The Impact Of Fraud And Other Sharp Practices On The Banking Industry In Nigeria

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The Impact Of Fraud And Other Sharp Practices On The Banking Industry In Nigeria


The purpose of this study is to identify and the impact and solution of Bank fraud an other sharp practice on the Banking Industry in Nigeria.

The research is a primary research in the sense that it is established to investigate the causes and other sharp practices in Banking Industry in Nigeria.

The research covers the staff of Nigeria United Bank for Africa Plc. In this research, the work of many expends in the field of the study were reviewed. This enables the researcher to know more about the various ideals of many theorists about the topic.

Data gathered were analyzed in different tables using percentage where necessary an the data were interpreted as well.

The research reveals that the number of Banks involved in friends and forgeries cases has been on decline over the past few years. Other findings were there is decrease in amount involved have been on the increase over the time and this across all the cadre of staff

Conclusion was drawn on the data collected and the recommends were therefore provided as well:

Chapter One

1.0 Introduction

1.1 Background of the Study

The level of fraud in the day Nigeria has assumed an epidemic dimension. It has eaten deep in to very aspect of a having to the extent that a three-year-odd-child talks about 419.

Fraud id defined as a deliberate act of deceiving somebody in all illegal way in order to make to obtain goods belonging to another party. For an action to constitute Fraud there must be a dishonest intention and the action, must be intended to benefit the preparation to the determine of another person.

Going by this definition fraud in Nigeria economy cannot be restricted to the bank alone. Fraud in the Banks is not know, they are as old as the Industry itself. However, like in the greater society they have become one of the most intractable problems of modem day banking.

Other sharp practices that is being perpetrated in the banking industry includes, embezzlement and theft, miss use or harm the asset of the bank, manipulation of figures, forgeries but all these can be compassed into Fraud that is the word “Fraud” can capsulate all these acts.

Fraud can be committed by the employers, customer and management of the bank concerned or others operating independently or in conspiracy with others inside or outside the financial institution.

The historical trends and analysis of the banking industry in Nigeria is discussed to assist in the understanding of the philosophies that will guide prospective reader in the extent to the bank Frauds had been in place.

Modern banking in Nigeria dates back to the early colonial period. This is as the period when the activities of transaction of the colonial government the deadline of the bater system of frauds and the increasing acceptance of British silver coins, all desired for constitutions in the form of commercial banks for safety and transmission of frauds, the importations and distribution British coin, and provision of credit facilities to the government an the trading companies (usage 1981).

It was for this purpose in 1872 that the Africa Banking Corporation of England was invited to open a branch office based in Liverpool and West African ports.

But due to some difficulties, the bank was taken over in 1894 by Elder Depicter and Company with a name as Bank of British West African (now First Bank of Nigeria Plc ) Registered in London, the bank started with a authorized capital of $100,000. Due to the success of the bank of British West Africa other organizations soon began to show interest in banking opportunities in the Country. This led to the establishment of the Anglo-African Bank, later known as banks of Nigeria, but which became liquidated other were the colonial bank which changed its name of Barcley bank and company (now the Union Bank of Nigeria Plc 1919) also British and French bank 1948 (now the United bank for Africa Plc) and such other foreign owned banks.

However, these banks do not serve any useful purpose for Nigeria rather they serve as a dear channel for the economies of their promoters who are most importers and whose activities were based on the decision taken at their overseas head offices.

In other word the development of conventional banks only served as instruments of explosion and expropriation of resources from the Nigeria economy and as such were inconsistent wish local needs, interest and aspirations to help develop the nation economy.

These among other factors led to the birth of many locally owned and manage indigenous banks, between 1933 to the period of 1952, as much as twenty-five banks were established by Nigerians. Buts it is very sad that out of these banks only four survived beyond this period, they are National bank of Nigeria established by Nigerians in 1933, Agbonmage bank now Wema Bank Plc established in 1945. The present African Continental Bank Plc established in 1945 and Merchant bank (now default) established in 1952. Thus the period 1892 to 1952 was described as the free banking era.

