THE SOURCE AND APPLICATION OF FUNDS TO A COMMERCIAL BANKING SECTOR
(A CASE STUDY OF ACCESS BANK PLC,)
 ABSTRACT
This project work examines the sources and application of funds in a commercial banking sector with a particular reference to Access Bank Nigeria Plc.  This is an attempt to explore and reveal the extent to which the bank is sourcing its funds and how it uses those funds so generated in achieving the bank’s goals and objectives with a particular reference to laid down accounting principles and Central Bank’s Prudential guidelines on commercial banks.  Also to include is the review of related literature, text books, magazine, newspapers, journals and even the proper website on the internet will be browsed for easy reviews, analysis and down loading of current related information for the project work.  The study will also include the various ways and method of data collection i.e. primary and secondary sources through interviews, observations and examination of existing banks records.  The major difficulties to be encountered in the course of this project are time and financial constraints as collection and analyzing of data requires a lot of time, to pay regular visit, to the venue of the case study, attending lectures, writing of assignments and quiz, visiting the cyber café for internet browsing and also attending one’s domestic responsibilities.  Financial requirements such as production and distribution of questionnaires, transportation and binding of the project work expenses forms the major limiting factors to the project work.  The research study will also highlight the need for prudential management and project accountability with good policies on loans and advances as the way for the bank to acquire maximum liquidity and affective application for the accrued funds by customers and shareholders.  The challenges of the modern banking in a global trend and proper solutions and recommendations for the bank development, investments and enhanced customer relations will also be highlighted.
 TABLE OF CONTENTS      
CHAPTER 1: INTRODUCTION
Background of the Study                  
Historical Background of Access Bank PLC.       
Statement of the Problems
Objective of the study
Significant of the study           
Scope and limitations of the study    
CHAPTER 2: REVIEW OF RELATED LITERATURE
Introduction     
Share capital                  
Loan stock and debentures      
Preference shares           
Retained earnings
Utilization of funds        
CHAPTER: RESEARCH DESIGN AND METHODOLOGY
Introduction                            
Description of Research          
Description of Population       
Sample of the Study      
Description of investigation Technique      
Data Analytical Procedure      
CHAPTER 4: PRESENTATION OF DATA
Analysis of data   
Interpretation of Data             
Testing and prove of hypothesis and findings     
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATION
Summary             
Conclusion           
Recommendation
References            
CHAPTER ONE
INTRODUCTION
Background of the Study
The source of funds in an organization denotes the various ways in which cash inflows to operate the business is realized.  The followings are some of the ways cash came into a business:-
Through an increase in liability
Through an increase in net worth
Through a decrease in asset
Through a net profit after tax
Though sales of shares, preferred or common stock
It also shows ways an extra money comes into the organization through consultancy services, borrowing in form of loan.  Summarize sources of funds to any organization devotes all the ways money comes into an organization for its operational utilization and for achieving its stated goals and objectives.  However for an organization to thrive well it must also spent money to achieve its stated goals and objectives, thus application of funds refer to the various ways the sourced funds are put to usage in order to increase the value of fixed or working capital.  The followings are the various ways funds can be put to use;
Where there is an increase in assets
Where there is a decrease in liability
Where there is a payment of cash dividend
When shares are purchased
Where there is a decrease in Net worth.
Having explained the meaning of sources and application of funds in a financial institution, it will be good to see what accounting bodies say about the same subject matter.  The Accounting Standard Steering Committee (ASSC) in their Standard Accounting Practice No. 10 (ASSAP 10) requires that all firms with an annual turn over of gross income of N25, 000 or more should produce funds statement.  In its explanatory notes it describes the statement and principles underlying its preparation as follows.
 That the profit and loss account and the balance sheet of a company should show the amount of profit during the year, and the disposition of the company’s resources at the beginning and the end of that year.  But for a more understanding of the company’s affairs, it’s necessary to identify the movement of assets, liabilities and capital which have taken place during the year and the effect of such movements on the net liquid funds.
