THE IMPACT OF BANK FAILURE IN NIGERIA ECONOMY

THE IMPACT OF BANK FAILURE IN NIGERIA ECONOMY

ABSTRACT

The aim of this research study is to analyze and ascertain the extent to which fraud and poor management contributed to bank failure through a careful analysis of banking industry with a particular reference to the presently embattled Savannah Bank of Nigeria Plc. whose operating license was recently revoked.

Chapter one examined the historical development of banking in Nigeria, recognizing the catalytic roles of the business of banking in the economy, together with other introductory analysis on the extent of bank failure and fraud and their effect on the development of banking business in Nigeria.

In chapter two, an overview of bank failure in Nigeria economy was made. Emphasis were laid on their genesis, caused (fraud and poor management), control issues involved in bank failure management. Particular attention was drawn on the impact of banking business in the overall development of the people, and economy and the implications of its failure. The controversy surrounding the revocation of the operating license of Savannah Bank Plc and the prospects of banking business were also treated.

In chapter three, the research narrated how the various data for this study were collected and which informations were used with a view to realizing the objectives of the study.

In chapter four, tables of percentages were used to present and analyze the data collected and which information were used with a new to realizing the objective of the study.

In chapter four, tables of percentages were used to present in analyze the data collected while chi-square method was used to test the postulated hypothesis.

Finally, in chapter five, a critical analysis of the research study revealed that bank failure in Nigeria are attributable principally to fraud, poor management team and adverse economic conditions among other institutional and non- institutional factors. However, it was recommended among other things that due to the peculiar and strategic position of the banking industries and their synergistic effects of change arising. Therefore government should closely monitor the activities of bands through their agencies/regulatory authorities without necessarily politicizing their mandate Banks should equally strengthen their internal control measure. Moreover, if the regulatory authority saddle with the responsibility of managing industry keep an eagle in the industry’s activities, it will stem the tide to bank meddling with the fortunes of depositors shareholders and other interested parties and forth overall benefit of the economy. This is in view of the catalytic role of banking business in the economic confidence in the banking public. Further research on very relevant linked area of the research topic was also suggested by the research. This is in view of the dynamism, and inexhaustibility of the topic of study.

CHAPTER ONE

1.0   INTRODUCTION:

1.1   BACKGROUND OF THE STUDY

One of the indices for measuring the development of an economy is the size, maturity and safety of its banking industry. This is because the banking industry plays a very important role in the mobilization and utilization of investible resources (financial) in the economy. It acts as the intermediary units of the country through a process of “financial inter-mediation”. The absence of a market for which can greatly reduce the growth of economic activities; its business activities are catalysts for economic development.

The Nigeria banking industry at the movement appears to be the verge of collapse. The banking public seems to have cost confidence in banking and chances are that this erosion of confidence may not be reversed unless the regulatory agencies. The central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) rise up to the challenge.

It was the belief by the government that the banking crisis of the 1990s was caused mainly by fraud that to the promulgation of the failed banks (Recovery of Debts) and financial malpractice’s in Banks Decree Number 18 of 1994 (failed banks Decree). It is however difficult to justify the draconian nature of the failed bank Decree and its implicit assumption that fraud was a major cause of the banking crisis licenses withdrawn by the C.B.N ON account of sharp practices. In other words while it is true that the monumental growth in the number o registered banks may have led to increased fraud, it is unlikely that it was the sole cause of the subsequent banking failures. There is no doubt that fraud has exasperated a desperate situation in the Nigeria Banking sectors. Fraud and embezzlement are not widespread. Both the government and the central Bank are unturned in the fraud and crises jamboree. Furthermore, fraud in itself may not be a sufficient condition for a banking crisis. The researcher submits that extremely bad management may not prove fatal to a bank until adverse economic conditions led to unexpected capital outflows or loan losses. Thus even if every bank which failed is judged to have suffered from mismanagement or fraud, or operated in a over populated banking market, it may well be the case that adverse economic conditions will be the proximate causes of many bank failure.

The NDIC implicitly agree with the above submission in a circular dealing party with current banking crises in Nigeria. It concluded, “the revival of the banking system would entail strong political will that should allow for the adoption of the appropriate failure resolution option, based on the technical judgment of the regulators. Finally and most importantly, a successful restructuring of the banking system would entail a stable macro-economic environment with little relative price distortions that would ensure a sustainable growth for the economy”.