Bank Fraud And Its Effects On Nigeria Economy

Project and Seminar Topics with material for Banking and Finance

Bank Fraud And Its Effects On Nigeria Economy


This work analyzes and examines the effects of banking fraud on the Nigerian economy. In recent years, frauds in Nigeria banking sector seemed to have assumed a frightening dimension and to a large extent, the confidence the general public reposes in it, is put in jeopardy. The scope of the study is 1995 to 2014. Secondary data is being used for the study. Regression analysis and SPPS application soft ware is being used for data analysis. The study reveals that bank fraud have negative and significant effects on the growth of Nigerian economy. The ability of banks to promote growth and development in any economy is a function of the extent to which financial transactions are carried out with trust, confidence and least risk. These no doubt requires a safe and sound banking practice which many of the banks in Nigeria today have despised to their own peril. The study recommends that the regulatory authorities of banks in Nigeria need to improve on their supervision, careful when recruiting employees, wonderful results alone is not enough, but fear of God and integrity of employees should be considered. The research concludes that the battle for the preclusion, uncovering and retribution of fraud offenders must be fought to reduce the temptation to commit fraud and to increase the chances of detection. While a positive work environment will help to achieve the former, the latter can be achieved by sound internal control system.

Chapter One


1.1 Background of the Study

The significance of the banking sector in any country stems from its role of financial mobilization from surplus to deficit unit, provision of a competent payment system and facilitation of the implementation of monetary policies. In intermediation, banks mobilize savings from the surplus units of the economy and channel these funds to the deficit unit, particularly private business enterprises, for the purposes of expanding their productive capacity.

The banking sector has become one of the most critical sectors in the economy with wide effect on the level and direction of economic growth and transformation and on such economic variables as the rate of unemployment and inflation which directly affect the lives of our people. Today, the very integrity and survival of these laudable functions of Nigerian banks have been deteriorated in view of incessant frauds and accounting scandals.

Fraud however has been defined by many scholars Olufidipe (1994) defined trick deliberately practiced in order to gain some advantage (1991), fraud is described as „any premeditate a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟. Another scholar Idowu (2 camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to thefinancial damage of an individual or an organization. Going by the definition of the chambers universal learners dictionary Kirkpatrick (1985) define fraud as any person who pretends to be something that he is not is a fraud, a snare, a deceptive, trick, cheat and a swindler.

Having explained what fraud is, it is pertinent to define bank fraud which is the subject matter of this study; however bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. For an action to constitute fraud there must be a dishonest intention and the action must be intended to benefit the perpetrators to the detriment of another person.

Going by the definitions, frauds in Nigeria cannot be restricted to the banks alone. A lot of fraudulent activities are prevalent in Nigerian economy ranging from bloody killings, ritual, kidnapping, robberies, forgery, misappropriation, cheating, and gangsters and looting. Bank fraud ranges from account-opening, money transfer fraud, cheque kiting, telex fraud, money laundering fraud, computer fraud, loans fraud and the likes.

According to Oseni (2006) the incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry. Corroborating the view of Oseni, Idolor (2010), stressed that the spate of fraud in Nigerian banking sector has lately become a source of embarrassment to the nation as apparent in the seeming attempts of the law enforcement agencies to successfully track down culprits. Although the incidence of frauds is neither limited to the banking industry nor peculiar to Nigeria economy, however the high rate of fraud within the banking industry, calls for urgent attention with a view to finding solutions.

Fraud in its effect reduces organizational assets and increases its liabilities. With regards to banking industry, it may engender crises of confidence among the banking public, impede the going concern status of the bank and ultimately lead to bank failure (Adeyemo, 2012).

According to kimani (2011) `A way of making money is to stop losing it. The level of fraud in the present day Nigeria has assumed an epidemic dimension. It has eaten deep into every aspect of our life to the extent that a three years old child talks about 419, the name give to the newly discovered advanced fee fraud that is hunting our nation.
In July 2004, central bank of Nigeria (CBN) unveiled new banking guidelines designed to consolidate and restructure the industry through mergers and acquisition. Banks and Other Financial Institutions Act (BOFIA) 1991, section 15, was also designed to prevent fraud and to make Nigeria banks more competitive and able to play in the global market.

The Nigeria Deposit Insurance Corporation (NDIC) 2007 annual report and statement of accounts report that cases of attempted frauds and forgeries in insured banks, as at 2007 exceeded what was recorded in the year 2006. For instance, the NDIC report for 2007 disclosed that a total of 1,553 reported cases of attempted frauds and forgeries involving over symbols ₦10 billion compare with 1,193 reported cases of fraud and forgeries involving ₦4,832.17 billion in the year 2006. The foregoing statistics clearly unfolds the extent to which fraud had had eaten deep into the financial strength benefit the perpetrators to the department of another person.

Today, banks cannot withstand the growing pressure of competition among various banks due to the monster called bank frauds. If this act of fraud is not arrested, it might delete our resources because foreign investors might not find it wise to transact business via our banks.

