TITLE PAGE

PROBLEMS OF CASH MANAGEMENT IN BANKING INDUSTRY

(A CASE STUDY OF OKO MICRO FINANCE BANK)

RESEARCH PROJECT PRESENTED TO THE DEPARTMENT OF BANKING AND FINANCE, SCHOOL OF

BUSINESS STUDIES, FEDERAL POLYTECHNIC, OKO

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD

OF HIGHER NATIONAL DIPLOMA (HND) IN BUSINESS AND FINANCE

BY

……………………..
FPO………

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APPROVAL
This project has been read and approved as satisfying the requirement for the award of Higher National Diploma
(HND) in Banking and Finance in Federal Polytechnic, Oko.

By

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Mrs. Ebebe Getty Mr. Iku Godspower
(Project Supervisor) Lecturer in Charge

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Mrs. Eze Nonye Dr. Mrs. Nwadukwe, U.C.
(Head of Department) Dean of SBS

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DEDICATION

This work is dedicated to Almighty God whose grace is sufficient for me and my dearest father and mother Mr. and
Mrs. Thomas Ezekam (Rev) and also to my brothers and sisters that helped me throughout my academic years.

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ACKNOWLEDGEMENT
I acknowledge the God Almighty for his main fold blessing throughout these years.
I express my profound gratitude to my supervisor Mrs. Ebebe Getty Chiebonam for her numerous
suggestions and constructive criticism that had a significant impact on the final form of this project.
I am also deeply indebted to my dearly mother Mrs. Eunice Ezekam for her moral and financial support,
my gratitude also goes to my ever loving father Rev. A. Thomas Ezekam for his useful suggestion and advice.
My sincere appreciation to the following members of my family. Mr. Emekachukwu Ezekam, David Ezekam,
Stepheny Ezekam, Anthony Ezekam, Mr Gabriel Ezekam, Michael Ezekam (AKA BOBO) and so many others. This
work would not have been possible without the co-operation of all of them.
In addition, to my friends: Eze Collins Udemezue, Emeka, Maureen Sweet, Goodluck, Chinwendu, Akonam,
Proxivelli, Egyptian man, Obinna. I love you all.

TABLE OF CONTENTS
Title page i
Approval page ii
Dedication iii
Acknowledgements iv
Table of Contents vi
Abstract ix
CHAPTER ONE
1.0 INTRODUCTION 1
1.1 Background of the Study 5
1.2 Statement of the Problem 8
1.3 Objectives of the Study 8
1.4 Research Questions 10
1.5 Statement of the Hypothesis 11
1.6 Significance of the Study 12
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1.7 Scope of the Study 13
1.8 Plan of the Work 13
1.9 Profile of the Organization 14
1.10 Definition of Terms 15
CHAPTER TWO
REVIEW OF RELATED LITERATURE 17
2.0 Introduction 17
2.1 Brief Overview 17
2.1.2 Services rendered by banks 19
2.1.3 Cash management in banking sector 20
2.2 Models and theories relevant to the
research questions 21
2.2.1 General principles of cash management 25
2.3 Current literature relevant to the
research question 31
2.3.1 Functions of cash management 35
2.3.2 Objectives of cash management 40
2.3.3 The management of liquidity in banks 41
2.3.4 Component of cash to buy manage by
banks 44
2.4 Summary of the Literature Review 45
CHAPTER THREE
RESEARCH METHODOLOGY 50
3.0 Introduction 50
3.1 Research Design 50
3.2 Area of the Study 51
3.3 Population of the Study 52
3.4 Sampling Technique/size 52
3.5 Sources of Data Collection 53
3.6 Instrument for Data Collection 55
3.7 Reliability and Validity of the Instrument 56
3.8 Distribution and Retrieval of the
Instruments for Data Collection 56
3.9 Method of Data Analysis 56
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND
INTERPRETATION OF RESULTS 60
4.0 Introduction 60
4.1 Data Presentation and Analysis 60
4.2 Test of Research Question 62
4.3 Discussion of Findings 66
4.4 Test of Hypothesis 68
CHAPTER FIVE
5.0 SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 75
5.2 Conclusion 76
5.3 Recommendations 77
5.4 Limitations of the Study 79
5.5 Suggestion for Further Research 80
References 81
Appendix “A” 82
Appendix “B” 83

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ABSTRACT

This project is to investigate the problems of cash management in banking industry. Cash which can be described
as that part of management that deals with planning of the future co-operation and ensure that funds are available
when needed is made up of two important advantages budgeting and accounting control of cash in the
organization. Lack of cash in the organization might cause the smooth running operation to come to a sudden halt.
In addition, excess cash not profitability employed will on the other hand result in wastage, loss theft and
misappropriation, the decrease of cash in the organization can be the case where there is poor management
increase in proper running of the banking business in the economy. They must ensure that the professional staff
and main power needed to operate these operations are available. The researcher centered on the staff of Oko Micro
Finance Bank Ltd in Anambra State, based on the finding, banking industry should improve in the area of
managing cash so as to avoid total cash minimization in banking industry. Recommendations were made which
includes implementation by community bank which will enhance its growth especially in discouraging of its duties.

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 CHAPTER ONE
1.0 INTRODUCTION
Technology has become the key in every successful bank. Cash management refers to the concentration,
collection and disbursement of cash. The important task for managers is to maintain the flow of cash. Banks
thinks about customers view and try to bring the maximum services very close to their customers. Efficient cash
management services assure for the effective collection and payment technique, proper disbursement of free funds,
helpful for urgent cash requirement and manage the banks who manage these activities of the company. Cash
management service help to reduce the time required for one transaction. It increase the high net profit of an
organization, reduces the losses, save the idle time of the customer of the bank. It is also beneficial for the bank to
increase the level of technical proficiency of the employees of the banks.
Benefits of cash management system
The speedier you are, its easier for you to address the challenges of globalization. In this technology era,
the cash management system provides the following benefits to its customers.
Funds available as per head on day, zero, day one, day two, day three etc.
Corporate can plan their cash flows.
Banks interest saved as instruments are collected faster.
Affordable and competitive rates.
Single point enquiry for all queries.
Pooling of funds at desired locations.
Limitations of cash management services.
Cash management services are reliable for the big corporate whose volume of transaction are huge on daily
basis. It is not reliable for the small scale business whose volume of transaction is less in daily basis.
Banks can offer the following cash banking services to customers.
 Business and Government offices: Collection of the cash instruments and performing cash delivery for
the cheque required.
 Individual Customers/Natural Persons: Collection of cash instruments and performing the delivery demand draft.
Cash is defined as money in form of bank notes and coins that are issued by the government of a country
under the administration and control of its finance ministry. The acceptance of cash by its user indicates that it has
a trading value when tendering for purchase of goods and services. Cash acts as one of the most prominent medium
of exchange for the purchased goods and services especially in the retail market.
Modes of delivery are mentioned below:-
 By own employees
 By Agents
Banks can offer cash management services to the customer and offer door to door step banking delivery.
These services are classified under two modes:-
 By own employees: It means bank can recruit more employees specially for providing these services as per
the rules and regulations.
 By Agent: It means bank can source these services to some cash management services provider.