The period 1952 to 1991 witnessed series bank regulations measure ranging from the Banking ordinance of 1952. Central bank ordinance of 1958 and its subsequent amendments to the latest Central Bank of Nigeria decree 24 of 1991 and banks other financial decree 25 of 1991. The essence of these legislations was to stream line and regulate the performance of the banking industry.

Thus from 1976 to 1986, the number of banks increases from twenty-one comprising of fifteen commercial and cooperative banks and six merchant banks to fifty-one banks made up to twenty-nine commercial banks, and twelve merchant banks. These period was characterized with the establishment of new generation of private banks owned by Nigerian and Foreign private investment especially the state owned banks.

Another period that worth mentioned was the deregulation era between 1986 and 1992 which was witness by rapid increase in the number of banks from forty-one banks in 1986 to one hundred and twenty in 1992 which was made up to sixty-six commercial and banks, fifty-four merchant banks.

As earlier mentioned in the introducing bank, Fraud had its origin from the day of the banking industry started in the country and in as much as the federal government through central bank attempt to solve this problem among others by promulgating different banking legislation, titles or no success was achieved in this regard.

1.2 Statement of the Problem

Since evolution banks have been experiencing fraud, this tends to affects the performance and the profitability of banks and may possibly lead to distress. The larger society expects greater accountability, fairness, transparency and effective intermediation from banks, ensuring that they carry out their responsibilities with sincerity of purpose and unquestionable integrity with respect to their operations as a means towards earning public trust and goodwill. The banking business has become more complex with the development in the field of Information and Communication Technology (ICT) which has changed the nature of bank fraud and fraudulent practices. Berney (2008) observed that customers rely heavily on the web for their banking business which leads to an increase in the number of online transactions. Gates, Jacob and Malphrus (2009) assert that the internet provides fraudsters with more opportunities to attack customers who are not physically present on the web to authenticate transactions. In Nigeria, in spite of the banking regulation and bank examination by the Central Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing concern about fraud and other unethical practices in the banking industry. This study thus, examines the extent to which fraud and other unethical practices have affected the Nigerian banking sector both in the past and present.

1.3 The Objective of the Study

  1. To find out the causes of fraud in banking industry
  2. To identify the impact of fraud in banking industry
  3. To make recommendation and suggest solution as well to solve the problem of fraud in Nigeria banking industry.

Also, the objective of united bank for African a case study of the project work are:

  1. Prevention of banking failure
  2. Protection of the bank system against destructive runs in the events of bank failure.
  3. To protect the small savers who are unlikely to have access to sufficient information that would enable them to evaluate the solvency of these banks where they hold their savings.
  4. To ensure fair play among the competing banks and thus lead to their innovations and efficiency. The U.B.A was established with the objectives due to the effect of structured adjustment program (SAP) and the current deregulation of banking systems this frauds to encourage some banks to take greater risk with customer deposit and because of the federal government directive, it direct financial supplier of banks and such other deposit taking institution that are facing problem of solvency.

1.4 Scope of the Study

The study is intended to give broader view of bank Fraud and other sharp practices like Forgeries, Thefts in banking industry, which is the pilot of Nigeria financial system and the Nigeria economy at large.

As a result of the inability of the researchers to cover the entire bank in the country. The researcher has reduced the scope o the study to data collected from U.B.A. It will however be supplemented with a review of contribution in the daily newspaper, magazines and various professional journals in respect of the subject provided it is on banking.

1.5 Significance of the Study

The study will promise on those bank executives individual and other corporate who perpetrate fraud taking into consideration the impact on the customers shareholders and Nigeria economy at large. It will help the future researcher and the public most especially the bank fraud and know how to get it curved.

Also, it will put conscious and prudent executives on the alert as to identify and tract of fraud whenever they occurred , these would be made known from the result of this project work.

1.6 Limitation of the Study

These are same limitation, which handicapped the researcher to make adequate and proper research of this study. These limitation are these inability of the researcher to set enough facts, most the workers or the affected staff interview could not guide adequate and reliable fact that are needed for the study.

Most of ten than not, when the office who could give adequate information are contacted, they always found to be too busy and the title time they could spare to attend to the question of the researcher were not always enough to discuss on some other issues which could have also help the researcher in this study.

