Effects Of Bank Distress On The Saving Habits Of The Rural Dwellers

Project and Seminar Topics with material for Banking and Finance

Effects Of Bank Distress On The Saving Habits Of The Rural Dwellers


Abstract


This research work examined the “Effect of Bank distress on the saving habit of the rural dwellers” it investigated the causes and characteristic of bank distress in the Nigerian economy.

Many related literature were reviewed as the researchers collected data for this work. In remote communities where banking habit was poorly developed the exercise of changing bank notes in 1984 forced people to travel scores of mills to change their money and also made them realize that they need banks around incessant call for extension of bank branches to their areas. The effect of bank distress on the economy on the other hand included the erosion of public confidence mostly to the rural dwellers in putting their money in the banks.


Chapter One


Introduction

1.1 Background of Study

A bank can be defined as an organization whose principal operation are concerned with the accumulation of temporarily idle money of the general public from the purpose of advancing to others for expenditures.

John page defined a bank “A corporation or person(s) who accept money on current account, pays cheques on such account on demand and collects cheque for customers”

Oxfords advanced learners Dictionary define a bank as an organization or a place that provides a financial services or a place where something is stored ready for use.

The establishment of modern banking in Nigeria dates back to the colonial when the African Banking corporation was formed in 1892 to distribute currency notes of Bank of England for the British Treasury subsequent developments were encouraged by colonial trade. In the bid to address the credit needs of indigenous enterprises, Nigerian late ventured into the banking business, initially through private individual initiatives and later through deliberate government policy.

The problem of distress in the financial sector, including outright bank failure, has been observed in Nigeria as back as 1930 when the first bank failure was reported indeed, between 1930 and 1958 when the central bank of Nigeria (CBN) was establishment over 21 bank failure were recorded.

However, the degree of intensity and scope of the distress has never been as serious as has been observed since June 1989 when government directive to withdraw deposits of government and other public sector institution from bank to the CBN exposed the weak financial condition of most financial institution and the severity of problem has progressively here used.

The distressed condition has been traced to a wide range of causes, some of which are listed on literature review. Eventually, when distress came to into the scene, fears of loosing fund to the banks influenced negatively, the banking habit of the rural dwellers.


1.2 Statement of Problems

With the wave of distress spreading in the finance companies, community banks and primary mortgage institutions, a total of 24 banks were distressed in 1933, ad against 10 in 1992, 31 finance house were in default of malures obligations 456 complaints against 156 finance companies for non resumption of matured funds, however, total assets and liabilities of 395 finance firms stood at N13.38 billion in 1993 as against N2.44 billion reported for the proceeding year (1992).

The satiation was attributed to the followings

  1. Prevailing economic recession, policy induced hock poor and detonating asset quality arising from large portfolio of non-performing credits non-maintenance of assets and liability.
  2. Poor management bothering on sharp practice and lack of experience which is the most serious problem, associated with bank distress in the rural area.
  3. Ineffective, inefficient and poor performance of the financial sector on the role of promoting and supporting economic development in the rural areas.

The problem in focus above, triggered off the interest of the researchers to carry out study in the area.


1.3 Purpose of Study

Under the purpose of study, which in other words, is the objectives of study the researcher will try to ascertain the following

  1. What bank distress is all about
  2. How it has affected the banking habit of the rural dwellers.
  3. The causes of bank distress.
  4. To enlighten the rural dwellers on the need you putting their money in banks.
  5. To ascertain the percentage of commercial banks is the rural areas.
  6. To encourage and ensure effective rural savings.

1.4 Research Question

  1. What is bank distress
  2. What are the causes of bank distress
  3. How does bank distress affects the saving habit of the rural dwellers?
  4. What can be done to prevent bank distress?
  5. How should rural dwellers be enlightened on the need of putting money in bank.

1.5 Significance of Study

In discussing the effect of bank distress on the saving habit of the rural dwellers the researcher have some important beneficiaries which include the following:

A. The Banking Section:

From the work the management should know the damages, distress in causing the conceptions of the bank dwellers towards savings in the bank. This will make the management seat up an enunciate managerial policies that are capable phasing out cases of distress in banks.

B. The Rural Dwellers:

Their benefit is indirect, it doesn’t appeal to them directly since distress is the effects on their saving habit.

