PORTFOLIO MANAGEMENT AND ITâ€™S IMPACT ON PROFITABILITY LEVEL OF BANK IN NIGERIA (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)
The research topic - portfolio management and its impact on the profitability level of banks in Nigeria (a Case Study of First Bank Nigeria Plc), was embarked on by the researcher in view of the following objectives of the study and research problems. The objectives are:
- To determine to what extent portfolio management theory is applied in practice by first Bank of Nigeria Plc.
- To determine the similarities and the differences in the portfolio management strategies between the banks.
- To determine the relative importance of effectively managed assets of First Bank operational result.
- To determine the extent of government of regulations on the profit choice. To determine the trends of assets in first bank operation over a number of years.
- To determine the role played by the stock exchange.
- To determine the various types of investments undertaken by the first bank.
- To determine the nature of department of staff who handled asset on the bank. While the research problems are:
(a) To what extent do first bank asset managers apply portfolio theory in practice?
1.1 BACKGROUND OF THE STUDY
The first bank as a commercial bank is a profit making organization it’s objective include profit maximization, maximization of earning per share and maximization of share price through increase virtual banking and other programmers. The level of achievement of there objective is essentially a measure of business efficiency.
The need therefore arises for the first bank to rigorously pursue it’s goal by making effective use of all the resources at it’s disposal. Hence it has become ever more important in recent time due to the general economic downtown and sector by the government for the banking to move from one sphere into other areas of commerce and industry which are deemed to be profitable as asset portfolio adequately meet this needs.
However, it should be noted that it is folio but rather, it is mandatory that the organization aims at working with the optimal combination of investment and the financing thereof which would produce the desired result, and this calls for effective management.
Bearing in mind that investment induces the killing of an option; the option of productivity investment at any time in the future, the manager of the portfolio should exercise adequate skill and caution an efficient and effective manager would take into consideration. The high volatile and unpredictable nature of the money and capital markets in working out an investment policy and such policy should in be highly flexible so as to absolute the disadvantage by changes in government fiscal and monetary policies.
1.2 STATEMENT OF THE PROBLEM
The following which constitute the research question, stand at the heart of the research problems.
- To what extent do first ban assets manager portfolio theory in practices?
- How does assets portfolio diversification reduce risk in an empirical situation?
- What factors actually determine the investment mix that reduces risk taking into account the Nigerian situation?
- How difficult is portfolio management in practices?
- How what extent does first bank participate various market, the money and capital market the real estate sector e.t.c
- Does management of bank portfolio requires a financial expert?
1.3 OBJECTIVE OF THE STUDY
Portfolio management and its impact on profit ability level of banks in Nigeria is therefore a venture that requires adequate skill (s) and intellectual application gained through experience and bank practices. However there is one great asset of portfolio management which is a special note and this is the ability of portfolio managers to significantly reduce risk through diversification.
The following objective comes to mind in the choice of the topic:
- To determine to what extent portfolio management theory is applied in practice by first bank in the assets portfolio management.
- To determine the similarities and the difference in the portfolio management strategies between the banks.
- To determine the relative importance of effectively managed assists to first bank operational to absolve the disadvantage created by change in fiscal and monetary policies.
1.4 SCOPE OF THE STUDY
It is intended in this study to appraise thoroughly the theoretical foundation on which the actual practice of assets portfolio management and it impact on the profitability level of banks in Nigeria is built 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 profits level will be looked upon extensively. The researcher will examine the extent to which the practice agree with theory portfolio management as far as marking investment decision is theory concerned, establishing the objective of the bank investment policy, formulation of flexible policies and strategies delegation of authority and control etc.
Also to consider is the impact of assets portfolio on the operational results of the bank which includes the effectiveness of bank management, by measuring actual performances of the department against the set goals and measuring equally the return on investment against the system of portfolio in the bank.
1.5 SIGNIFICANCE OF THE STUDY
Considered against the induction that the first bank obligation in terms o f maximized profits and maintainers of adequate liquidity level it’s highly significant that this is carried out to ascertain how the first bank effectively apply the principles of portfolio management in actual practices in order to maximize optimize profit within its liquidity constants and safety.
