Effect of Bank Failure on Nigeria Economic Development

Effect of Bank Failure on Nigeria Economic Development

CAUSES OF BANK FAILURE

The causes of bank failure all over the world manifest themselves in very dear and is Parterres. The only difference lies in the decree and intensity in each county. Specifically in an economy like Nigeria are the following cases bank failures.

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

CAPITAL INADEQUACY

The principal function of capital any bank is to serve as a means by which losses may be absorbed. Capital provide a cushion to withstand abnormal losses not covered by current earnings, this enabling the bank to regain equilibrium and regain a normal earning pattern. But unfortunately, a good number of bank do not see the expediency in adequate capitalization and are still grossly under capitalized. Many of them were set up with very little capital. Further more, with the high rate of gearty inflation this capital easily get eroded.

BAD MANAGEMENT

The quality of management can no doubt make an important difference between sound and unsound banks. Poor management has after resulted in excess risk taking operating expenses inadequate administration of loan portfolios are overtly aggressive growth policy to attract deposit and judgment which have all contributed jointly and severally cause failure in many banks.

INSIDER ABUSES

Bad practices by bankers which are ultrav the code of conduct of professional banking have also been know to cause bank failure. It is ho longer a secret that two insidious who strategically placed in a bank can bleed that bank to  failure the insoles who usually in this bleaching are called the cowboys of banking industry.

WEAK INTERNAL CONTROL

Internal control system are supposed to act as internal checks and balances. Where this is either weak or non-existent the cowboys will have a field day.

ECONOMIC DEPRESSION

This general economic depression has been very bad for business generally. Borrowers are unable to repay their loan leaving banks in red financial incapacitation the value of the naira rate of inflation fluctuates in interest rate low GOP have all contributed jointly or severally or both in ceasing bank failure.

SHAREHOLDER INTERFERENCE

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

EFFECT OF BANK FAILURE ON NIGERIA ECONOMY

The consequence of bank failure according to Ologun (op. col) are as follows:

i.        Loss of effective and efficient intermediation

ii.       Loss of public confidence in the system

iii.      Further economic depression

iv       Additional burden or regulator bodies

v.       Escalation in social vides.

LACK OF EFFICIENT AND EFFECTIVE INTERMEDIATION

Bank serve intermediaries between the simples and 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 and ensures the efficient utilization of such resources in the promotion of economic growth and development Ologu (Op. col).

When banks fail, they cease to carry out this function and a gap is created within the system.

LOSS OF PUBLIC CONFIDENCE IN THE SYSTEM

Trust and confidence have been known from ages to be the cornerstone of banking. Banking can only thrive when the confidence of the public exists.

Bank failure usually leads to the refused of the public to banks their money the effect of this is negative to banks people would prefer to dig holes behind their homes to store away their money, for they believe it is a better evil than keeping your money in a bank that may fail tomorrow.

FURTHER ECONOMIC DEPRESSION

The economy is further depressed by bank failure as companies can not obtain necessary credit facilities to expand factories remain dosed, foreign investment diminish while capital flight from the country continue unabated as return on investment, become very unattractive.

ADDITIONAL BURDEN OR REGULATOR BODIES

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

ESCALATION IN SOCIAL VIDES.

From the analysis of effect outline above. It becomes dear that such problems as unemployment will occur due to retrenchment inflation will increase the labour market will be saturated. In this state, the devil easily finds work for the idle hand there would be increase in social vices…………………………………

—-This article is not complete———–This article is not complete————

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