Distress in bank will be eradicated to enable bank flourish well, so it is that benefit (such as rehabilitating the management so as to restore confidence and safely and area) that the banks get that will influence them directly. They will see it themselves, people in the rural area will save their money in banks and get them anytime they want. They will allay the fear in the rural dweller and energies their spirit of putting their money in banks. This is a result of powerful recommendations and suggestion made in this work.

c. Academic Institution:

This work is relevant to the institution and the students in the field of management sciences. Especially those in banking and finance in the sense that it will improve their literate review purposes, some copies of this work will be kept in the institution library for subsequent researchers for further research references.

d. The General Public:

It is also significant to everybody these include mostly the investors, pubic libraries and research institution, where copies of this work will be kept and the general public can go and get copies, read and now known what is going on at the rural areas pertaining their banking habits.

e. Investor:

The study exonerates fears the investors have from saving in the bank due for distress because the investors would not like to dump the little they have with the bank.

f. Public Libraries:

This work will increase their stock of books for research purposes by researcher.

g. Research Institutes:

It is significant to the researcher institutes, because they keep those research work for further research by researchers.


1.6 Scope

This study covers the effects of bank distress in the saving habit of the rural dwellers.


1.7 Definition of Terms

1. Collateral:

Stocks or bound pledged as security for repayment of a loan.

2. Unscrupulous:

Not doing guided by coincidence not held back from dong wrong.

3. Amity:

Friendship is friendly relations between persons or countries.

4. Financial intermediaries:

Like finance companies primary mortgages institution etc who serve as a go-between o. link in the financial institutions.

5. Malase:

Feeling of badly discomfort, but without clear signs of a particular illness.

6. Parlance:

Use or choice of words, ways of speaking.

7. Default:

Fail to p[perform a duty or to pay a debt.

8. Allay:

Make something (e.g) pain, trouble, excitement fears less.


Chapter Five


Conclusion and Recommendation

5.1 Conclusions

From the foregoing discussions, we it is clear that a bank is said to be in distress where it cannot pay all of its depositors in full and on time. This means that such a bank can nolonger play its basic role as a financial intermediary. The problem of distress can affect a single bank as well as many banks within the banking industry. Bank distress syndrome is not only peculiar to Nigeria, it cuts across the entire world both developing and developed world. Countries encounter it at one time or the other in their economic history. The causes of bank distress however, vary cutting across the following factors: political instability, economic depression, institutional factors, Undue interference of owners especially state government, regulatory constraints etc. The impact of distress in Nigeria Banking System manifest in loss of confidence by the banking public, leading to massive withdrawals, liquidity squeeze on the part of distressed banks, non-performing risk asset which result in high loan loss provision etc. It is therefore important that banks and the entire economic system take adequate steps such as: high quality boards, sound internal control system, adequate capitalization etc. to prevent distress. Consistent economic policy is also a crucial preventive measure for distress in banking industry. It is however imperative to overhaul the banking industry in other to reduce incidence of bad debts. Credit process of the entire banking system should be overhauled to reduce the incidence of bad debts which is the greatest “enemy” of the system. The Credit Risk Management System (CRMS) being put in place by the CBN should be supported by the banks so that information can circulate within the system. The CRMS is intended to ensure that enough information is available about borrowers of N1 million and above. Under the system, a bank intending to advance credit to new customers is required to clear with the CBN, who will avail information about such customer. Unfortunately, the way banks are driving their credits is dangerous. Many disregard CRMS in attempt to hide who their customers are. As expected, dubious customers are taking undue advantage of the lapses to dupe banks. If distress is to be avoided or minimized in the system, banks must be made to pass through assets. Besides, their instruments of control such as prudential guidelines should be reviewed from time to time. Banks must also properly scrutinize the quality of their personnel especially at top management level if the system must survive. Today in the system, a fraudulent banker sacked by one bank can easily re-enter the system under any disguise. Besides there is dearth of experienced hands to banks recruit anybody to be a banker and such people shoot up the ladder without adequate experience and competence level.


5.2 Recommendations

  1. The monetary policy environment should be properly managed and the regulatory authorities should harmonize the operation of monetary policy with the objective of achieving stable banking system for effective transmission of monetary policy and maximize shareholders‘ wealth.
  2. The management of deposit money banks should formulate policies and device strategies of managing monetary policy variables such as monetary policy rate and Treasury bill rate to avert the negative impact of the variables in determining bank stability.
  3. The macroeconomic environment and its operational objectives should be directed towards achieving stable banking system in Nigeria.
  4. Deposit money banks should ensure sound credit management department to avoid the negative impact of nonperforming loans on bank distress.

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