1.2 Statement of the Problem

Banks generally have been experiencing fraud since its evolution. This affects the performance and the profitability of banks and may possibly lead to distress. The inability to identify theimmediate and remote causes of continuous cases of bank frauds in virtually all banks in Nigeria is one of the problems brought to bare.

Fraud is a major challenge to the entire banking industry; no bank is immune to it and in all facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency in their day operation for effective intermediation.

Though there were known cases of fraud in the sector, one major question still remain unanswered which is what is the nature and different ways through which fraud can be perpetuated in banks. It is asserted by Adeyemo (2012) that fraud in the bank is possible with corroboration of an insider. The banks are expected to ensure that they carry out their responsibilities with sincerity of purpose which is devoid of fraudulent practices. This is relevant if the banking sector is to gain public trust and goodwill.

Another problem is that the government and its agencies have not put enough effort in the prevention and control of bank fraud in Nigeria; otherwise the level of bank fraud would have reduced to a bearable level. Agencies like money laundering Act which helps to place surveillance on any account through which such excess cash deposits or withdrawals are made, Nigeria Deposit Insurance Corporation which is involved in managing bank distress, failed banks and financial malpractices in banks Act which was vested with powers to recover the debts of failed banks, dishonored cheques Act which affects banks in their collection and payment of cheques on behalf of their customers and Bill of Exchange Act which helps to collect the proceeds of trade bills of exchange and cheques are not putting enough effort in the prevention and control of bank fraud that is the reason why bank fraud is increasing day by day in Nigeria.

However, environmental or social factors pose a problem in the activities of banking industry as they contribute to bank fraud in Nigeria. Environmental factors are those that can be trace to theimmediate and remote environment of the bank these factors are manifest in the following manner; the desire to get rich quick slow and complex legal process, poverty and the widening gap between the rich and the poor, competition among bank staff, the desire to belong to any social class, job insecurity, peer group pressure and societal expectations.

1.3 Objectives of the Study

The general objective of this study is to analyze the effects of banking fraud on the economic growth of Nigeria.

Other specific objectives of the study include the following:

  1. To identify the categories of bank frauds and forgeries in Nigerian banking sector.
  2. To identify effective control strategies for managing banks fraud and forgeries in Nigerian banking sector

1.4 Research Questions

The research questions that this study aim at finding answers are as follows:

  1. What are the various categories of bank frauds being perpetrated in the Nigerian banking sector?
  2. Are there effective prevention and control measures for bank frauds and forgeries?.

1.5 Research Hypotheses

The hypotheses of this study are as follows:

  • H0: Bank frauds have positive and significance effects on the growth of the Nigerian economy.
  • H1: Bank frauds do not have positive and significance effects on the growth of the Nigerian economic growth.

1.6 Scope of the Study

This study centers on fraud in the Nigerian banking industry with a keen interest on five ( 5 ) insured banks with data covering 1995-2014. The five insured banks covered includes First Bank of Nigeria Plc, Union Bank of Nigeria Plc, United Bank for Africa Plc, Diamond Bank Plc, Zenith Bank Plc, all in Enugu state, Oparah Avenue Branch . To achieve the objectives of this study, primary and secondary data were used. One hundred and twenty five (125) questionnaires were administered to the study respondents that were purposively selected from five (5) insured banks in Enugu.

1.7 Significance of the Study

This research work will be beneficial to the following groups;

(a) Banks and Financial Institutions

It will be beneficial to the authorities concern with banking operation, managements, staff customers and prospective investors in the industry so as to identify the various means (theft,embezzlement, forgeries e.t.c) employed in defrauding banks and to identify the cause of frauds in banks in Nigeria.

(b) Government

The government will find this work relevant to future policy and decision making with particular to restructuring its agencies for better performance in detaching frauds in Nigeria banks.

(c) General Public

The study will be useful to the general public because the banking industry touches the life of everyone in an economy. Banks all over the world have contributed immensely to the economic growth and development of nations. As such, problems such as fraud which can hinder the smooth operation of the banking industry should be viewed with all seriousness in other not to intercept or destroy the rate of development.

(d) Academia

It will also be beneficial to people who which to carry out further research in this area, to find this work relevant in their research.

1.8 Limitation of the Study

Bank fraud and its effect on the performance of banks is an extensive topic that may involve commercial banks and community banks. The researcher will like to touch all aspects of banking activities, but for lack of time and financial constraints, the researcher limit his work to frauds in five (5) insured banks.

1.9 Definition of Terms


Fraud is a type of criminal activity, defined as: ‘abuse of position, or false representation, or prejudicing someone’s rights for personal gain’. Put simply, fraud is an act of deception intended for personal gain or to cause a loss to another party.


An establishment

Chapter Five

Conclusion and Recommendation

5.1 Conclusion

This paper investigates the effects of bank frauds on the economic growth of the Nigerian for the period of 1995 to 2014. Based on the research findings, it can be inferred that it is important to emphasize that the management and regulation of bank fraud was quantitatively important in the performance of Nigerian economy as a whole. We observed that bank fraud whether through electronic device, clearing or cheque has had a positive effect on the performance of commercial banks in Nigeria and this affect the growth of the Nigerian economy. This is because the results obtained from this study support both theoretical and empirical evidence that bank fraud have a great effects on the performance of Nigerian commercial banks and concluded that the level of ATM bank fraud over the years have indeed negatively affected insignificantly on performance of commercial banks in Nigeria and the Nigerian economy as a whole; that forged cheque has negative effect but significant on the performance of commercial banks in Nigeria; and that there is significant positive relationship between clearing fraud and the level of commercial banks performance in Nigeria and the entire Nigerian economy.