1.1 BACKGROUND OF THE STUDY

This research work focuses on the problem of cash management in the banking industry. Every
organization be it natural business or government requires cash for the day to day running of the project that have
long duration. Lack of cash in an organization might cause the smooth running operation to come to sudden halt.
In addition, excess cash not profitability employed will on the other hand result in wastage, loss and
misappropriation. As a result, to institute technique and procedure that will facilitate the organization to manage
cash effectively to ensure availability of adequate cash at all time.
Davidson and Ivell (1977) explained the importance of cash, stating that a business enterprise is in many
ways a living organism and cash flow in like stream since transaction begins and ends with it. It is the duty of
management to ensure that there is sufficient cash at all time.
Nevertheless, the advantage of cash management is generally centered around the areas which are cash
budgeting and accounting controlling cash management which is necessary for the proper planning of future co-
operative and it ensure that funds are available when needed and its balance not excessive.
Accounting control on the other hand is that which deals in providing basic function of planning and
ensuring that cash is used for proper business purposes and not wasted, misused or stolen.
Community banks were established to bridged the gap not covered by the commercial banks which
statutory cannot grant credit facilities beyond N5000 to an individual. The need for this is emphasized by the fact
that there non-urban area where credit requirement were more than N5000 but could not meet collaterals
requirement of conventional banks. The banks belong to the people of respective communities who provide the
capital need to set it up. They are different from conversional bank in that, they do not demand collateral, first hand
knowledge, of prospective beneficiaries goes a long way on determining who is eligible for loan.
In the government circle, there is the view that community could operate largely with their own funds to
nurse investment to maturity and that provision of adequate funds at the right time and on suitable term copied
with proper advisory and technical services could make loans to be utilized on more productive venture which would
ultimately make repayment easier.
They offer services like:
Savings Account
Current Account
Fixed Deposit Account
At present, they are no more called community Bank but micro finance bank Ltd.

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1.2 STATEMENT OF THE PROBLEM
Cash management in banking industry is faced with following problems.
Unavailability of sufficient fund or cash at all times to meet customer’s demands.
It is faced with the problem of managing working capital effectively.
Achieving effective liquidity and profitability management.
Inability to anticipate and take necessary actions to avoid unnecessary loss.
Cash management is faced with the problem of cash flow forecasting.

1.3 OBJECTIVE OF THE STUDY

To provide a means of making sufficient funds or cash available at all times.
To ascertain whether working capital is effectively managed.
To determine the means of achieving effective liquidity and profitability management.
To make suggestions on how to anticipate and take necessary actions to avoid unnecessary loss.
To know whether cash flow forecast information will help in avoiding crisis.

1.4 RESEARCH QUESTIONS

Does unavailability of sufficient funds or cash at all times affect banks performance?
Is working capital effectively managed to enable bank become more efficient in performance?
Does cash management aid in determining the means of achieving effective liquidity and profitability
management?
To what extent does anticipation and taking necessary actions help to avoid unnecessary loss?
Will cash flow forecast information help in avoiding crisis?

1.5 STATEMENT OF THE PROBLEM

H0: Unavailability of sufficient fund or cash at all times affect banks performance.
H1: Unavailability of sufficient fund or cash at all times does not affect banks performance.

H0: Working capital is not efficiently managed thereby making bank unable to become efficient in their
performance.
H1: Working capital is not efficiently managed thereby making bank able to become efficient in their
performance.

H0: Cash management do not aid in determining the means of achieving effective liquidity and profitability
management.
H1: Cash management aid in determining the means of achieving effective liquidity and profitability
management.
H0: Anticipation and taking necessary action does not help in avoiding unnecessary loss.
H1: Anticipation and taking necessary action helps in avoiding unnecessary loss.

H0: Cash flow forecasting information does not help in avoiding liquidity crisis.
H1: Cash flow forecasting information helps in avoiding liquidity crisis.

1.6 SIGNIFICANCE OF THE STUDY

Management of cash effectively ad efficiently is equally important in the sense that adequate and accurate
cash management will maximize profit for them and equally helps them in retering their customers.
Furthermore, accurate cash management brings about raise in the standard of the bank and makes it
enviable.
1.7 SCOPE OF THE STUDY
The scope of this research work is limited to the problems of cash management in banking industry using
Oko Micro Finance Bank.

1.8 PLAN OF THE WORK

This project shall be divided into five chapters. The first chapter shall provide the introduction and
background of the study justifying the need for the study. Chapter two, shall present related literature review
concerning problems of cash management in banking industry. The research methodology shall be stated in chapter
three while data presentation and analysis would be made, chapter five will reflect on the summary, conclusion and
recommendations based on the findings of the study.

1.9 PROFILE OF THE ORGANIZATION

PROFILE OF OKO, MICROFINANCE BANK
The Central Bank of Nigeria (CBN) has disclosed that Anambra State currently ranks second in the list of
states with highest number of micro-finance Bank (MFBs) in the country even as the Oko, Micro finance Bank
launched its new branch.
Speaking in Oko during the commission of the new branch of Oko, Microfinance bank, Director of CBN
disclosed that apart from Lagos state which has highest number of banks Anambra State ranks second while
commending the Oko micro finance Bank for surrounding various challenges facing the sector.
He urged the bank not to relent in its success but strive harder to open more branches and raise a capital
to get to the states of a state micro-finance Bank which will give it beverage to open more branches in any part of
the state.