The above statement is not specifically stated in the balance sheet or profit and loss accounts but rather can be made available in form of statement of sources and application of funds (fund statement).  
Though the fund statement is in no way a replacement for the profit and loss account or the balance sheet, but yet it contain in summary form the information contain in the two above.  The objective of such statement is to show the manner in which the operations of a company are financed and the format selected should be designed to achieve this objective.
A fund statement should be able to show the resources from which funds flow into the company, and the way in which they are put to use.  It should clearly show the funds generated or absorbed by the operation of the business and the manner in which any resulting surplus of liquid assets have been applied or any deficiency of such assets has been financed where by distinguishing the long term from the short term.
The statement should also distinguish the use of funds for the purchase of fixed assets from funds used in increasing the company.  The fund statement will provide a link between the balance sheet at the beginning of the period, the profit and loss for the period, and the balance sheet at the end of the period.  A minimum netting off should take place as this will tends to mark the significance of individual important figures for example the sale of one building and the purchase of another should generally be kept separate in a funds statement.
The figures from which a fund statement is constructed should generally be identifiable in the net profit and loss account, balance sheet and all related accounts or notes.  Furthermore the fund statement should show:
The profit before tax or loss for the accounting period together with adjustment for items, which did not use funds or provide funds e.g. depreciation.  The individual paid and those proposed to be paid.
Acquisition and disposal of fixed and other non-current assets.
Fines raised by increasing or expending in repaying or redeeming medium or long term loans or issued capital of the company.
Increase an decrease in working capital sub-divided into its components and movement in net liquid funds.  Net liquid cash means cash at hand and at bank, less bank over drafts repayable within one year.
Increase in liabilities and decrease in assets in liabilities is regarded as a source of funds, while decrease in liabilities and increase in assets are regarded as application.  Some of the functions of commercial banks includes the following.
i)         Acceptance of Deposits
On current account:-  In this case the money is with drawable by cheque on demand.  There is no interest payable to the customers on this account. The Access Bank current is a flexible account that offers the customer a lot of new modern banking services either in person, online, or by phone.  Access Bank operates the following types of current accounts.
Individuals
Joint account
Corporate account
Non governmental organizations
Sole proprietorship/enterprise account
Partnership account
Trustees/executers/administration account
Unincorporated societies, club and association account
ii)        Savings Deposit Account:-  This is also an interest yielding account, where customers are only allowed to withdraw money by using a pas book and also allowed to deposit using the same pass book or the bank teller.
The Access Bank Savings Account attracts a competitive interest rate which is paid monthly on the full closing balance.
The features of the account are as follows
Zero Cots    
Quarterly statement of account transactions
No invoice for withdrawals
Withdrawal and deposits from any of their branch.
Statement of transaction on request.
It also offers electronic banking, which includes Internet Banking, Telephone Banking, and Mobile Banking to enable customers’ access to their account from just about anywhere.
iii)       Domiciling Account:-  These are accounts maintained in currencies other than the Nigerian naira, the accounts are essential to the business operations of entrepreneurs due to the sizing global business challenges and opportunities.
Access bank domiciliary accounts carryout the following transactions:
Telegraphic fund transfer to Third party Own
Withdrawal of foreign currency cash and travelers cheques.
Deposit of foreign currency cash and travel less cheques
Choosing of foreign currency cheques and foreign currency draft issuance
Lotlers of credit
The Access Bank Domiciliary Account supports the following currencies
US Dollars
British Pounds
Starling Euro
The minimum opening balance for the Access Bank Domiciliary Account is five hundred US Dollars (US$500) or its equivalent in Euro es Pounds Starling.
iv) Long Term Financing
Access Bank supports their customers in the attainment of their long term business, by providing of a broad array of financing options to suit their particular requirements.  This is particularly handled through the followings:
Term loans
Project finance
Syndications
Note issuance facility
v)        Products and Services
At Access Bank, there is an extensive range of products and services tailored provide a value added banking solutions ranging from day – day transactional banking and complex financing structures, to help customers achieve all the products and services they need in obtaining liquidity, strong finding reduced capital costs and stronger balance sheets.
