Banks occupy the most strategic
point in the financial system of the economy. For a total of banks to fail
between 1992 to 2002 a space of four years means that something definitely is
wrong. Certain question have been asked. Solution proferred and prospects for
the future explained but none of them seems to have solved the problem.
This study is not autagonistic of any other rather it is complementary other
works have been used here and duly acknowledge but everything is with an intent
to find a lasting solution to the issue of bank failure.
The major findings include inadequate attention is accorded the unorganized
private sector in favour of the organized private sectors (especially the
Merchant banks) a consistent erosion of their capital base due to the
inflationary trends in the economy not enough attention is research and
development not enough attention is accorded staff training the problem of bank
failure is not systemic, it is only a few banks in industry that have failed,
lack of technical expertise in most banks the fact that most bank promoters
only set out for initial capital instead of appropriation and compatible
follows poor internal control systems and finally banks are currently in
To this effect the following recommendation were presented. Bank should
maintain proper internal control system, emphasis more emphasis on research and
development, none emphasis on staff training, maintain paid up capital
structures that will be relevant to inflationary trends, government should
ensure that there is an enabling environment, promoters of compatible status
and management should be of high technical skill ability and dynamic.
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 single
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 failure might
not be entirely absent but reduced to rate. This task is not only for the
authorities. Everyone has a role to play.
TABLE OF CONTENTS
The background of
Significance of study
Review of Related
Genesis of banking in
Type of Banking in
Similarities and differences among
Problems faced by
The concept of bank
Sources of secondary
1.1 THE BACKGROUND OF THE
Over the past couple of decades the Nigeria financial system has grown
remarkably. From the almost crude form it was characterized with the in
pre-colonial and colonial days. It has become so sophisticated that economic
experts today can proudly thump their chestc. With due regard to owners if
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 neither used nor defined in a central of Nigeria
(CBN) Decree n0. 24 of 1991 nor bank and other financial institution 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.
One of the evidence Act defines banks banker to means “any person or persons,
partnership or company carrying on the business of bankers.
Finally, the banking Act of 1969, provides that bank means any person who
carries our the business of banking and include a commercial bank and an
The role of banks is this an important one in the process of economic
development in the sense that they moblise funds from the surplus spending and
for of the economy. In this way the increase the quantan of rotational savings
and investment. Secondly, though an appropriate service produced increase a
result of investment projects financial by bank funds. All of which head 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 for reaching consequences. The ability of banks to
operate successfully nests upon how well are able to obtain the confidence of
the public if the 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 a nut-shell to be the following.
Lack of effective and efficient financial intimidation.
Less of public confidence in the system further depression of the economy
additional burden on the regulatory authorities escalation of social viacse.
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 number of way out of any sad predicament.
The only crack is how will these remedies are fruitfully employed such remedies
The cultivation of stable political environment.
The strengthening of regulatory agencies
The taking over by regulatory bodies of terminally distressed banks.
Encouragement of banking education
Sincere pursuit by government of all economic and monetary policies.
All regulations pertaining capital adequacy, minimum paid up capital liquidity
ratio and assist quality should be reviewed in relation to inflation rate.
Privatization and commercialization of all government owned banks.
All debt owned bank by government (State Federal and even parietals) should be
paid back immediately.
All laws relating to bankruptcy and default should be reviewed and made more
An address like this will go a
long way in remedying the situation and restoring public confidence in the
1.2 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 the Nigeria banking system in
all its advancement and sophistical 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 banks.
The problem of economic inorder-development in Nigeria can arguably traced to
the fact that banks have been responsible for the conditions in which banks
have found themselves today. The effects of a bank failure range from loss of
depositors funds to loss of confidence (which the spring-board on which the
bank business of banking) to a total lack of effective financial
intermediation, such as reduced lending to the priority sector of the economy
and 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 world. It is visal universal and the caused are generally
in the same distinct categories. The difference lies in the different ways
which the situation can be remedied. The causes of bank failure are:
incompetent management both shareholder and management executive) capital
inadequacy, poor internal control, poor asset quality competition and such
factor as economic environment, socio-political environment and government.
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 depositions. The
general public, the effect bank, the entire banking industry and the general
macro-economy, subsequently an agenda will be portrayed as to how the tide
could be stemmed and the situation tackled in an effective manner.
The study will go ahead to
reveal the prospect of banking in the future.
1.4 SIGNIFICANCE OF THE STUDY
This study is significant in that a careful appraisal with an intent to reveal
the gensis of bank failure how o avert bank failure and on the event of an
inability to avert this how to deal with the situation effectively.
The study will be of immense benefit to scholar in the field of banking,
official of regulatory agencies and intellectual in the field of banking.
1.6 DEFINITION OF TERM
Some of the technical terms that will be used in subsequent chapter will be
thorough defined in this sub-section in order to facilitate assimilation of the
content of the study capital adequacy. This is the ratio of classified loans
and advance to shareholder 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
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
nature for payment.
Irosolvency: This is when the value of realizable assets is less than total
value of liability.
Liquidation: The taking over of the assets and after the bank has been adjusted
Holding action:These are action which prohibitor curtail certain
activities of boards and management or certain activities required of them to
ensure bank safety.
TERMS AND CONDITIONS APPLY
For more informations on project materials and more