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 Also, the traditional ruler Oko community commended the board management and staff of the bank for
expanding its services to reach out to its numerous customers, disclose that it was the first community owned bank
to open a new branch in the state.

1.10 DEFINITION OF TERMS

BANK:
Financial institution that provides banking and other financial services and holds a valid banking license
issued by the financial authorities.

LIQUIDITY:
This is the degree of money or cash holding of the bank in meeting its daily obligations.

CASH MANAGEMENT:
This is the review evaluated direction monitoring and supervision of cash for the purpose of achieving
mutual satisfaction of both lender and borrowers and also monitoring present margins of safety and
profitability.

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CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.0 INTRODUCTION
This chapter relevant literature with the aim of establishing the frame work for the study. The first part
focuses on brief overview of banking system in relevant to each cash management. Different materials were
consulted aid issues relating to the research topic were extracted. Theoretical works of different authors were
reviewed and their contribution towards the problems banks encounters in managing cash and it was concluded
with summary of related literature review.

2.1 BRIEF OVERVIEW

According to Okeke (2011), a bank can be defined as any person or a company carrying on a business of
receiving money and collecting draft for customers subject to obligation of honouring cheques drawn upon them
from time to time by customers to the extent of the amount available or the current account. These may include
commercial banks, acceptance house, discount house, financial institution and merchant banks.
Owuallah (2013) defined banking business as a business of receiving money from outside sources as
deposit, loans and acceptance of credit or the purchase and sales of securities for account of other or the insuring of
the obligation to acquire claim in respect of loan prior to other maturity or the assumption of guarantees and other
warrants for others or the effect of transfers as the commissioner may on the recommendation of central bank.

2.1.2 SERVICES RENDERED BY BANKS

According to Osualah (2013), Banks perform certain agency function because they act as agents to their
customers in a number of ways. The following are some of the services rendered by banks to their customers:-
 It collects cheque bills, promissory notes, interest, dividend and subscription on behalf of customers.
 It facilitates on remitting funds on behalf of customers by drafts, mail transfer.
 It facilitates in purchase and sales of securities on behalf of customers.
 It acts as an executor, trustee and attorney for the wills of the customer.

2.1.3 CASH MANAGEMENT IN BANKING SECTOR

As bank has been defined as any person or company carrying on business of collecting money and draft for
safe keeping. The money collected from customers are being managed by the bank.
Waltson (2012) refers cash management as a broad area of finance involving the collection, handling and
usage of cash. It involves assessing market liquidity, cash flow and investment.
In banking, cash management is a marketing term for certain services related to cash flow offered primarily
to larger business customers. It may be used to describe all bank accounts of a certain size but it is more often used
to describe specific services such as cash concentration, zero balance accounting and automated clearing house
facilities. Sometimes, private banking customers are given cash management services. Financial instruments
involved in cash management include money market funds, treasury bills and certificate of deposit.

2.2 MODEL AND THEORY RELEVANT TO THE RESEARCH QUESTIONS

Brandt (2012), the term cash management refers to the management of cash resources on such a way that
generally accepted business objectives could be achieved. In this context, the objectives of a firm can be unified as
bringing about consistency between maximum possible profitability and liquidity of a firm. Cash management can
also be seen as the ability of the management to recognize the problems related with cash which may come across in
future course of action, finding appropriate solution to curb such problems of the arise and finally, delegating these
solutions to the competent authority for carrying them out. The choice between liquidity and profitability creates a
state of confusion. It is cash management that can provide solution to the dilemma. Cash management may be
regarded as an art that assists in establishment of equilibrium between liquidity and profitability to ensure
undisturbed functioning of a firm towards attaining its business objectives.
Ross (2014) states that cash management forms an integral part of working capital management in modern
business. Cash management is the process of ensuring that business have good cash balances to ensure that they
continue to stay in business thus prudent cash management ensures that small business (community banks) would

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be able to honour its debt obligation as and when they fall due and also to facilitate the responsibility of the bank to
pay for its upcoming expenses. (Cash comes into banks from collection of deposit and through other services they
rendered.
Westerfield (2012) argued that the basic objective of cash management is to keep the investment in cash as
low as possible while still operating the banks activities effectively and efficiently. A business must maintain cash
balance to meet day-to-day transaction and to take advantage of opportunities that may come its way. This is very
crucial for reliable business operations. It asserts that a bank can increase its net cash flow by slowing down
disbursement. Westerfield indicates that each disbursements comes in form of basic categories and these includes
payment of accounts payable, wages, taxes and other expenses, capital expenditure and also long term financing
expenses.
Dommeser et al (2013) explained cash management as the forecasting, collecting, disbursing, investing and
planning for cash. They further added that cash management is a vital task because it is the most important yet
least productive asset that a small business owns. A business must have enough cash to meet its obligations or it
will be declared bankrupt. He also defined cash management as a management tool to ensure that sufficient cash is
available to meet current and future liabilities with any surplus being safety invested to generate the maximum
income.
In practice, the way a company will tackle cash management depends upon its individual circumstances.
There are multitudes of financial instruments by which a company can raise money, invest cash, heldge exposures.
The company should be wary of financial instruments that do not match the fluctuating nature of cash flow or
nature of their core business.

2.2.1 GENERAL PRINCIPLES OF CASH MANAGEMENT

According to Harry (2014) in Nwokolo, has suggested certain general principles of cash management that
essentially add efficiency to cash management while the applications gives a scientific outlook to the subject of cash
management while the application of these principles in according with the changing conditions and business
environments requiring high degree of skill and tact which places cash management in the category of art. Thus, we
can say that cash management like any other subject of management is both science and art for it has well
established principles capable of being skillfully modified as per the requirements. The principles of cash
management are as follows:-
1. Determinable variations of cash needs:- A reasonable portion of funds in the forum of cash is required to
be kept aside to overcome the period anticipated as the period of cash deficit. This period may either be
short and temporal or last for a long duration of time. Normal and regular payment of cash leads to small
reduction in the cash balance at periodic intervals. Making this payment to different employees on different
days of the week can equalize these reductions. Another techniques for balancing the level of cash is to
schedule cash disbursements to creditors during that period when accounts receivable collected amounts to
a large sum but without putting the goodwill at stake.
2. Contingency Cash requirement: These may arise certain instances which fall beyond the forecast of the
management. These constitute unforeseen calamities which are too difficult to be provided for in the normal
course of the business. Such contingencies always demand for special cash requirements that was not
estimated and provided for in the cash budget. Rejections of wholesale product, large amount of bad debts,
strikes, lockouts etc are a few among these contingencies. Only a prior experience and investigation of other
similar companies prove helpful as a customary practices. A practical procedure is to protect the business
from such calamities like bad debt losses, fire etc by loan of insurance coverage.

