ABSTRACT
Banks occupy the most strategic point in the financial
system of the economy. For a total of
banks to between 1992 to 2002 a space of four years, means that somethings
definitely is wrong.
Certain question have been asked. Solutions proffered and prospects for the
future explained but none of them seems to have solved the problem.
This study is not antagonistic of any
other rather it is complementary. Others
works have been used here and duly acknowledged but everything is with an
intent to find a lasting solution to the issue of bank failure. The study was based upon data collected
through information sifted from books, journals annuals, periodicals. In conclusion it will be quite expedient to
point out that the Nigerian economy is still under developed one and will take
the astuteness of every singler Nigeria
to get it out of the doldrums.
It is only when the economy become
stable that we shall have a very stable banking environment where failures
might not be entirely absent but reduced to rate. The task is not only for the
authorities. Every one has as a role to
play.
TABLE OF
CONTENTS
TITLE PAGE
APPROVAL
PAGE
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF
CONTENT
CHAPTER ONE
INTRODUCTION
1.1
The background of the study
1.2
Statement of the problem
1.3
Objective of the study
1.4
Significance of the study
1.5
Limitations of the study
1.6
Definition of term
CHAPTER TWO
LITERATURE
REVIEW
2.1
Genesis of Banking in Nigeria
2.2
Similarities and differences among banks
2.3
Role of bank in economic development
2.4
The concept of bank failure
2.5
Cause of bank failure
2.6
Indices of bank failure
2.7
Effect of bank failure
CHAPTER THREE
RECOMMENDATIONS
AND CONCLUSION
3.1
Recommendations
3.2
Conclusion
Bibliography
CHAPTER ONE
INTRODUCTION
THE BACKGROUND OF THE STUDY
Over the last couple of
decades the Nigeria
financial system has grown remarkable.
From the almost crude form it was characterized with in pre-colonial and
colonial days. It has become so sophisticated
that economic experts today can proudly thump their chests. With due regard to ownership structure of the
institution, the regulatory framework, the instrument employed and number of
established institutions, Nigeria
can be said to posses the most sophisticated financial system in African.
Within the Nigerian financial system
itself, the banking institutions have been most remarkable in growth. This is just as well in any case considering
the critical position which they occupy in a complex financial position which
they occupy in a complex financial system which supplies the money and credit
needs of the economy.
The world bank nor banker is nether
used nor defined in the central of Nigeria (CBN) Decree No 24 of 1991 nor bank
and other financial institutions Decree (BOFIO)No 25 of 1991 but section 2 of
Bills of Exchange Act 1881 provides that “bankers include a body of persons
whether incorporated or not who carry out the business of banking section 2 (1)
of the Evidence Act defines banks banker to means “any person or persons,
partinership or company carrying on the business of bankers. Finally, the Banking Act of 1969, provides
that bank means any perons who carries out the business of banking and include
a commercial bank and an acceptance house.
The role of banks is thus an important
one in the process of economic development in the sense that they mobilize
funds from the surplus spending and for of the economy. In this way the increase the quantum of National
savings and investment. Secondly though
an appropriate investment multiplier, the volume of good and service produced
increase a result of investment projects financed by bank funds. All of which lead to a successful promotion
of an efficient system of payment, creating banking habits, development the
society and providing employment opportunities.
In view of these highlights, it
becomes easily comprehensible why the failure of a bank of a bank has far
reaching consequences. The ability of
banks to operate successfully rests upon how well the are able to obtain the
confidence of the public if that confidence is missing, the gap will be too
great for the banks to fill. The effects
of banks failure on the economic development of Nigeria can be expressed in an
nut-shell to be the following.
a.
Lack of effective and efficient financial intimidation
b.
Loss of public confidence in the system further
depression of the economy additional burden on the regulatory authorities
Escalation of social vices.
For
the sake of the citizenry and in the interest of economic development, there is
an expedient need to devise a host of remedying situation.
The fact that a bank fails today is
not to say that incidence is systemic.
There must be a number of wap out of any sad predicament.
The only crack is how well these
remedies are fruitfully employed such remedies would include.
a.
The cultivation of a stable political environment
b.
The strengthening of rgualtory agencies
c.
The taking over by regulatory bodies of all terminally
distressed banks
d.
Encouragement of banking education
e.
Sincere pursuit by government of all economic and
monetary polices.
f.
All regulations pertaining capital adequacy, minimum
paid up capital, liquidity ratio and asset quality should be reviewed in
relation to inflation rate.
g.
