Bank Failure in Nigeria – A Critical Appraisal

Bank Failure in Nigeria – A Critical Appraisal

THE CONCEPT OF BAKING FAILURE

Bank Failure in Nigeria – This means the unsuccessfulness in the attempt of archiving any set objective or inspiration. Another variance is the inability, weakness or fault, which prevents the achievement of any set objective or inspiration.

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Both of the draw attention to the word unsuccessful “inability, refusal, fault, weakness: bank failure is the inability of the bank to meet up with its customers demand, owners and the economy occasioned by fault and weakness in its operation which has rendered it liquid first and later insolvent. Within this broad definition also include the refusal of the board of management to adhere to a set of rules and approved procedures in the banking system. The effect of which has precipitated the collapse of banks (Ologum, 1994) bank failure is neither new nor peculiar to Nigeria; in fact, the phenomenon is almost as old as the industry.

CAUSES OF BANK FAILURE

The cause of bank failure all over the world manifests them in every clear and identical pattern. The only different lies in the degree and intensity in each country. Generally, the following are the cause of bank failure

  1. Inadequate capital
  2. Bad management
  3. Insider abuse
  4. Weak internal control
  5. Economic depression
  6. Shareholders interference.

CAPITAL INADEQUACY

The principal faction for capital in any bank is to serve as a means by which loses can be adsorbed. Capital provides a caution to withstand abnormal loses not covered by credit earning. This will enable the bank to regain equilibrium bad a normal earning pattern. But unfortunately, a good number of banks do not see the in adequate capitalization and there is still grossly undercapitalized. Many of them were set up with very little capital. Furthermore, with the high rate of yearly inflation, this capital easily gets eroded. The problem of inadequate capital by the incidence of non-performing loans.

BAD MANAGEMENT

The quality of management can no doubt make a great different between sound and unsound banks. Poor management has after result in exceeds risk taking operating expenses, inadequate administration of loans portfolio and overtly aggressive tendencies to attract deposit and profit. These have jointly contributed to cause on failure in many banks.

INSIDER ABUSE

Bad practice in the bank that attracts the code of conduct in professional banking has also contributed to the bank failure. It is no longer a secrets that two insiders who are strategically placed in a bank can bleed that bank to failure. The insiders who are usually involved in the bleeding of the industry are called the cowboy of the banking industry.

WEAK INTERNAL CONTROL

Internal control systems are supposed to act as internal check and balances. Where this is weak or non-existence, the cowboy will have a field day.

ECONOMIC DEPRESSION

These generally economic depressions have been very bad for the business generally. Borrower is unable o repay there loan living the banks in a real financial incapacitation. The value of the Naira rate of inflation, fluctuate in the interest rate have all contributed to jointly and severally to both the ceasing bank failure.

SHAREHOLDERS INTERFERENCE

The Nigeria factor is felt very well here. In this case every shareholder fills that the stake he has in a bank is enough for him to make drawings, approve or influence loans for friends or relation, employment or generally interference with the day to day running of the bank. This has often proven disastrous.

Other cause s are cost of copping with the regulatory requirements, ineffective banking laws, statutory restoration placed on the activity of the banks, liquidity mismatch between asset and liability or poor asset quality.

INDICES OF BANK FAILURE

Benson et al (1986) remarks a bank failure means a complete (or close to complete) lose to shareholders, combine with a cessation of independent operation or continuance only the virtue of financial assistance.

A distressed bank is one suffering from an insolvent or an illiquid condition or both. When the condition persists, that bank is said to be terminary distressed or subsequently declared failed bank.

These indices of distress are as follows;

  1. Negative net interest magine, inadequate cash reserves or marketable assets.
  2. Negative capital and reserves
  3. Increase in non-performing loans
  4. Large volume of volatile deposits
  5. Management squabbles (when these are consistence
  6. Negative examinable comments
  7. High staff turn over
  8. Inadequate loan policies
  9. Distressed bellowing

When this sontons persist in a bank to a terminary distressed states, which invariably are failures.

EFFECTS OF BANK FAILURE

The consequences of bank failure according to Ologum (Op.Cot) are as follows;

  1. Lose of effective and efficient financial intermediation
  2. Lose of public confidence in the system
  3. Further economic depression
  4. Additional burden or regulators bodies
  5. Escalation in social vices

LACK OF EFFICIENT AND EFFECTIVE INTERMEDIATION

Bank serves intermediaries between the simple and the deficit unit of the economy. This role gives them a unique position in the smooth working and overall development of the economy. Banks are expected to mobilize financial resources n the promotion of economic growth and development, Ologum (op. Cot). When banks failed, they ceased to carry out this function and a gap is created within the system.

 LOSE OF PUBLIC CONFIDENCE IN THE SYSTEM

Trust and confidence has been known for ages to be the canner stone of banking. Banking can only thrive when the confidence of the pubic exist. Bank failure usually leads to the refuse of the public to bank their money. The effect of this is negative to bank. People will prefer to dig hole behind there home to store their money for they believe it is a better ends than keeping your money in a bank that may fail tomorrow

FURTHER DEPRESSION OF THE ECONOMY

The economy is further depressed by bank failure as companies cannot obtain necessary credit facility to expand production, factories remains closed, foreign investment diminishes why capital continue unabated as return on investment become very unattractive.

ADDITIONAL BURDEN ON REGULATORY BODIES

The burden of liquidation and indemnifying depositors in the event of a bank failure is enormous for the regulatory bodies and divers their attention form serious banking issue in the economy.

ESCALATION IN SOCIAL VICE

From the analysis of the effect outline above, it become clear that such problems as unemployment will occur due to retrenchment, inflation will increase, labour market will be saturated. In this state, the devil easily finds work for the idle hands in other work, there will be increase in the social vices.

 

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  This article was extracted from a Project Research Work Topic

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Bank Failure in Nigeria – A Critical Appraisal

 

To purchase complete Project Material, Pay the sum of N3, 000 to our bank accounts below:

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Comments

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