3. Availability of external cash: Another factor that is of great importance to the cash management is the
availability of funds from outside sources. There resources aid on materialized the firm’s objectives of
holding minimum cash balance. As such, if a firm succeeds in acquiring sufficient funds from external
sources like banks or private finance, shareholders, government agencies etc, the need for maintaining cash
reserves diminishes.
4. Maximizing cash Receipt: Every financial managers aims at making the best possible use of cash receipts.
Again, cash receipts of tackled prudently results in minimizing cash requirement of a concern, for this purpsoe, the
comparative cost of granting cash discount to customers and the policy of charging interest expenses for borrowing
must be evaluated on continuous basis to determine the facility of either of the alternative or both of them during
that particular period for maximizing cash receipts, yet the under mentioned technques proved helpful in this
context:-
A) Concentration Banking: Under this system, a company establishes banking centers for collecting of cash
in different areas.
B) Local Box System: Under this system, a company rents out the local post offices boxes of different cities
and the customers are asked to forward their remittances to it. These remittances are picked by the authorized lock
bank from these boxes to be transferred to the company’s central bank operated by the head office.
C) Reviewing Credit Procedures: It aids in determining the impact of slow payers and bad debtors in cash.
The account of slow paying customers should be reviewed to determine the volume of cash tied up.
D) Minimizing credit period: Shortening the terms allowed to the customers would definitely accelerate the
cash inflow side by side revising the discount offered would prevent the customers from using the credit for
financing their own operational profitably.

5) Minimizing Cash Disbursement:-

The motive of minimizing cash payments is the ultimate benefit derived from maximizing cash receipts.
Cash disbursement can be brought under control by preventing fraudulent practices, serving time draft to creditors
of large sum, making staggered payments to creditors and pay rolls.

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2.3 CURRENT LITERATURE RELEVANT TO THE RESEARCH QUESTIONS
Obitayo (2013), Cash management comprises the operational and banking process associated with the
collection, aggregation, holding and disbursement of cash, for cash to be effectively and efficiently manage, the
organization processes with associate with the collection within the organizational structure and business operation
of an agency. Elements for effective cash management according to Obitayo include:- Accurate and timely cash flow
analysis and forecasting, maximizing returns from cash balance, minimizing financing and borrowing costs,
efficient banking arrangements, efficient debtor management and collection of receivables and effective control of
payment and disbursements. Effective cash management recognizes the time value of money by minimizing the
amount sufficient funds are available to meet commitments as and when they fall due.
Howard (2013), argued that cash management model was introduced which will assist a company to
manage its cash properly, miller or model is a company to meet its cash requirements at the lowest possible cost by
placing upper and lower limits on cash balance the operation of the model are as follows:-
a) A company should have its desired cash level, an upper limits and lower limits on cash balance.
b) When the cash balance reaches the upper limits, the company has too much cash, it should use its cash to
buy market, able securities in order to bring the cash balance back to its desired level.
c) When the cash balance hits the lower limit, the company lacks cash, it then sell its securities in order to
bring the cash balance back to its desired cash level.
d) If the cash balance lies between the upper and lower limits, there will be no transaction on securities.
According to Okonkwo (2012:122) on Ezenwaka (2013:200) said that cash itself is not capable of generating
any sort of income on its own. It rather the prime requirement of income generating sources and functions. Thus a
firm should go for minimum possible balance of cash, yet maintaining its adequacy for the obvious reason of firm’s
solvency. Cash management deals with maintaining sufficient quantity of cash in such a way that the quantity
denotes the lowest adequate cash figure to meet business obligations. Cash management involves managing cash
flows into and out of the firm. Written the firm and cash balance held by a concern at a point of time. The words
managing cash and the cash balance as specified above does not mean optimization of cash and near cash items
but also point towards providing a protective shield to the business obligations. “Cash management is concerned
with minimizing unproductive cash balance, investing temporarily excess cash advantageously and make the best
possible arrangement for meeting planned and unexpected demands on the firm cash.
2.3.1 FUNCTIONS OF CASH MANAGEMENT
Bari and Harry (2013:33), Cash management is concerned with minimizing unproductive cash balances
investing temporarily excess cash advantageously and to make the best possible arrangements for meeting planned
and unexpected demands on the firms cash. Cash management must aim to reduce the required level of cash but
minimize the risk of being unable to discharge claims against the company as they arise. All these aims and motives
of cash flow, controlling cash planning, managing cash flow, controlling cash flow, optimizing the cash level and
investing idle cash.
All these functions are discussed below in details:
1) Cash Planning: Good planning is the very foundation of attaining success for any management decision,
“planning is the fore most requirements. Planning is basically an intellectual process a mental pre-deposition to do
things in an orderly way, to think before acting and to act in the light of facts rather than a guess”. Cash planning is
a technique which comprises of planning for and controlling of cash. It is the management process of forecasting the
future needs of cash, its available resources and various uses for a specified period. Cash planning deals at length
with formulation of necessary cash policies and procedures in order to carry on business continuously and on
sound lines. A good cash planning aims at providing cash not only for regular but also for irregular and abnormal
requirements.
2) Managing Cash Flow: The heading simply suggests an idea of managing the flow of cash coming inside the
business of the business, i.e. cash outflow. These two said to be properly managed only if a firm succeeds in
accelerating the rate of cash inflow together with the rate of cash outflow. As observed expediting, collections,
avoiding unnecessary inventories, improving control over payment etc. Contribute to better managements of cash
whereby a business can conserve cash and there of would require lesser cash balance for its operation.
3) Controlling the cash flows: As forecasting it not an exact science because it is based on certain
assumptions. Therefore, cash planning will incurably be at variance with the results actually obtained, for this
reason, control becomes an unavoidable functions of cash management. Moreover, cash controlling becomes
essential as it increase the availability of lesable cash from within the enterprise. As it is obvious that greater the
speed of cash flow cycle, the greater would be the number of times a firm can convert its goods and services into
cash and so lesser will be the cash requirement to finance the desired volume of business during the period.
Furthermore, every enterprise is in possession of some hidden cash if traced out substantially decreases the cash
requirement of the enterprise.
4) Optimizing the cash level: A financial manager should concentrate on maintaining sound liquidity
position i.e. cash level. All this efforts relating to planning, managing and controlling cash should be diverted
towards maintaining an optimum level of cash. The foremost need of maintaining optimum level of cash is to meet
the necessary requirements and to settle the obligation well in time, optimization of cash level may be related to
establishing equilibrium between risk and the related profit expected to be earned by the company.
5) Investing idle cash: Idle cash or surplus cash refers to the excess of cash inflows over cash outflows which
do not have any specific operations or any other purpose to solve currently. Generally, a required to hold cash for
meeting working needs facing contingencies and to maintain as well as develop goodwill of bankers.
The problem of investing this excess cash arise simply because it contributes nothing towards profitability
of the firm as idle cash precisely earns no return. Further permanent disposal of such cash is deposited with the
bank, it definitely would earn a nominal rate of interest paid by bank a much return than the bank interest can be
expected if a company deploys idle cash in marketable securities. These are yet another group of enterprise that
neither invest in marketable securities not willing to get interest instead they prefer to deposit excess cash for
improving relations with the banks by helping them in meeting bank requirements and loans.