Other services Include:
Cash management
This is carried out through;
Access Bank collection services
Access Bank Payment Solution
Access bank in liquidity management solutions
Access bank in correspondent banking services
Access bank information solutions
Electronic banking
Access Bank provides the customers with an easy and component ways to carry out their banking at the comfort of their homes and offices
vi)       Working Capital Financing
At Access bank customers are offered with a wide rang of working capital financing to enable them meet up with their short-term financing needs.  The above services is obtainable through the followings:-
Drawing against undeared bank cheques
Overdraft facilities
Revolving credit facilities
Invoice discounting
Distributor credit plans
Trade finance
And leases
Historical Background of Access Bank
Access bank was incorporated on 8th February, 1989 as a privately owned commercial bank.  It obtained a banking license in December 1988 and commenced business on 11th May, 1989.  The bank was converted to a public limited liability company on 24th December 1998 and was listed on the Nigerian Stock Exchange on 18th November, 1998.  In December 2001, Access Bank was successfully recapitalized and the bank’s board of directors appointed the current executive management team with a clear mandate to reposition the bank as one of Nigeria’s top five (5) banks by the year 2007.
Since the new team lead by Mr. Aigboje  Aig-Imoukhede (MD/CEO) and Mr. Herbert Wigwe (Deputy MD) assumed office, the bank has witnessed a movemental change  in all facets of its operations.
The new Access Bank is well positioned to become Nigeria’s leading provider of financial services, by providing its customers with banking services and solutions that exceeds their expectations and helping them manage their business more effectively.
i)         Business
Access bank is engaged in the provision of universal services to corporate, commercial and individual customers.  Within the first year of its five year transformation program, the bank recorded over N1 billion in pre-tax profits for the 2002/2008 financial year exceeding the total cremelative profits made by the bank since inception.  It is for this reasons amongst others that Access bank shares were the most actively traded stocks on the Nigerian stock exchange in year 2008 and the bank was nominated as “Bank of the year 2008” by This Day News Paper.
The bank maintained this outstanding performance in its 2008/2009 financial years and was ranked 5th in terms of total assets from a lowly 65th in 2001.  in recognition of its strong operating performance, the bank was conferred with an “A” rating by the Global Credit Rating Company (GCR).
ii)        Technology
Success in the highly competitive financial services sector often depends on the speed with which an organization reacts to opportunities and market changes as at and when due.
In October 1999, Access Bank became the first Nigerian bank to deploy the Flexcube Banking Application to Support its banking operations.  Flexcube is an end-to-end, integrated product suite for universal banking.  Flexcube has evolved over the years in response to changes in global financial world.  The most recent version is Flexcube 6.2 “a state of the art universal banking solution”.
Consistent with the bank’s desire to bring world class banking to customers and after an extensive due diligence review by KPMG international, the bank took a bold decision to upgrade its existing Flexcube application to the latest version 6.2, a browser enabled version.  This ground-breaking upgrade positions access bank as the first bank in Africa to implement the latest version of Flexcube and the second most advanced Flexcube user in the world after one of India’s biggest banks – Syndicate Bank.  In recognition this the bank recently received the Hewlett Packard for the best implementation of a core banking infrastructure in West Africa.
iii)       Value Added Services
The bank defines value as the ability of its products and services to deliver cost savings to its customer’s board in the course of the year approved a charter on the bank’s internal audit.  The charter isolates and insulates the Internal Audit Department from the control or influence of the Executive Management and also frees staffs within the Internal Audit unit from operational and management responsibilities that could impair their ability to make independent reviews of all aspects of the banks operation there by making the department independent.
v)        Financial Summary
The financial summary presented below is extracted from the reporting accountants report on the profit forecast of access bank for the years ending 31st December, 2005, 2006 and 2007, assuming the offer is fully subscribed, and the reporting accounting’s report on the audited financial statement of Access Bank for each of the five year ended 31st December, 2009.