Privatization and commercialization of all government
owned banks.
h.
All debt owned bank by government (state, tederal and
even partientals) should be paid back immediately.
i.
All laws relating to bankruptcy and default should be
reviewed and made more function.
An
address like this will go a long way in remedying the situation and restoring
public confidence in the system.
1.1
STATEMENT OF THE PROBLEM
In light of the vital role which bank play in
developing the national economy in their capacity as vectors of fund for
savings, investment and employment opportunities it will be expedient to point
out that Nigeria
banking system in all its advancement and sophistication has not succeeded yet
in effectively achieving this mission.
The reason is not just one of the fact some banks have failed, but that
some.
Factors
have continued to meditate against the successful performance of banks. The problem of economic under development in Nigeria can
arguable traced to the fact that banks have note been as efficient as the ought
to be.
But them a
number of factors have been responsible for the conditions in which banks have
found themselves today. The effects of a
bank failure range from loss of depositors finds to loss of confidence (which
the spring board on which the business of banking) to a total lack of effective
financial intermediation, such as reduced lending to the prority sector of the
economy and a using incidence of distress in other sub-sector.
Then the
problem of bank failure is not peculiar to Nigeria. Neither is it peculiar to the third
would. It is universal and the caused
are generally in the same distinct categories.
The only difference lies in the
different ways which the situation can be remedied.
The causes
of bank failure are: incompetent management (both shareholder and management
executives) capital inadequacy, poor internal control, poor assets quality
competition and such factors as economic environment, socio-political
environment and government.
1.3 OBJECTIVE OF THE STUDY
The objective of this study
is to critically appraise “Bank failure and economic development. That is the impact which bank failures has
had on the development of the Nigeria economy with a view to highlighting the
implications on the depositors, the general public, the affected bank, the
entire banking industry and the general macro-economy. Subsequently an agenda will be portrayed as
to how the tide could stemmed and the situation tackled in an effective manner.
The study will go ahead to reveal the
prospects of banking in the future.
1.4
SIGNIFICANCE OF THE STUDY
The study
is significant in that a careful appraisal with an intent to reveal the genesis
of bank failures in Nigeria,
the root causes of bank failure, how to avert bank failure and in the event of
an inability to avert this how to deal with the situation effectively.
The study will be of immense benefit to scholars in the
field of banking, official of regulatory agencies and intellectuals in the
field of banking.
1.5
LIMITATION OF THE STUDY
The
sensitive nature of the topic made it very difficult for the researcher to
obtain some very vital information from banks a wind who asked that we direct
all questions to bank executives stationed at their head offices, as they were
not competent to speck on such matters.
To see their executive necessitated traveling great distance.
This had a telling effect on us financially and talk about
the attendent risks involved considering the state of our high ways.
Another constraint was that even the executive of known
banks currently under liquidation refuse to admit this and so kept a lot of
information from us, that is as regards briefs from the CBN and NOIC.
The most telling constraint however was time. The time on our hands was very limited. It was not very easy for use to lay our hands
on all the secondary data which we required for the study as the NOIC zonal
office in Enugu has not got a library and the CBN Library was not equipped
enough to our taste.
1.6
DEFINITION OF TERM
Some of
the technical terms that will be used in subsequent chapter will be thoroughly
defined in this sub-section in order to
facilitate assimilation of the content of the study capital adequacy. This is the ratio of classifies loans and
advance to shareholders finds asset quality.
This is
the proportion of classified loan and advance to total loans and advance
minimum capital ratio. The proportion of
capital a bank is meant to maintain in relation to risk assets.
Risk
asset: asset which by their nature are
prone to losses.
Liquidity
ratio: Ratio of liquid asset to total deposit liabilities.
Illiquidity: this is the mobility of a bank to meet its
liabilities as they mature for payment.
Insolvency: this is when the value of realizable assets
is less than total value of liabilities.
Liquidation: the taking over of the assets and liabilities
of bank by the regulatory agencies after the bank has been adjudged failed.
Holding
action: these are action which prohibit
or curtail certain activities of boards and management or certain activities
required of them to ensure bank safety.
REFERENCES
1. Cooper N.C. (1991) Monetary
theory and policy in an open
Economy,
Scandinavian Journal vol. 78
No12.
2. Alabi S. O. (1990) Bop
and Foreign exchange guardian
Financial
weekly 8.
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