EFFECTS OF cashless POLICY ON BANK LIQUIDITY
EFFECTS OF CASHLESS POLICY ON BANK LIQUIDITY
1.1 BACKGROUND OF THE STUDY
A cashless economy is one in which transactions can be completed without the need for actual cash as a means of exchange, instead using credit or debit card payment for products and services.
According to Omotunde et al (2013), the Central Bank of Nigeria's (CBN) cashless economy policy initiative is a move to improve the financial landscape, but the policy's long-term sustainability will be a function of end-user endorsement and compliance, which can be aimed at reducing bank liquidity risks.
According to Tunde Lemon, Deputy Governor of the Central Bank of Nigeria, the CBN cash policy mandates a daily cumulative limit of N150, 000 and N1,000, 000 on free cash withdrawals and deposits by individual and corporate customers in Lagos state since March 30, 2012.
Individuals and business entities who conduct cash transactions in excess of the restrictions will be assessed a service fee for sums in excess of the cumulative limits. Furthermore, with effect from January 1, 2012, third-party cheques in excess of N150, 000 will be ineligible for encashment over the counter.
The clearing house will get the value of such cheques. From January 1, 2012, all Nigerian banks were expected to stop providing cash in transit lodgment services to businesses and customers. Omotunde et al. (2013) went on to say that the policy streamlines fund transfers by utilising sophisticated information technology, hence minimising time spent in the bank(s).
Wizzit, a rapidly expanding mobile banking firm in South Africa, with over 300,000 customers in the country. Similarly, M-PESA was introduced in Kenya as a small value electronic system accessible via standard mobile phones.
According to them, it has witnessed outstanding growth since its launch in Kenya by mobile phone operator (Safaricam) in March 2007, and has already been accepted by nine million subscribers, representing almost 40% of Kenya's adult population.
Wizzit and other mobile financial services, such as M-PESA in Kenya, are assisting low-income Africans in making long-distance financial transactions with their cell phones, reducing travel costs, eliminating the risks of carrying cash, and avoiding most banking charges (Akintaro, 2012).
Banks are essential components of all modern financial systems. Banks must be safe and be regarded as such in order to work properly. The single most crucial assurance is that the economic value of a bank's assets exceeds the liabilities that it owes.
The difference represents a reserve of “capital” accessible to cover any type of loss. The recent financial crisis, on the other hand, highlighted the significance of a second form of buffer, the “liquidity” that banks have to handle unexpected cash losses.
A bank can be solvent, with assets exceeding liabilities on an economic and accounting basis, and nonetheless collapse suddenly if depositors and other funders lose faith in it.
Liquidity in banking is defined as the ability to satisfy obligations on time without incurring unacceptable losses (Odior & Banuso, 2012). Liquidity management is a daily activity that requires bankers to monitor and forecast cash flows to ensure appropriate liquidity is maintained. It is vital to maintain a balance between short-term assets and short-term liabilities.
Client deposits are an individual bank's primary liabilities (in the sense that the bank is expected to return all client deposits on demand), whereas reserves and loans are its major assets (in the sense that these loans are owed to the bank rather than by the bank).
The investment portfolio accounts for a lower proportion of assets and is the principal source of liquidity. To meet deposit withdrawals and increased lending demand, investment securities can be liquidated. Banks can also generate liquidity through selling loans, borrowing from other banks, borrowing from a central bank such as the US federal Reserve, and raising extra capital.
In the worst-case situation, depositors could demand their money if the bank is unable to create enough cash without suffering significant financial losses. In extreme instances, this could lead to a bank run. Most banks are subject to legally mandated procedures designed to aid in the prevention of a liquidity crisis.
1.2 STATEMENT OF THE PROBLEM
Banks can generally keep as much liquidity as they like because bank deposits in most developed countries are protected by governments. Raising deposit rates and successfully promoting deposit products can help to alleviate a lack of liquidity.
The cost of liquidity, on the other hand, is a significant indicator of a bank's worth and success. A bank can attract large amounts of liquid funds.
Lower expenses lead to more profitability, greater stability, and increased confidence among depositors, investors, and regulators. This is the first study to look into the relationship between Nigeria's cashless policy and bank liquidity.
1.3 OBJECTIVES OF THE STUDY
The following are the study's objectives:
To investigate the effect of cashless policies on bank liquidity.
To investigate the impact of a cashless policy on the Nigerian economy.
To learn about the obstacles that Nigeria's cashless strategy faces.
1.4 research QUESTIONS
What effect does cashless policy have on bank liquidity?
What is the impact of Nigeria's cashless policy on the economy?
What are the problems that Nigeria's cashless policy faces?
HO: There is no discernible link between cashless policy and bank liquidity.
HA: There is a strong link between cashless policies and bank liquidity.
1.6 SIGNIFICANCE OF THE STUDY
The following are the study's implications:
The study's findings will educate bankers and other stakeholders in bank management on the relationship between cashless policies and bank liquidity.
This study will contribute to the body of literature on the effect of personality traits on student academic achievement, forming the empirical literature for future research in the field.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
This research will look at the connection between cashless policies and bank liquidity.
Financial constraint- A lack of funds tends to restrict the researcher's efficiency in locating relevant materials, literature, or information, as well as in the data collection procedure (internet, questionnaire, and interview).
Time constraint- The researcher will conduct this investigation alongside other academic activities. As a result, the amount of time spent on research will be reduced.