Profit Before Tax (PBT)
The bank’s PBT for the year ended 31st December 2009 was N952 million, representing a 17% increase over the previous year’s PBT of N811 million.  The bank’s PBT is projected at N2.02 billion, N4.89 billion, and N7.85 billion for the years ending 31st December 2005, 2006 and 2007 respectively.
Profit After Tax (PAT)
The bank’s PAT for the year ended 31st December or increase their capacity to generate more revenues.  The bank has hosted several sector forums to enable existing and prospective customers learn about best practices, share experiences with pears, and freely interact with regulators and policy makers.  These interactions have had significant positive impact on customers business.
The bank also collaborated with Nigerian Maritime Authority to develop a functional framework for implementation of the newly enacted sabotage legislation.  Local shipping companies, as beneficiaries of this legislation have confirmed that the implementation framework completely addresses the operational and funding issues the law intends to resolve.
At significant financial cost to the bank, it engaged, a local software developing company to incubate “cliuc”, which is a software application that allows customers to reconcile their bank statements in seconds.  The not only made this software available to customers but its free of charge and the bank also bears the cost of installation and training of their employees.    
iv)       Corporate Governance
Access Bank has imbibed the highest standard of corporate governance and best practices.  In line with the bank’s quest to maintain the highest standards and ensure the independence of the internal audit, the 2005, 2006 and 2007 respectively is projected at N1.56 billion, N3.76 billion and N6.05 billon respectively.
As at 31st December 2009, Access Bank’s total assets stood at 31.34 billion representing a 39% growth over the previous years total assets of N22.58 billion.
vi)       Shares
At present the authorized share capital of the bank stood at N6 billion comprising 12 billion ordinary shares of 50k each, while its issued and paid up share capital is N2 billion comprising of 4 billion ordinary shares of 50 kobo each.
vii)      Nationwide Spread
Access Bank’s Head Office is situated at Plot 1665 Oyin Jolaefemi Street, Victoria Island Lagos Nigeria’s commercial capital.  Access Bank has in excess of 118 bank branches in Nigeria’s major commercial centers
The Chief Executive of the bank is the Managing Director, who is accountable to the Chairman Board of Directors for the overall running affairs of the bank.
The current Board of Director of the bank is permanent Nigerians as follows.
1.         Mr. Aigboje Aig – Imoukhuede     -           Chairman
2.         Mr. Herbert Wigwe              -           Deputy MD
3.         Mr. Taukeme Edwin Koroye          -           Executive Director OPS
4.         HRH Oba Shafi Sule                        -           A Non Executive Director
5.         Dr. Cosmos Maduka                        -           A Non Executive Director
6.         Mr. Gbenga Oyeb ode MFR            -           A Non Executive Director
7.         Mr. Adekunle Disu              -           A Non Executive Director
8.         Mr. Oritsedere Samuel Otubu        -           A Non Executive Director
Statement of Problems                        
(a)       The uncertainty due to lack of strong assets base of some financial institutions in the country and the lack of political stability since 1993 has negatively affected the nation economic performance, the effect of the above has lead to the unwillingness of the wealthy individuals to invest their money, and also the massive movement of people and their goods from one geographical zone to another in the country due to political, sectarians and religious crises, the like not experience since the late sixties, has also lead to restriction s in the volume of protective economic activities.
 Therefore as a result of all these the research work has been directed to explore whether or not this situation has any effect on the sources and application of funds in the bank.
(b)       The major reason of government equity participation especially in banking services is to enable government control the commanding heights of the economy and get closely involve in all the banking activities, so as to arrest the problem of distress banks that has become a common phenomenon in Nigeria, hence the N25 billion bank capitalization requirement announced by the CBN Governor in July 2009, and other financial commissions e.g. (E.F.C.C.) ie. The Economic and Financial Crimes Commission Act 2009.
