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According to Ngwu (2006: 159), treasury management comprises of fund acquisition, investment in marketable securities, hedging and the management of the bank reserve account of the Central Bank. Acquisition of funds involves selling of various instruments of money market (liabilities) in the wholesaler or bank's market place, the instrument include: Bankers acceptance, commercial papers, repurchase agreement, Nigeria Treasury Bill (NTB) e.t.c. It equally involves inter bank and central bank borrowing. Funds acquisition focuses primarily on liquidity risk management and equally how to do with strategic for interest rate risk management.
According to Myers and Myluf, 1984, Chastian, 1986; Harford
- Treasury management propitiates the development of administrative techniques conducive to optimizing the level of disposable assets to be maintained by a company to prevent breaks or gaps in the trading cycle due to lack of cash, administrator must calculate the cash amount best suited for their level of activity, plan the timing of the relevant payments and collections and draw up a policy of investment in assets with
high liquidity that can be the company. (Kamath etal, 1985; SimivSan and Wimi, 1986), it is therefore essential to establish the right level of disposable assets to short term financial investment at companies. Holding the wrong amount of cash or cash equivalent may interrupt the normal flow of business activities. Moreover, the wrong safety margin may result in financial difficulties, with banks unable to take needs that may arise at any given time or unable to take advantages of unexpected investment opportunities. Maintaining a cash surplus thus has a number of advantages on one hand, it enables banks to carry on the normal transactions that arise in the course of their activities and avoid any treasury gaps. On the other hand, it helps them to cover any unexpected need for cash by acting as a preventive balance.
Cassanova and Fernandez (2001), define the idea put forward by Palon and Prat (1984), and indicate that treasury management is seen as "administration of treasury circuit" entailing chiefly and analysis, study and review of the three circuits indicated payment, collections and cash holding.
includes the planning of disposable treasury assets and subsequent monitoring, a strategy for investing surpluses to obtain maximum profitability and finance deficits with minimum costs, management of interest rate and exchange rate risk and finally banking management. All these responsibilities are interconnected, which generate an overall model of cash management with a policy to generate value for firms and in short helps attain the general goal of use firm.
2.2 CONCEPT OF TREASURY MANAGEMENT Basic cash management concept group the management of collections and payment, liquidity monitoring in banking operations, short term treasury forecasts, management of banking balances on value data and negotiation with financial organization.
Advance cash management concept which include the management of the financing of the positioning of treasury peaks and the management of financial risk.
According to Okeja (1997: 21), treasury management deals with the ability to plan, mobilize, monitor and manage liquid
financial resources. He went further to explain that such management will not only reduce the risk of loss but will go a long way to increasing net earnings in a manner that is consistent with the strategic objective of the organization. The main aim of those process are as follows.
Liquidity management/maintenance Cash resource optimization Access to short term financing management of risk and coordination of financial function.
A look at the above view shows that in this contemporary times no bank can fully achieve a reasonable degree of success without resource to the concept of treasury management.
2.3 INVESTMENT OBJECTIVES
- To achieve an overall return on total deposit of at least one quarters of one percent above the average seven day notice London Interbank Bid Rate (LIBIR). The rate at which a bank will bid to borrow money in the London money market with the minimum risk of capital loss.
money market were influenced largely exchange market (AFEM), the capital market witnessed increased transactions in terms of volume despite the observed defined in market capitalization. In 2002, monetary policy implementation was faced with some market intensified. In order to encourage bank to reduce interest rate on lending, the Minimum Rediscount Rate (MRR) was reviewed downward accompanies with moral suasion. These development led to a fall in bank deposit and lending rate particularly during the second back of 2002.
In pursuit of its commitment to improve the payments system, the CBN ensured the full installation of magnetic lnse character recognition (MICR) in all the clearing zones, and was involved in the life of run of the Nigeria Automated Clearing System (NACS) in the Lagos Clearing Zone in 2002.
2.5 INTEREST RATE FORECASTING AND MANAGEMENT
Forecasting of interest rate is obtaining the opinion of bank management on the future course of the interest rate. This is possible in a deregulated and relatively stable economy. An
economy where the interest rate is fixed or determined by monetary authorities, any forecast in respect of interest rate may not be meaningful.
According to Ngwu (2006: 164), interest rate movement is highly influenced by the market situation and that if it forces of demand and supply. When funds are scarce, fund seekers has to pay an extra premium to undercut his competitors in order to win such funds. On the contrary, when market is wash with funds, rate can be negotiated downwards.
In forecasting interest rate affect the choice among alternatives for meeting liquidity needs and effective treasury management. It is required that in period when bank expects interest rate to rise, the tendency is to raise funds through longer term adjustment, while in period when rate are expected to fall, the tendency is to utilize very short term source of fund such as treasury bills and commercial papers.
2.6. INTEREST RATE SENSITIVITY AND MERGING
- Naira Net Interest Margin: - This is the difference between all interest revenue (adjusted to a tax equivalent basis) and all interest expenses. This Naira figure is helpful to ascertain how well the bank can cover its other expenses.