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2.3.2 OBJECTIVES OF CASH MANAGEMENT
Robins et al (2013) examined cash management in the following:
Controlling spending in the aggregate, implemented the budget efficiently minimizing the cost of government
borrowing and maximizing the opportunity cost of resources.
Therefore academically, companies can hold cash for the following objectives/reasons.
i) Transaction Reason: As mentioned earlier, cash is used to pay bills especially when disbursements are
greater than cash receipts from business.
ii) Precautionary Reason: Cash is used for safety reasons as a financial reserve to meet unexpected
demand.
iii) Speculative Reason: There may be unexpected profitable opportunity when doing business; like
speculative interest rate movements. If a company has excess cash on hand it might take the
advantage.

2.3.3 THE MANAGEMENT OF LIQUIDITY IN BANKS

Bank liquidity refers to ability of the bank to ensure the availability of funds to meet financial commitments
or maturing obligations.
Auwokenu (2014) defined tersely bank liquidity as a bank having money where they need it particularly to
satisfy the withdraw needs of the customers. The survival of commercial banks depends greatly on how liquid they
are, since illiquidity being a sign of imminent distress can easily erode the confidence of the public in the banking
sector and results to deposit. Equally important is the need for adequate income through interest on loan to ensure
continued provision of productive resources and survival. It therefore become in economic and financially
unreasonable for banks to allow excess liquidity. Hence, a need for effective liquidity management to maximize
revenues while holding risks of insolvency.
Liquidity / cash management refers to the planning and control necessary to ensure that the organization
maintain enough liquid assets either as obligation to the customer of the organization so as to meet some obligation
incidental to survival of the business or as measure to adhere to the monetary policies of central banks. For banks
to plan for a manages its money position by complying with legal requirement. Actually management of cash
position is essential if a bank must avoid excesses or deficiency of required primary reserves where there is a decline
in market price of securities or where additional funds needed to correct the bank reserve position are for a very
short time. It will be definitely expensive to sell securities than to borrow from another bank. Moreover, it may be
more desirable to borrow for bank’s liquidity needs than to call back outstanding loans or to cancel or place
embargo on new loans, a situation that will reduce the existing and potential customers of a bank. Banks are
expected to maintain certain level of reserves. These reserves are statutory requirements stipulated by the central
bank specifying the cash reserves equal to certain fraction of the bank deposits or loan and advances which bank
must maintain.

2.3.4 COMPONENT OF CASH TO BUY, MANAGE BY BANKS:

Larry (2012) showed abundance the following components of cash on which banks are to manage.
1) Vault cash
2) Balance held with CBN
3) Balance held with other Banks in Nigeria.
4) Balance held with offices and branches outside Nigeria (for commercial banks).

5) Bank at call in Nigeria

6) Inter-Bank placement
7) Placement with discount houses
8) Treasury certificates
9) Treasury bills.
2.4 SUMMARY OF RELATED LITERATURE REVIEW
Cash management in Nigeria banking industry found the basis of the literature review model and theories
relevance to the research question. Banking industry has registered profound impact to the Nigeria economy and
boosting the creation of job by managing the need for cash. Cash is money i.e. any negotiable that which the law
permits to serve as a means or medium of exchange. It includes what bank is assured to be available for use by the
cash effective and efficiency management services assures for collection and payment technques, Proper
disbursement of free funds, helpful for urgent cash requirement and manage the banks who manage the activities of
the company. Cash management services helps to reduce the time required for one transaction. It increases the high
net profit of an organization, reduces the losses, same idle time of the customers of the banks.
Banks keeps some amount with the central bank, he reserve requirement and the purpose of the reserve
requirement is to purpose banks to maintain a reasonable degree of liquidity in order to be able to meet cash
demand. Though, currently those reserve are used as a control device through which the federal government can
influence comprises vault cash, cash balances or excess reserve with the CBN deposits with other bank and
secondary resource are characterized by short term maturity, high credit quality and high marketability and the
primary motive of holding secondary reserve is liquidity management.
Moreover, the need for cash management is that it is proper and part of the planning for a business to lay
down suitable policies which should be followed by management in controlling its cash management.
According to L. Gurente (2014) defined that cash is given in exchange for commodities and is generally
acceptable by the community at large.
Furthermore, it discussed the role of cash management in the banking industry. It also defined three basis
of holding money, money as a unit of value, it has function, standard of value, unit of account and also common
domination of value among all these, monetary unit serve as the unit term on which the value of all goods and

