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Universal banks generally provide avenues for savings to those who have surplus funds. The bulk of such funds are then lent out to needy personnel and business customers in loans and overdrafts, its has been widely appreciated that more that half of the total gross earnings of universal banks is earned from interest on loans and advances, which constitute the single must importance assets of the banks. Demands savings and time deposited constitute the major source of banks profitability, it has to be aggression in its lending function. At the same time, it has to be liquid to meets the depositors request and maintain public confidence. It therefore, has to strike a balance between liquidity and profitability. As lending is one of the most intricate services provide by banks, this paper will examine in 8rme details many theories emanating from developed environment and their effect on the operation of universal banks especially the credit, lending activities. They include the consumer loans theory, and the anticipated income theory. Those theories will thus be evaluated to measure the extents to which they guide the lending activity of the first bank of Nigeria Plc in a developing environment. This is a with a view of highlighting the degree of compliance to these theories by the universal banks and also proffer solutions and recommendations to resolve the liquidity and profitability position in a developing economy such as Nigeria.




Liquidity management seeks to ensure the attainment of short term objectives of monetary policy, which means maintenance of dose rue monetary aggregate. It is very important aspect of monetary policy implementation and control.

Universal banks create money every day, but when the quantity created is compatible with the absorption capacity of the economy macro economic instability may result. In order to maintain relative macroeconomics stability, mush reliance is placed on liquidity, growth in the banking system.

Lending and investment operation of universal banks have been widely and extensively discussed in various literatures. It has also been stated that anyone who expects to borrow from the universal banks should be most concerned with the loans investment policy and techniques. The concept profit making activity of a universal bank is making loan available to its customers. It faces uncertainties and therefore risk of many kinds. A bank does not consider earning alone instead it seeks some optimum combination of earning; liquidity and safely.

For example to gather higher earnings, a bank has to increase more risk and liquidity and vice versa. However, universal banks are limited in their ability to assure risks because of the very high ratio of their liability to their total assets.

Commercial banking in Nigeria into the nineteenth century started as a means to facilitate the slipping business of a British shipping line Elder Dempster agencies operating in the Nigeria territory. The chairman of the company, Mr. Alfred Jones perceiving the advantages that were acquirable, and its agents in Nigeria Mr. George William Neville to establish a bank in Lagos.

This was how the First Bank of Nigeria Plc was opened in Lagos in 1894.


Liquidity and credit management have implication on bank profitability and the authorities’ depositors and shareholders. It could trigger off mass cash withdrawal thus plunging the bank into deeper crisis. In analyzing the credit and liquidity management of First Bank of Nigeria Plc, I shall examine its assets quality, which includes its performing and non – performing loans. In addition efforts would be made to look into the bank’s capital adequacy ratio and its shocks of risk assets different measures of liquidity and solvency.


The following hypothesis is developed and tasked to ensure a more effective and result oriented research work.

Hi: the liquidity of universal banks could be determined efficiently from the effectiveness of its credit management.

Ho: the liquidity of a universal bank could not be determined efficiently from the effectiveness of its credit management.

Hi: lending and investment operations of universal banks depend widely and extensively on its liquidity.

Ho: Lending and investment operations of universal bank does not depend widely and extensively on its liquidity.


A bank is considered liquid it has sufficient cash and other liquid assets in its portfolio together with the ability to raise fund quickly from other sources to enable it meet its payment obligations and financial commitment in a timely manner, therefore the main purpose is to highlight how liquidity and credit management in this Nigeria Banking Industry is being discovered and the extent to which First Bank of Nigeria Plc is guided in the management of its lending functions.


Universal banks act as intermediaries by collecting deposits and paying interest on them and granting loan charging the borrowers interest at the higher rate. Improving these services to borrowers and the depositors the main goal of the bank is to make profit. Apart from granting loans bank also generate profit on investments. In order to maximize their earnings every bank attempts to structure its assets and liabilities such a manner as to yield the highest returns, subject to some constraints.

A bank is considered liquid if it has sufficient cash and other liquid assets in its portfolio, together with the ability to raise fund quickly from other sources to enable. It meets its payment obligation and financial commitments in a timely manner. This study therefore aims to cover the extent to which First Bank of Nigeria, Plc is guided by the above enumerated theories in t he management of it lending functions and know now it has been able to survive over years in spite of the global liquidity problems to supplement his effort the lending practices and procedure of the bank will also be evaluated.


Liquidity is defined in its broadest sense as the ability to meet cash quickly and at a reasonable cost. Credit management is the way universal bank, lend money out to borrowers. However, this study tends to reveal the problems that one involved in the liquidity is essentially that of having sufficient fund to meet at all times this demand of money that may be made on a bank. Bank must be maintain adequate liquidity in order to provided for and line in deposit for and other liabilities, to satisfy unforeseen increased investment in particular desirable earning assets when such opportunities arises the liquidity requirement of any bank out of the bank. It is the responsibility of management to measure these requirements and to anticipate them on a current and continuous manner.


The research was faced with many problems in the course of collecting information relating to this project, as many staff is not willing to divulge related information. The directions at various departments dealing with credit management and liquidity in first bank refuse to disclose detail information relating to liquidity and credit management. Access to departmental ledger account was denied through verbal information relating to questions, asked was given another limitation was the inability to cover various branches of Nigerian banks, which are throughout the federation. This was mainly due to the financial and logistical difficulties that such exercise of this would entail.


Functions of universal banks the services offered by universal banks are numerous and they include;

a.            Mobilization of savings: – universal banks perform a very important function to all sectors of the economy by providing facilities for the mobilization of savings and making the available for investing purpose by the process of granting credit facilities to other customers. In this may those funds are made available to business to enable them expand their productivity capacity and to individuals and household to facilitate consumptions.

b.           Extension of credit facilities:- According to read (1984). He establish that the primary function of universal banks is the extension of credit to commuting borrowers. In making credit available, universal banks are rendering great social service through their actions production is increased capital investments are expanded and higher standard of living is realized.

Banks make it possible for industries to produces a larger quantity of goods, which may remain the stock as inventory before eventually being sold or reprocessed into another from. A good example is the food industry where the quantity produced may be far in express of what can be consume immediately.

c.            Transfer of fund:- universal banks serve as medium for transfer funds they facilitates payment by enabling business, government and consumers to transact without cash, cheques and credit cards which are used for bulk purchases as measured by naira amount of transaction cheques drawn and deposited at the bank merely indicated transfer of fund from one account to the other.

d.           Creating money:- universal banks create money used to expand productive facilities otherwise there would be a short down of economic activity generally as business would be forced to wait until sufficient profits are made before they could expand. However, the money create activity of universal banks is kept under the control by the monetary to ensure that it is not excessive.

e.            International trade services:- all universal banks are involved in the financial aspect of international  trade and services required supporting this important part of the country’s economy, such include bill for collection, documentary credit and open account which are investment used in import and export trade.

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