(6)
Abstaining from depositing money in banks due to constant cases of banks
distress by some would have been banks customers.
1.3
PURPOSE OF THE STUDY
(a)
To know whether the management of working capital has any affect on the
liquidity of banks
(b)
To find out the causes of bank distress or reasons why there are distress in
banking industries today.
(c)
To know whether the management of working capital has any effect on the
profitability of the bank.
(d)
To how the bank manager manage the current account of the bank.
(e)
To find out whether the long term longs affect the
management of the bank.
(f)
To find out how adequacy is the working capital of the bank.
1.4
RESEARCH QUESTIONS
(a)
How is working capital being managed in UBA Plc station road Enugu?
(b)
Is there enough working capital for the operational activities in the bank?
(c)
Do the management (officers) of UBA Plc Enugu make proper use of the available
working capital
(d)
If there is proper management of working capital in UBA Plc Enugu, has it
contributed to the profitability of the bank?
(e)
How do the loan beneficiaries respond to such offer given to them by the Bank?
(f)
How do the customers react to the operational mode of the bank?
1.5
RESEARCH HYPOTHESES
In
this research hypotheses, the null hypotheses is represented by HO while the
alterative hypothesis is represented by Hi
1.
HO: The management of working capital in united bank for Africa Plc
affects the liquidity of the bank.
Hi: The management of working capital in united Bank
for Africa does not affect the liquidity of the bank
2.
HO: The efficient management of the working capital in the bank is
enough.
3.
HO: Long term loans and short term loans methods of issuing loans
are not favourable to the bank.
4.
Ho: The united bank for Africa Plc should not employ more
well trained personnel’s.
5.
Hi: The united Bank for Africa should employ more well
trained personners to enhance productivity.
1.6
SIGNIFICANCE OR RATIONALE OF THE STUDY
There
are many significances about the study of the management of working capital in
united Bank for Africa plc Station Road Enugu. Those are as follows
(i)
The study of this project topic will give the researcher the opportunity to
know and hence empty the most dynamic and competitive techniques of the
management of working capital.
(ii)
It serves as data base of information on contemporary practices in evaluation.
(iii)
The study will help/lead to increase know how in areas of risk reduction,
liquidity management.
(iv)
It will help the management of united management and make good use of its
working capital decision making process.
1.7
SCOPE OF THE STUDY
The
scope of this study will be based on the management of working capital and its
inadequacy and excess implications in banking industry. Another things
that contributed to this limitation are time and financial constraints, which
did not allow for more exhaustive research.
1.8
DEFINITION OF TERMS
There
are some technical terms which are used in this research they are defined as
shown below.
(i)
CAPITAL: This is defined as wealth owned by an individual or
business organization (bank) in form of money or goods, which can be used for
creation of additional wealth.
(ii)
CURRENT ASSESTS: These are assets which can be readily
converted into cash acquired for use within an accounting period.
(iii)
CURRENT LIABILITIES: These are those accounts payable, notes
payable and all the accruals.
(iv)
WORKING CAPITAL: This is the difference between the current assets
and current liabilities of a firm (Bank).
(v)
MANAGEMENT OF WORKING CAPITAL: This is the determination of the
ratios at which to hold the current assets and current liabilities in the
overall valuation of a bank (firm).
(vi)
MARKETABLE SECURITIES: These are short term securities which can
readily be converted into cash, such as Treasury, bills, Treasury certificates
development stocks and bonds
(vii)
NET WORKING CAPITAL: This is total current assets less total
current liabilities
(viii)
MANAGEMENT: The act of getting things done more specifically which
involves setting bank’s goals and directing human and physical resources to
achieve these set goals
(ix)
GROSS WORKING CAPITAL: This is the investment in current assets by
banks (firms)
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