Therefore to what extent has these government  efforts affected the bank’s sourcing and funding its business.
(c)       Banking industries has now, due to globalization become highly competitive and challenging in Nigerian.  Therefore to what extent has the management performed effectively in the emergent competitive and challenging market environment, so as to adequately financed their banking business.
(d)       There is also the problem of credibility and public confidence in the operations of financial institutions, especially the banking sector of the economy.  Ramparts cases of frauds and financial mismanagement have marred the progress of many banks.  This project wants to appreciate the situation and recommend ways to combat such lapses.  Other problem question which are likely to arise are:
How can problems of loans be predicted
Did customers received due attention from the bank
Do banks incure a very huge amount of debt
What is the effectiveness of Federal Government Monetary policies measured on capital finance of banks
How proper funding and application of the bank’s sourced fund helped in the economy of our country.
What are the impact of Federal Government fiscal policies on the sources and application of funds of a bank of this nature?
Objective of the Study
The optimum aim of any profit making organization is to make profits and also service the community in which it was established and therefore obtain the maximum profit obtainable, commercial banks are therefore not left out in this regard.
It is when an organization is financially sound that individuals, other organizations and the government will become interested to invest in such organization.  In time with the problems stated earlier in 1:2 above, many people keep away form commercial banks activities and this is what prompts the researcher a commercial bank sources its funds and the various ways those sourced funds are expended.
This study is also aimed at trying to show the profitability level of the banks and how such funds are utilized.  This study will also urge and suggest the most suitable ways of investing surplus funds that accumulated.  Various monetary policies will be studied together with both the political and social sphere of the business environment.
Significance of the Study
This project work is intended to play a vital role in the monetary endeavours of financial institution of this kind.  First and foremost the findings of this research work will tremendously contribute to Access Bank Nigeria Plc. and other banking industries towards improving their sources of funds, and finally adopting the most effective way(s) to apply or extend such funds.
Another important and significant of the research work is to broaden the researcher’s knowledge and experiences, coupled with the advantage of practically meeting with various people who are professionals in their field.  The research work will be of benefit to others (third party), as its intended to provide an indepth knowledge and information as to how the banking normally sourced and apply their funds.
Moreover, the research work will give room to good decision to be taking as regards investment in the commercial banking sector more especially Access Bank, as the decision will be availed with all the necessary information he will required to base his judgment on either investment will be profitable or not.
Scope of the Study
The scope of this project work is to cover all possible/legal sources of funds to a commercial bank and, all the effective or best ways such funds will be applied, in order to safe guard the shareholders funds and hopefully make profits.
However, its obvious that in carrying out a research of this kind, the researcher is bound to be faced with some constraints which includes time constraints, constraints into having access to vital information from the organization concerned and which are necessary from the work, and also the financial ability of the researcher to source for funds to carter for the research expenses.
For those of us that are workers, the project work really present to us a conflict of interest i.e. between our responsibilities as workers and that of our studies (research work), therefore as a result one hardly has enough time to deront to the project work alone, but rather to have some sort of compromise between the two.
 Consequently writing the series of quizzes and assignments, which one is subjected to, and which will be recorded to form part of the final assessment for the award of National Diploma ND in Banking and Finance.  This means that one has the conflicting roles of writing the project and as well preferring for final exams.
The cost effect of data can not be left  out, as one is always asked to comeback the following day due to lack of time to have interview with the top management of the bank,  and of course involves money, bearing in mind economic conditions of the country.
The researcher due to lack of readily available materials for the project work from the bank concerned, resorted to the use of the INTERNET were journals, historical background of the bank etc.  were browsed, downloaded into temporary storage device, and finally printed into hard copy, which indeed require a lot of money to buy time, storage device, printing the hardcopy and the computer knowledge to do all these.