The impact of portfolio management on the profitability of banks in Nigeria.
The impact of portfolio management on the profitability of banks in Nigeria.
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE study
The first bank, as a commercial bank, is a profit-making organisation whose goals include profit maximisation, earnings per share maximisation, and share price maximisation through increased virtual banking and other programming. The degree to which they achieve their goal is fundamentally a measure of company efficiency.
As a result, the first bank must ruthlessly pursue its aim by making effective use of all resources at its disposal. As a result of the overall economic downturn and government sector,
it has been increasingly vital in recent years for banking to migrate from one sphere into other fields of commerce and industry that are believed to be profitable as asset portfolio sufficiently fulfil these objectives.
However, it should be highlighted that it is not folio, but rather that the organisation must try to operate with the ideal combination of investment and financing to get the intended result, which necessitates excellent management.
Keeping in mind that investment kills an option; the option of productivity investment at any moment in the future, the portfolio manager should use the same expertise and prudence as an efficient and productive manager would.
The high volatility and unpredictability of the money and capital markets in developing an investment policy, and such policy should be highly flexible in order to avoid being completely disadvantaged by changes in government fiscal and monetary policies.
1.2 STATEMENT OF THE PROBLEM
The following represent the research question and are fundamental to the research challenges.
To what extent does the first ban assets manager portfolio theory influence practise?
In an empirical case, how can asset portfolio diversification reduce risk?
What criteria genuinely define the investment mix that decreases risk while taking the Nigerian scenario into account?
In practise, how tough is portfolio management?
To what extent does the first bank participate in various markets, such as the money and capital markets, the real estate sector, and so on? Does bank portfolio management necessitate the services of a financial expert?
1.3 OBJECTIVES OF THE STUDY
Portfolio management and its impact on the profit ability level of Nigerian banks is thus a venture that necessitates suitable talent (s) and intellectual application developed via experience and bank practises.
However, one outstanding asset of portfolio management deserves special mention: the ability of portfolio managers to considerably minimise risk through diversity.
The following goal comes to mind when considering the topic:
1) To ascertain the extent to which portfolio management theory is utilised in practise by first bank in asset portfolio management.
2) To ascertain the similarities and differences in the portfolio management strategies employed by the banks.
3) To assess the relative value of efficiently managed assistance to the first bank operational in order to mitigate the disadvantage caused by changes in fiscal and monetary policy.
1.4 SCOPE OF THE STUDY
In order to be acquired with the basic factors about investment markets, price movement, and firm analysis, previous works on the theory of assets portfolio management and its impacts on profitability level will be extensively looked upon in this study.
The researcher will investigate the extent to which practise and theory portfolio management agree in terms of marking investment decisions, establishing the objective of the bank's investment policy, formulation of flexible policies and strategies delegation of authority and control, and so on.
Also to consider is the impact of assets portfolio on the bank's operational results, which includes the effectiveness of bank management, by measuring actual department performance against set goals and measuring return on investment against the bank's portfolio system.
1.5 THE SIGNIFICANCE OF THE STUDY
Given the first bank's obligation in terms of maximised profits and maintaining adequate liquidity levels, it's critical that this is carried out to determine how the first bank effectively applies portfolio management principles in actual practises in order to maximise optimise profit within its liquidity constants and safety.
In other words, the study's relevance is to investigate asset portfolio management and its impact on profitability level in first bank in order to discover how first bank may improve portfolio management and profit earning capability. Being completely aware of the unresolved contradiction between required liquidity and desired profitability.
1.6 RESEARCH HYPOTHESIS STATEMENT
The following are research hypothesis statements that are subject to empirical evaluation.
(i) Ho: The central bank of Nigeria's regulations on first banks have an impact on the banking sector's involvement in the capital market.
(ii) Hello: the Central Bank of Nigeria's regulation of the first bank has no influence on the banking sector's participation in the capital market.
(iii) Ho: the first bank's portfolio management is not applying management theory to customer happiness.
1.7 RESEARCH METHODOLOGY
Secondary data were used for analysis in this research study; data were acquired from first bank instruments such as journals, manuals, and newspapers publishing accounts of important literatures (s) such as the central bank of Nigeria publication e.t.c.
Primary data is also utilised, and the following approaches were employed to analyse the data.
1) A personal interview was conducted with a member of the first bank plc (Benin and Ekpoma branches).
2) Questionnaires were distributed to several financial management and portfolio management professionals.
The questionnaire data analysis methodologies are presented in tabular style. For ordinary questions, simple percentages were used, and ch-square was used to validate the hypothesis.
1.8 limitations OF THE STUDY
In order to carry out such a study in an academic setting, the following limitations actually hinge or limit portfolio management the amount to which the research effort should be carried out:
FINANCE: a lot of money was spent on travelling to collect the data needed for the research study.
TIME: There was insufficient time to complete this study project. Knowing full well the stress that combining academic personal routine and distance entails. Insufficient time for research.
Furthermore, a lot of time and money were wasted while looking for data that was not available and was conflicting with the current guidelines released by monetary authorities as reform infects the banking industry.
1.9 ORGANISATION OF THE STUDY
The study is organised into five chapters to ensure an orderly presentation of this work.
The first chapter deals with the introductory part of the research work, providing a general historical backdrop of the first banks in Nigeria since 1894.
The third chapter discusses the research methods used, as well as the investigation of the tested hypothesis.
The exciting literature review is the topic of Chapter 2. Which serves as the foundation for actual asset portfolio management and its impact on bank profitability.
The fifth chapter deals with the project essay's summary conclusion and recommendation.
1.10 DEFINITION OF TERM
Some key terminology are defined below to help you understand the content of this study work:
A primary market is one in which an investor purchases an asset directly from the entity that issues that asset. The acquisition of a newly issued share of cooperative stock.
A secondary market is one in which individual person buys assets from another investor rather than assuring a cooperative firm.
Reserves requirement: A percentage of a bank's assets and liabilities imposed by the central bank, which is particularly useful for sterilising excess liquidity in the banking system and allowing the CBN to contrast or expand the money supply.
Diversification is a risk-reduction approach that involves investing in securities from various companies or industries. Portfolio effect:
When assets are grouped into a portfolio, the interaction of the assets can provide risk reduction, so that the portfolio standard deviation may be less than the standard deviation of any single asset in it.
A capital assets pricing model is a model that values assets based on their risk characteristics. It enables the observation of any assets of improved investment potential by combining some position of risk-free assets with the efficient fiotier.
Efficient portfolio: a portfolio that combines assets in such a way that the standard deviation for a given level of return is minimised.
Efficient frontier: a portfolio of investments in which the investor receives the least amount of risk for the highest level of return.
Capital market line: A capital market line is a graphical illustration of the risk and return ranges associated with distinct portfolios of assistance.
Liquidity: the ability of an investment to be converted into cash in a short period of time with the least amount of capital loss.
Profit is the acquisition of an advantage or benefits from an undertaking or endeavour.
Commercial paper: this is the bank that serves the public in terms of deposit acceptance, supply of a ban/overdraft, operation of a business on behalf of the owner in some cases, and counselling to current and new customers.