- Percentage Age Interest Margin: - The net interest margin in percentage terms is the naira act interest cost divided by the bank's earnings assets. Since this is a relative term, it is more helpful measuring the changes and grand in interest margin and in comparing interest margin among banks.
- Spread: - This is a relative measure and it is the difference between interest income and interest expense (Ngwu 2006: 166).
2.8. METHOD OF PRICING INSTRUMENT BY TREASURY OFFICE
Pricing of treasury instruments would depend on the volume of funds to be invested. If the volume is high there is the tendency that the instrument will be priced high and vice versa. It will also depend on the tenor of the investment longer maturities attracts low interest rate (low price). The prevailing rate of interest is equally very important in pricing instruments if interest rate
existing are high this will influence the pricing of instruments, as it is no possible to go against the prevailing market rate. Profitable matching assets play a role in pricing instruments and banks will want to price higher where profitable matching assets are those assets that have both high yield and will mature at the time funds are required for use. Pricing of instruments will equally depend on the deposit mobilization objectives which may be for loan expansion or for investment. If it is for loan expansion, then it means there is high loan demand and the instrument is bound to be price high and if it is for investment, then it simply means a time of low business activities and therefore the price of instrument will be low.
2.9. NEW BANK TREASURY PRODUCT DEVELOPMENT
This is one of the basis funding strategies in banking identification of bank customers wants and needs is the beginning of bank treasury product development. Having identified these wants, in a manner of bank treasury products, should go ahead to develop
When we talk about financial market we refer to money market, capital market and foreign exchange market. The daily session of these three segments and financiers including banks that are published on the media for existing potential investors to take the information and analyse them for use. If it is publish that a particular company, say a bank is suspended from the Clearing House. This information maybe analysed to have negative effect on the share price of the company because such information can generate a run on that bank, publisher financial information in newspaper, magazine, internet e.t.c may have positive or negative influence on the investor behavior. Investor might decide to invest or disinvest, depending on the type of information that they have about any company.
Financial information gathering and analysis is much better appreciated in advanced financial market such as those of New York and London where every participant in the market is very well educated, on what is going on unlike in the third world countries.
Information about bank treasury products could be gathered based on emerging market, NSE trading information, Dutch Auction System Naira Exchange Rate, Nigeria Inter-bank Foreign Exchange Rate, inflation rate, major more (Gainer and loser), most active sectors (by volume), government securities held, company result and performance indicators for quoted companies.
Information so gathered and analysed are useful in determining for future cause of actions regarding to go in or out of the market when to switch from one investment to another, it tells the company that is doing well and the one that is not, it gives the idea of emerging markets and new products in the market.
2.11. CHALLENGES ENCOUNTERED BY BANKS ON MANAGING
THEIR TREASURY PRODUCT
Management of products and collections, and treasury forecast are the functions to which the banking industries surveyes attach most importance. These are the functions that they traditionally been most closely linked with treasury management. Though
- MANAGING ACCOUNTS RECEIVABLE AND PAYABLE: - Account receivable includes the control of cash receipt system within the organization, while account payable includes the control of cash disbursement process. These are the challenges faced by bsnks when managing their treasury product which if not properly managed affect the liquidity position of rge bank.
- REGULATORY AUTHORITY GUIDELINES: - These are rules, policy procedure stipulated by the Apex authorites (CBN,NDIC)to commercial banks,these guildline help the Apex authorities (CBN) to regulate the activities of commercial bank to ensure that banks when transacting their daily business,then follow the general corporate culture/policies given to them by CBN in other to regulate the economy.central bank produce new policies or guidelines which will help them to regulate the economy.
REFERENCE
Cassanova, T.O. and Fernandez, M. (2001). Cash management policy. U.K
Myers and Myluf (1984). Treasury management administrative techniques, Scotland Ngwu, T.C (2006), Issues on corporate finance. Finance Publication Torre (1997), treasury management strategies. Lagos Levenus Publication.
CHAPTER THREE
The population size here refers to all considerable elements that make up the study (Ngwu 2005: 45). The population of the study comprises of 100 person which include the treasury officers and other staff of the banks.
3.4. SAMPLE AND SAMPLING TECHNIQUES
According to Njuku (2005: 44), a sample is a fraction of the population for this research work, UBA PLC and UNION Bank Plc are the selected banks and data were collected from the sample of the staff using simple random sampling technique to avoid business and guarantee confidence. The sampling method that will be adopted is the Taro Yamen Formula stated below:
N = N 1+N (e) Where N = Population size e = Population error
Taking a population size of 100 respondents and its estimated error of 10%. The sample size is gotten by
N = N 1+N (e)
N = 100
N = 100
N = 100
N = 100
N = 50
The sample size is 50 persons.
3.5. RESEARCH INSTRUMENT Based on the research and the subject matter under consideration, the following methods were adopted.
ORAL INTERVIEW
This method involves the researcher going out to meet the respondents and engage them in a direct conversation with regards to the subject matter under consideration. Oral interview can be done in many ways such as telephone, personal interview e.t.c. In this research, oral interview was conducted with the bank