5.2 Recommendations

From the findings of this study, the following recommendations were made to improve the effects of bank fraud on the growth of the Nigerian economy:

The regulatory and supervisory bodies of banks in Nigeria need to improve their supervision using all tools at their disposal to appropriately check and curtain the incidence of fraud and fraudulent practices in the banking industry in Nigeria.

Furthermore, training techniques should be upgraded to test honesty and integrity and not just technical skills. This should entail extensive training programme regularly done, as well as personality tests and IQ tests so as to understand the personality and character of the trainee. This would reduce negligence and carelessness in carrying out basic procedures that could pose as loopholes for fraud.

A good internal organization should be put in place by banks. This will ensure that proper delegation exists, duties and job, are clearly divided and that jobs do not overlap. Similarly, staff members should not have unlimited access to sensitive machines and instruments like cheques, and official stamps. Data security should be ensured at all times. The bank however, should make it a point to take good care of their staff through fringe benefits and incentives Jobs at the bank should be constantly rotated, so that no staff stays in one position for too long.

Financial difficulty on banks and their customers. It also leads to the depletion of shareholders’ funds and banks’ capital base as well as loss of customers’ money and confidence in banks. Such losses may be absorbed by the profits for the affected trading period and this consequently reduces the dividend available to shareholders. Losses from fraud which are absorbed by the equity capital of the bank impair the banks’ financial health and constrain its ability to extend loans and advances for profitable operations. In extreme cases, rampant and large incidents of fraud could lead to a bank’s failure. The loss in funds affected the economy. It reduced the amount of money available to small or medium scale firms for developing the economy.

Based on the above findings, the following recommendations are made:

  1. Staff motivation should be a top priority for banks so as to reduce to the barest minimum the number of staffs involved in fraud. The motivation can be in the form of incentives, rewards, payment for overtime job, bonuses, annual salary increment, etc. Also, reward should form part of the bank policy to encourage staff and customers who have helped to frustrate intended fraud cases in the past.
  2. Establishment of adequate and sound internal control system is also recommended for fraud prevention. For example proposed account-holders should be verified before any account is opened and all payments instrument with huge amount should be referred to the issuing bank before payment.
  3. Adequate training and re-training of staff should be regular. The training should emphasis the responsibilities and loyalties of the staff to the bank. The training should include testing them on issues on morality, trustworthiness, sincerity and fear of God.
  4. Top level management and bankers should try to achieve a high ethical standard when carrying out their responsibilities as this will help them reduce fraud.
  5. The regulatory and supervisory bodies of banks in Nigeria should improve their supervision using all tools at their disposal to appropriately check and curtain the incidence of fraud and fraudulent practices in the banking industry in Nigeria.

Aside these recommendations, the ones given by the committee of Bankers set-up in 1982 as part of the measures taken in eradicating frauds and all other fraudulent activities should be followed and they include:

  1. Names of dismissed staffs should be circulated to other banks.
  2. Strict disciplinary action should be taken against fraudulent staff to serve as a deterrent for others
  3. The Chartered Institute of Bankers of Nigeria should black list such staff.
  4. Bankers committee should maintain a data bank on dismissed staff and those forced to resign. Taiwo, J.N. et al, Journal of Business Management and Economics, 4 (12), December, 2016 9 The Central Bank of Nigeria also gave some useful suggestions on how fraud can be prevented and control in Commercial Banks. These include: a. No person shall be employed in a bank without a satisfactory reference from their precious employers

Get Complete Project Material

5,000 5000

The Complete Material Will Be Sent to You in Just 2 Steps

Quick & Simple…

Step One Purchase

Make Payment (Through Transfer) of ₦5,000 to Any of the Account Below

Access Bank PlcAcc No: 0811003731
Samphina Academy
Current Account
Zenith BankAcc No: 1225513212
Samphina Academy
Current Account

Or CLICK HERE To Pay With Debit Card

CLICK HERE To Purchase Material ($15)
Make Payment of 120 GHS to 0553978005 | Douglas Cloud Osabutey | MTN MoMo

Step Two Purchase

Send the Following Details on WhatsApp ( 08143831497) After Payment

  1. Payment Details

  2. TOPIC: Bank Fraud And Its Effects On Nigeria Economy

The Complete Material Will Be Sent To You On WhatsApp After Receiving Your Details
T & C Apply

  Contact Our Help Desk

Need a Different Topic? Perform a Quick Search

List of Related Works

Click on Any Topic to Preview the Content

Samphina Academy

Samphina Academy is an Online Educational Resource Center that is aimed at providing students with quality information and materials to aid them in succeeding in their academic pursuit.