8
services is measured. Money makes possible the allocation of resources. It is the tool with which the resource is
channeled to various sector economics.
Emmanuel .O. (2013) said that cash management is a great tool on the hands of financial managers to alert
management on future problems due to cash shortage or to the opportunities provided by cash surpluses.
Finally, Joseph and Massie (2014) suggests that meanings of effective cash management revolve around
how effectively and efficiently an organization’s funds are utilized to create wealth for investors and cash
management plays a vital role in fulfilling this objectives.
Bautes (20112) asserts that financial management carries out the following roles:
i) To ensure efficient usage of funds in all units of an organization.
ii) To evaluate the financial implications of decisions made by the management.
iii) To monitor organization’s financial performance so as to minimize deviations from budgeted performance.
Iv) To determine to keep track on items of expenditure for which cash of an organization is used for.
v) To foster and maintain financial stability based on company’s cash flow.
vi) To establish optimum capital structure as well as their sources of funding at the lowest cost and at their
appropriate time.
In cash management, bank industry sees money as a medium of exchange that markets participates
(buyers and sellers) to make purchase in the future.

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CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
A study of this nature cannot be completed without data collection to validate its basis for objective finding
and conclusion. This chapter presents the sources of data research population, sample size, research instrument
and data computation techniques.

3.1 RESEARCH DESIGN

In order to achieve the objective of the study a description research design is used. Description research
method is important in this kind of research because it has the ability to explain and organize complex phenomenon
in a simple and understandable form.
Since the cash management is a complex one, it is itself the use of the descriptive research is justified. The
fact that several factors come to be successfully used to effectively achieve, the foal and objective of banking sector.
Therefore, the data colleted through the describing the component and percentages of the component of the
data.
The serving method of research is complied too, method of implies opinion from which influence could be
drawn. This means that number of sample form a population are studied, so as to arrive at acceptable conclusion.

3.2 AREA OF THE STUDY

The area of this study consists of staff of Oko micro finance Bank Ltd in Anambra State.
3.3 POPULATION OF THE STUDY
The population of this study consists of staff’s of Oko micro finance Bank Ltd, from the population were
150. However the researcher narrowed obtaining the information to the banking industry, the accounts department
comprises of experience staffs that are either junior or senior staff and customers.

POPULATION TABLE
STAFF SIZE PERCENTAGE
Senior 30 20%
Junior 40 26.7%
Customers 80 53.3%
Total 150 100%

3.4 SAMPLING TECHNIQUE/SIZE

The estimated population under this study is 150 from which the researcher used a statistical tool known
as Yaro Yamane formula to determine the sample size using the above table, the population under study is 150.
N = Population size = 150
e = level of significance = 0.05 or 5%
I = constant
Therefore n = 150
1+150(0.05)2

n = 150
1+150(0.0025)

n = 150
1+0.375

n = 150
1.375 = 109.4

9
  109

3.5 SOURCES OF DATA COLLECTION

In carrying out the research, the researcher used question are, personal interview and desk research to
collect information questionnaire and personal interview. The researcher makes use of both primary and secondary
data to obtain the needed information which was administered to the respondents. The secondary sources of data
includes textbooks, CBN bulletin internet etc.
i. Primary Data and Information
In this source personal interview and questionnaire, were design and conducted to obtain information
directly from the respondents about the activities of cash management in Banking Industry. Intensive questionnaire
and interview were used because of the following reasons:
1. To check or substantial gained information by desk research.
2. To gain data not available from desk research.
3. To supplement information.
ii. Secondary Data and Information
A very good example of secondary data is desk research which is the study or review of existing and relevant
document. The researcher made extensive use of some document like Journals, seminars, magazine, textbooks,
CBN bulletins, internet etc available to collect information needed in the development of theoretical frame work of
the study.

3.6 INSTRUMENT FOR DATA COLLECTION

Reliance was largely on primary source of data to ensure objectives and reliability, such data collecting
technique as questionnaire were used.
However, information from secondary sources was used to validate that of the primary sources. This
secondary source refers to the reference made from textbook and magazines.

3.7 RELIABILITY AND VALIDITY OF THE INSTRUMENT

The instrument of the data collection have been presented to a renowned research professional i.e. the
supervisor as the research work for validation.

3.8 DISTRIBUTION AND RETRIEVAL OF THE INSTRUMENT FOR DATA COLLECTION

The questionnaires distributed by the researcher to the respondent were done by him/her. Moreso 109 (one
hundred and nine) copies of questionnaires were distributed by the researcher personally and 102 (one hundred
and two) copies were retrieved.

3.9 METHOD OF DATA PRESENTATION AND ANALYSIS

All the information collected were analyzed on a frequency table, with columns for different responses in the
questionnaire were shown and responses converted into percentages. Converting to percentage to enable the
research to compare subgroup, unusual size meaningfully. It also makes comparison easier and clearer. Percentage
(%) is one of the simple statistical techniques researchers which is often used in analysis of data. The chi-square is
computed as follows:
X2 = (0i-Ei)
Ei

Where; x2 = chi-square
 = summation (sigma)
01 = observed frequency
E1 = expected frequency
The expected frequency is determined with the following formula:
E1 R1 x CT
N

Where B1 = The row total

C1 = The column total
N = The overall total
The level of significance in a chi-square should be determined. This is the level of error. The researcher is
expecting from the analysis or tests. There is no specific level that is generally recommended for this research, the
level of significance is 5%. This is to say that out of 100% test carried that the level of error will be 5%.
Another preliminary informal needed before the analysis is the decision rule (or critical value or chi-square
value). This is the benchmark for the test but prior to the appropriate degree of freedom for the test is found. In chi-
square test, the appropriate degree of freedom is calculated using the formula below.
df = (r-1) (C-1)
where r = number of rows in the chi-square
c = number of column in the chi-square.
The decision rule for the appropriate level of significance is found using a chi-square distribution table. The
computed chi-square (x2) is computed with tabular chi-square (x 2 or 0.05) to evaluate the hypothesis. If x 2 >x2 0.05,
the alternative hypothesis will be accepted and vice versa.