In other words, the significance of the study it to examine the assets portfolio management and its impact on profitability level in first bank in order to determine how first bank can enhances their portfolio management and the level of profit earning capacity. Knowing fully well of the unavailable conflict between necessary liquidity and desired profitability.
1.6 STATEMENT OF RESEARCH HYPOTHESIS
The following are statement of research hypothesis which are subject to empirical validation.
- Ho: central bank of Nigeria regulations on first bank affects banking sector participation in the capital market.
- Hi: central bank of Nigeria regulation on first bank does not effect banking sector participation in the capital market.
- Ho: the first bank portfolio management are not applying management theory to satisfaction.
1.7 METHODOLOGY OF RESEARCH
In this research study secondary data was used for the analysis there are data collected from first bank instrument such as journals manuals and newspapers publication accounts of the relevant literatures (s) like the central bank of Nigeria of Nigeria publication e.t.c
Primary data is also used: and these following methods were used for the data analysis.
- Personal interview was held with member staff of first bank plc (Benin and Ekpoma Branch.)
- Questionnaires were issued out to various experts in the field of financial management and portfolio management.
The data analysis techniques of questionnaire and presented in tabular format. Also analyzed by using simple percentages for ordinary questions and ch-square for the hypothesis validation.
1.8 LIMITATION OF STUDY
With the view of carrying out such a study in an academic environment, some constraints actually hinges or limit portfolio management the extent to which the research work should be been carried out they are:-
FINANCE: much fiancé was expended on transportation to get data needed for the research study.
TIME: time was not available enough to carry out this research work. Knowing fully well of the stress it imposes, combining academic personal routine and distance altogether. Time / inadequate for the research. Also in addition lots of time and money were been wasted while searching for data moist available are inconsistent with the current guideline issued by monetary authorities as reform pervades the banking sector.
1.9 ORGANIZATION OF THE STUDY
In order to achieve an orderly presentation of this work, the study is divided into five chapters
Chapter one deals with introductory aspect of research work a general historical background of the first banks operation in Nigeria since 1894.
Chapter three deal with the research methodology adopted together with the research of the tested hypothesis.
Chapter two focuses on the exiting literature review. Which forms the background for practical assets portfolio management and it’s impact on profitability level of banks.
Chapter five deal with the summary conclusion and the recommendation of the project essay.
1.10 DEFINITION OF TERMS
In order adequately comprehend the content of this research work some key terms are defined as follows:
Primary market: A market in which an investor purchases an asset directly firms the issue of that asset. The purchase of newly issued share of cooperate stock.
Secondary market: A market in which an investor purchases an assets form an investor rather than assuring cooperate firm.
Reserves requirement: Percentage of bank and its balance stipulated by central bank and its particularly effective for sterilizing excess liquidity in the banking system through which CBN can contrast or expand the money supply.
Diversification: Is an abetment strategy to reduce risk by selecting securities in different companies or industries. Portfolio effect: the effect obtained when assets are combined into portfolio the interaction of the assets can provide risk reduction such the portfolio standard deviation may be less than the standard deviation of any single assets in it.
Capital assets pricing model: A model by which assets is valued based on their risk characteristic. It allows for viewing the possibility of any assets of superior investment opportunity by combining some position of risk free assets with the efficient fiotier. Efficient potolio: a portfolio combine assets so as to minimize standard deviation for a given level of return.
Efficient frontier: a set of portfolio of investments in which the investor received minimum risk for a given level of return.
Capital market line: Capital market line is a graphic representation of the range of risk and returns with various portfolios of assists.
Liquidity: the capacity of an investment to be returned for cash in short period of time with a mimumum capital loss.
Profit obtaining an advantage or benefits from a venture or Endeavour.
Commercial paper: this is the bank that the public in terms of acceptance of deposit provision of ban/overdraft management of business on behalf of the owner in some and offering of advices for present and potential. Investors
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