1.7 Delimitation of the Study

The word banking industry is too broad for the researcher to know the impact of fraud on it. That is why he deliberately restricts himself on an aspect of it, which is United Bank for Africa Plc in other to have 98% accurate if not 100%.

1.8 Formulation of Hypothesis

  1. H0: Lack of adequate motivation is not a major cause of fraud in the banking sector in Nigeria.
    H1: Lack of adequate motivation is a major cause of fraud in the banking sector in Nigeria.
  2. H0: Looting of fund by bank manager/directors does not constitute the major form of fraud inNigeria.
    H2: Looting of fund by bank manager /directors constitutes the major form of fraud in Nigeria.

1.9 Definition of Terms


Fraud is defines as a deliberate act of deceiving somebody in all illegal way in order to make money to obtain goods belonging to another party.


This is define as financial institution where money, securities and other valuables are kept and paid, issued borrowed, lent or exchange.


This is the money that is been paid to the shareholders by the company for making use of their funds.


Is the use of deception for unlawful gain or unjust merit.


Is the yielding of a financial merit or other benefit.


person that commit fraud.


This is to commit a crime or something bad.


This means to examine with care and in detain.

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study.
  • Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five

Summary Conclusion and Recommendation

5.1 Introduction

It is pertinent to note that this research was aimed at cross examine the level of fraud associated with banks in Nigeria, thus the topic “an empirical examination of fraud in the Nigerian banking industry”.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges associated with banks frauds in Nigeria.

5.2 Summary

This study focused on the major causes of fraudulent practices in the Nigerian Banking sector. A detailed analysis of major types of fraud was done to include presentation of forged cheques, granting of unauthorized loans and credit, posting of fictitious credits, fraudulent transfers/withdrawals, cheque and cash defalcation, loss of money to armed robbers and outright theft of money.

The work also examined the level of employees’ involvement in the fraudulent practices. The workers are categorized into supervisors and manager carrying the lead in number and amount of loss involved in this evil act; officers, Accountants and Executive Assistants, clerks and cashiers,

Typists Technicians and stenographer, massagers, Drivers, Cleaners, Security and Temporary staff. The major concern is the level of involvement of temporary workers, if left unchecked it may became a big threat. There are 1283 staff that were involved in fraudulent act between 2002 to 2006 out of which managers and supervisors accounted for 485 (37.89%).Officers/Accountants and Executive Assistants also accounted for 431(33.59%). This demonstrates that this two category of worker accounted for916 out of a total of 1283 employees involved in fraudulent acts. This represents 71.39% of totals. By this, the banking industry should focus on the management and control of this category of workers.

Also theories of fraud were analyzed, while several detectives, preventive and control measures were given. In conclusion there is an urgent need for the responsible agents of control to put adequate measure in place to blockmajor loop holes, and adequate sanctions to punish and discourage culpritsmust be devised.

5.3 Conclusion

This research investigates the effects of bank frauds in the bank sector and it impacts on the economic growth of the Nigerians. 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 and the banking sector as a whole. It was 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 consequences 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 The threat of fraud in the Nigerian banking industry can be contained by taking the right steps. A bank that is alert to the risks that affect its business, that puts in place appropriate controls and procedures, monitors the operation of these controls and their effectiveness, creates favorable working environment and maintains an anti-fraud culture, is going to be better placed to deter, prevent and at worst detect fraud timely. Above all, the fight against fraud requires a holistic approach through the efforts and cooperation between individuals, organizations, law enforcement agencies and other stakeholders.

5.4 Recommendations

The above research findings are very significant and have far negatives effects on the Nigerian banking sector. It has become expedient to act on them in order to guard against future occurrence. The following recommendations were made to improve the consequences of bank fraud on the growth of the Nigerian economy;

  1. 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.
  2. 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.
  3. 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.
  4. It is also recommended that Auditors and Accountants in organizations and financial institutions should be trained on how to carry out forensic investigation since the fraudsters are now sophisticated in their act. Also internal control systems should be strengthened to block opportunities that attract fraud perpetrators.

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