10
 CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULT
4.0 INTRODUCTION
This research is set to study problems of cash management in banking industry from 2011-2014. A case
study of Oko Micro finance bank. Out of 109 distributed questionnaire 102, were properly filled and returned.
Further analysis would therefore depend on 102 returned questionnaire.
4.1 DATA PRESENTATION AND ANALYSIS
The data obtained from this study are shown or presented below:
SECTION A
BIOGRAPHIC DATA
Table 1: Gender distribution of respondents.
Sex No of Respondent Percentage
Male 72 70.6
Female 30 29.4
Total 102 100

From the information on table 1, it could be observed that out of 102 respondents, 72 (70.6%) of the respondents
were male while 30(29.4%) of the respondents were female.

Table 2: Age distribution of Respondents

Range No of Respondent Percentage
18-26 years 28 27.5
27-35 years 45 44.1
36 and above 29 28.4
Total 102 100

The table above shows that the range of respondents with the age of 18-256 years were 28(27.5%), while 27-35
years were 45(44.1%) and 36 and above years of age fall within 29(28.4%).
Table 3: Marital Status
Status No of Respondent Percentage
Married 54 52.9
Single 48 47.1
Total 102 100

From the table above, it shows that out of 102 respondents, 54(52.9%) are married while 48(47.1%) of the
respondents are single.

Table 4: Occupational Distribution

Categories No of Respondent Percentage
Students 34 33.3
Civil Servants 35 34.3
Trader/Artisan 18 17.6
Unemployed 15 14.8
Total 102 100

The table above shows the occupational distribution of respondents, 34 (33.3%) of the respondents are
students, 35 (34.3%) of the respondents are civil servants, 18 (17.6%) of the respondents are traders/Artisans while
15 (14.8%) of the respondents are not employed.

SECTION B
DEMOGRAPHIC DATA
Table 5: Does unavailability of sufficient funds or cash at all times affect banks performance?
Response Frequency Percentages
Yes 90 88.2
No 12 11.8
Total 102 100

From the table above, it shows that 90 (88.2%) of the total respondents said yes that unavailability of sufficient fund
or cash at all times affect banks performance while 12 (11.8%) said No.

Table 6: Is working capital effectively managed to enable bank become more efficient in performance?
Response Frequency Percentages
Yes 80 78.4
No 22 21.6
Total 102 100

From the table above, it is observed that 80 (78.4%) of the respondents agreed that working capital
effectively managed to enable bank become more efficient in performance while 22 (221.6%) said No.

11
Table 7: Does cash management aid in determining the means of achieving effective liquidity and profitability
management?
Response Frequency Percentages
Yes 76 74.5
No 26 25.5
Total 102 100
From the above table 7, it is being analyzed that out of 102 respondents 76 (74.5%) said that cash
management aid in determining the means of achieving effective liquidity and profitability management while 28
(25.5%) said No.

Table 8: To what extent does anticipation and taking necessary actions help to avoid unnecessary loss?
Response Frequency Percentages
Greater extent 50 49
Some extent 40 39.2
No opinion 12 11.8
Total 102 100

Table 8 above shows the response of the respondents, 50 (49%) out of the total respondents that
anticipation and taking necessary actions help to avoid unnecessary loss in a greater extent while 40 (39.2%) said it
is to some extent while 12 (11.8%) of them said No opinion.

Table 9: Will cash flow forecast information help in avoiding crisis?

Response Frequency Percentages
Yes 65 63.7
No 37 36.3
Total 102 100

Table 9 above revealed that 65 (63.7%) out of the entire population said yes that cash flow forecast information help
in avoiding crisis while 37 (36.3%) said No.

4.3 DISCUSSION OF FINDINGS

Owing to problems of cash management in banking industry, the researcher embark on this study to
analyze the problem of cash management in banking industry using Oko microfinance as a case study.
The study revealed that this research effort was a worthwhile venture.
To a large extent, the unavailability of sufficient funds or cash at all times affect banks performance, the
table 5 made it clear through the number of respondents that agreed to it and those that said No.
Table 6, revealed that working capital effectively managed to enable bank become more efficient in
performance.
Table 7, shows that cash management aid in determining the means of achieving effective liquidity and
profitability management through 74.5% of the respondents agreeing or saying yes to it.
It was also revealed that anticipations and taking necessary actions help to avoid unnecessary loss to a
greater and some extent.
Finally, the table 9 revealed that cash flow forecast information help in avoiding crisis.

4.3 TEST OF HYPOTHESIS

HYPOTHESIS 1
Hi: Unavailability of sufficient fund or cash at all times affect banks performance.
Ho: Unavailability of sufficient fund or cash at all times does not affect banks performance.
Response Fo Fe Fe-Fe (Fo-Fe) (Fo-Fe)2
Fe
Yes 90 51 39 1521 29.8
No 12 51 -39 1521 29.8
Total 102 59.6

Calculate x2 = 59.6
Table x2 = 18.92
Degree of freedom = (2-1) = 1
Level of significance = 0.05
DECISION
From the table above the calculated chi-square value is 59.6. This is greater than critical value of chi-square (x 2) in
the table of 18.92 at 0.05 level of significance and I degree of freedom. Following this we accept the alternative
hypothesis (He) that unavailability of sufficient fund or cash at all times affect bank performance.

HYPOTHESIS 2
H1: Working capital is efficiently managed thereby making bank able to become efficient in their performance.
H0: Working capital is not efficiently managed thereby making bank able to become efficient in their
performance.
TABLE 2
Response Fo Fe Fe-Fe (Fo-Fe) (Fo-Fe)2
Fe

12
Yes 80 51 29 841 16.5
No 22 51 -29 841 16.5
Total 102 33

Calculate x2 = 33
Table x2 = 18.92
Degree of freedom = (2-1) = 1
Level of significance = 0.05
DECISION
From the table above, the calculated chi-square value is 33. This is greater than critical value of chi-square
(x2) in the table of 18.92 at 0.05 level of significance and 1 degree of freedom. Following this we accept the
alternative hypothesis (Hi) that working capital effectively managed to enable bank become more efficient in their
performance.

