Human Resource Accounting and Financial Performance of Banks in Nigeria are two concepts that are not to be confused or mixed. In assessing the financial performance of banks, the liquidity and the ability of the banks in view to withstand a financial crisis must be critically examined.
The financial performance of banks exclusively focuses on the financial health of the banks, while human resource accounting concentrates on identifying and measuring data about HR and communicating the information obtained or collected to interested parties.
Therefore, when we discuss human resources accounting and the financial performance of banks in Nigeria, we are essentially referring to an effort to identify and report investments made in an organization’s human resources, or HR, in addition to the financial statements that explain the banks’ financial status.
The fact that both require accounting principles and procedures when necessary is a key link between human resource accounting and banks’ financial performance. The accounting system used to determine the price and worth of employees for an employing organization is called human resource accounting.
Analysis of Fund Management in Providing a Sound Banking System in Nigeria
Unfavorable government policies and other issues that impede the system are among the difficulties that the Nigerian banking system faces. But one thing that has been acknowledged as contributing to a sound banking system is fund management.
The monitoring and control of a financial institution’s cash flow are known as fund management. This involves a fun manager who is tasked with making sure that the deposit maturity schedules line up with the demand for loans.
To accomplish this, the manager considers both the assets—what the company owns less its liabilities—and the liabilities—the financial obligations of the bank—that affect the bank’s capacity to extend credit.
A bank cannot function as a financial institution without investors, so every bank that wishes to do so must have investors whose investments can be managed by fund managers. In the end, banks are helped to make wise decisions by the services provided by fund managers, which results in a stable banking system.
However, it is crucial to keep in mind that when categorizing fund management by the type of client, the fund managers fall into one of three categories: business fund managers, corporate fund managers, or personal fund managers who manage investment accounts for individual investors.
Compared to business fund managers, personal fund managers oversee smaller investment portfolios. One fund manager or a group of fund managers may have control over these funds.
Working Capital Management and Financial Performance of Deposit Money Banks in Nigeria
Every business or other entity has what are known as assets and liabilities. Liabilities are financial obligations that must be paid at a specific time and may one day be repaid, whereas assets are things of value that have the potential to generate returns.
Working capital management and financial performance of deposit money banks in Nigeria prefer the strategy used by banks to make sure that their services are provided effectively by keeping track of and making the best use of their current assets, such as cash and liabilities.
Working capital is thought of as the heart and soul of a business concern, making it crucial for the smooth operation of any organization. However, studies on working capital management have yielded conflicting results. Working capital management is a crucial aspect of corporate finance because it has a direct impact on the company’s liquidity and profitability.
The bank is the main financial institution that plays an important role in the economic development of the nation. It is the backbone as well as the foundation for the development of the country. Its principal operations are concerned with the accumulation of temporary idle money of the public for advancing to others for expenditures. In other words, a bank is an institution that deals in money and its substitutes and also provides other financial services.
Banks accept deposits and make loans and derive a profit from the difference in the interest rates paid and charged, respectively. Depositors may be either individuals or institutions. These deposits may be current, saving, or fixed and the tenure depends upon the mutual agreements between the bank and either an individual or institutions.
The management of current assets, including cash, marketable securities, stock, and current liabilities, is referred to as working capital management. All of the bank’s current accounts are covered by this functional area of finance.
According to the study’s findings, the profitability of Nigeria’s listed deposit money banks has been significantly and negatively impacted by liquidity. It follows that the study period, during which the study was conducted, saw increased liquidity in the banking sector.
The study also found that the profitability of listed deposit money banks in Nigeria was significantly, strongly, and favorably influenced by both the current ratio and the quick ratio, whereas the cash ratio was found to have a significant, strong, and adverse effect on the performance of the banks.
The Effect of Inflation on Loan Repayment in Deposit Money Banks in Nigeria
Any inflated society is impacted by the impact of inflation on loan repayment in deposit money banks in Nigeria. The discussion of inflation on loan repayment in deposit money banks will undoubtedly hurt a nation like Nigeria which is struggling to maintain its economy.
If the borrower had debts before the inflation and wages increased along with it, the latter would benefit from the former. As a result, even though the borrower’s debt is unchanged, they can pay it off more quickly thanks to an increase in income. The lender pays less interest if the borrower uses the extra money to pay off their debt before it is due.
But when a company takes out a loan, the money it receives now will be paid back out of future profits. Inflation’s basic tenet is that it gradually lowers a currency’s value. Or, to put it another way, cash today is worth more than cash tomorrow. As a result, debtors can pay back lenders with money that has depreciated since they first borrowed it.
In other words, higher inflation and interest rates could reduce demand for bank deposits, forcing banks to limit credit availability and resulting in decreases in spending.
Lower long-term financial activity is implied by higher inflation. According to Boyd et al., intermediaries will make less money and allocate capital less efficiently in high inflation economies, and equity markets will be smaller and less liquid.
Effect of Loan Disbursement and Repayment in Nigeria Commercial Banks
There is a set deadline for loan repayment when a bank lends money to people or organizations, but in situations where the party receiving the loan defaults, commercial banks are affected.
In some situations, the borrowers are required to provide collateral to cover their default; however, this hasn’t always been successful in terms of loan disbursement and repayment. When a borrower doesn’t pay back a loan, it’s called default. It occurs when a borrower cannot or will not repay the loan and the bank no longer expects to receive payment.
The effects of the loan disbursement and repayment in Nigeria’s commercial banks include:
Reduces Asset Quality
A bank’s asset quality is reduced by defaulted loans. A bank’s assets are its loans. The asset loses value and changes from an asset to liability when a loan goes into default. This decreases the total asset amount of a bank.
Increases the Cost of Funds
Banks must continue to make provisions for ensuring future payments from depositors in the case of NPL. This increases the cost of funds for the bank.
Reduces the Bank’s Profitability
Bad debt is when a bank is unable to collect on a loan. When depositors request money be withdrawn, the bank is still obligated to pay them back. In this case, the bank needs to pay the deposited amount from its profit, which decreases the total profit of the bank.
Reduces the bank’s overall credit rating
A bank that is unable to collect loan payments will have a major problem because it will lose the trust of depositors and will also see a steady decline in profit. Conducting business with foreign banks will be difficult. All of which will contribute to the poor credit rating of the bank.
Reduce the Capacity of Loan Sanctioning
When a loan ceases to be in good standing, provisions must be kept against it. This limits the ability to sanction loans in the future because provisions must be kept from the profit portion, which could instead be invested using retained earnings.
What is the Cost of Producing Bank Cards for a Financial Institution in Nigeria?
The Apex bank: the Central Bank of Nigeria, oversees all monetary-related issues in banks, including the production of bank cards for financial institutions in Nigeria.
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