HYPOTHESIS 3
H0: Cash management do not aid in determining the means of achieving effective liquidity and profitability
management.
H1: Cash management aid in determining the means of achieving effective liquidity and profitability
management.
TABLE 2
Response Fo Fe Fe-Fe (Fo-Fe) (Fo-Fe)2
Fe
Yes 76 51 25 625 12.3
No 26 51 -25 625 12.3
Total 102 24.6

Calculate x2 = 24.6
Table x2 = 18.92
Degree of freedom = (2-1) = 1
Level of significance = 0.05

DECISION
From the table above, the calculated chi-square value is 24.6. This is greater than critical value of chi-
square (x2) in the table of 18.92 at 0.05 level of significance and 1 degree of freedom. Following this we accept the
alternative hypothesis (Hi) that cash management aid in determining the means of achieving liquidity and
profitability management.

HYPOTHESIS 4
H0: Anticipation and taking necessary action does not help in avoiding unnecessary loss.
H1: Anticipation and taking necessary action helps in avoiding unnecessary loss.
Table 4
Response Fo Fe Fe-Fe (Fo-Fe) (Fo-Fe)2
Fe
Greater extent 50 51 -1 1 0.02
Some extent 40 51 -11 121 2.4
No opinion 12 51 -39 1521 29.8
Total 102 32.22

Calculate x2 = 32.22
Table x2 = 18.92
Degree of freedom = (3-1) = 2
Level of significance = 0.05
DECISION
From the table above, the calculated chi-square value is32.22. This is more than critical value of chi-square
(x2) in the table of 18.92 at 0.05 level of significance and 1 degree of freedom. Following this we accept the
alternative hypothesis (Hi) that anticipation and taking necessary action help in avoiding unnecessary loss.

HYPOTHESIS 5
H0: Cash flow fore casting information does not help in avoiding liquidity crisis.
H1: Cash flow fore casting information helps in avoiding liquidity crisis.
TABLE 5
Response Fo Fe Fe-Fe (Fo-Fe) (Fo-Fe)2
Fe
Yes 65 57 14 196 3.8
No 37 51 -14 196 3.8
Total 102 7.6

Calculate x2 = 7.6
Table x2 = 18.92

13
Degree of freedom = (2-1) = 1
Level of significance = 0.05
DECISION
From the table above, the calculated chi-square value is 7.6. This is less than critical value of chi-square (x 2)
in the table of 18.92 at 0.05 level of significance and 1 degree of freedom. Following this we accept the alternative
hypothesis (Hi) that cash flow forecasting information helps in avoiding liquidity crisis.

-----------------------------------------------------------------------------------------------------------------------------
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 SUMMARY OF FINDINGS

The study was an attempt at appraising the problem of cash management in banking industry using Oko
microfinance bank Ltd as a case study. From the research finding, the following results were known and they are:
(i) There is a general preference in managing cash in Nigeria banking industry.
(ii) From the response of the respondents that majority of them say that organization with ineffective cash
control is a dead organization while organization with effective cash control is lively.
(iii) Responses suggested that with good cash management in Nigeria banking industry, will increase the
positive impact on banking practice in Nigeria.
(iv) Finally, it was found out that it is necessary for banking industry to improve in the area of managing cash
so as to avid total cash minimization in banking industry.

5.2 CONCLUSION
Based on the findings of the study discussed in the proceeding chapter, the following conclusions were
drawn by the researcher:
The bank does not have minimum or maximum number of cashier in a particular branch if all depend to be
performed by the cashier.
Again despite the fact that the bank has been operating effectively and efficiently are needed in some
branches.
Furthermore, the level of education of cashier is a step in the right direction of effective cash management.
This may be improved to a minimum degree holder within the banking sector. As a result the bank investment
decision especially on loans and overdraft were not encouraging to management of cash.
Finally, the high rate of bad debts recorded by the bank is of concern, also most of excess cash was invested
in loan advance of which two third was unsecured loans, thus, will spear room for the bank liquidity.

5.3 RECOMMENDATIONS
The researcher comes up with underlisted recommendations which will solve problems militating against
effective and efficient cash management in Nigeria banking industry.
(i) That the government give recommendations to the community bank by implementing rules which will
enhance its growth especially in the discourage of its duties.
(ii) The branch with excess cash in their vault due to nature of the central bank fixing rate should negotiate
with central bank to take the money for deposit. This will eliminate the cost of interest of idle fund, and
fund available to the bank as well as reduce the risk involved.
(iii) The staff involved in direct handing of the cash like cashier should be bounded by way of fidelity bounds
and also be compensated at the end of every year.
(iv) Also the investment decision, on excess cash should be done after proper consideration in terms of repaying
bank overdraft must be given to people with collateral security only.
(v) Finally, the researcher wished to recommend that community bank should improve their salary scale to
encourage graduates take employment with them as cashier.

5.4 LIMITATIONS OF THE STUDY

The major limitations of this study is associated with the difficulties involved in getting the needed
information from the bank and other resources center where literatures and data were collected for the study.

5.5 SUGGESTIONS FOR FURTHER STUDIES

The researcher suggested that further research should be carried out as follows:
1) Loan syndication in Micro-finance banks.
2) The implication and challenges of cash management in microfinance bank.
3) Supervision of granting loan to small and medium scale industries (A case study of microfinance bank
Isuofia).

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REFERENCES

Auwokenu (2014) Financial Institution in Nigeria. Azuka Street Extension Ogbor Hill Aba, Maxwell Academic
Publishing Ltd.

Bari H. (2013) Fundamentals of Macro Economics Robinson Street Uwani. Enugu. Feguo Packaging and Printing Co.
Ltd.

Dommerer et al (2013) Financial Management. New York Vikas Publishing House Print Ltd.

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Ezenwaka (2013) Element of Banking, Africa Federal Drive Onitsha, Africa publishers Ltd.

Emmanuel (2013) Effective Cash Flow Management 2nd Edition, Owerri Johnson Publishers.

Harry (2014) The Nigerian Financial System, Awka Academic Publishers Ltd.

Joseph M. (2014) Roles of Financial Institution, Ontisha Educational Publishers Ltd.

Okonkwo (2012) Elements of Banking, Lagos Johnson Publishers Ltd.

Ross (2014) Financial Institution in Nigeria, Owerri Himan Publishers Ltd.

Westerfield (2012) Elements of Banking. New York Horper and Sons Publishers Ltd.

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