The Impact Of Inflation On Bad Debts Of Financial Institution (A Case Study Of Union Bank Of Nigeria Plc Ilorin)

The Impact Of Inflation On Bad Debts Of Financial Institution (A Case Study Of Union Bank Of Nigeria Plc Ilorin)
Proposal
This project work was written on the Impact of Inflation on Bad Debts In Nigerian Banking Industry.
Since an organization is an integrated system of activities in achieving some aims or objectives, it is therefore necessary to involve some plans, processes for the effectiveness and efficiency of the Banking Industry.
The sample of 80 respondents are to be used and the method of sample will be random sampling.
This study will be carefully planed to look into the Impact of Inflation on Bad Debts In Nigerian Banking Industry. (A Case Study of Union Bank of Nigeria plc Ilorin Branch.)
- Chapter one contain introduction, background of the study, statement of the study, the need for the problem , the scope of the study, the signifianbce of the study, the objective of the study, and definition of the terms.
- Chapter Two contain, literature review, Review on Inflation and bad debts, bank credit, causes of bad debts, debt recovery, Advantage and disadvantage of inflation, causes of inflation, effect of inflation, control of inflation.
- Chapter three contain, Research Methodology, Historical Background of the Banking Industry, method of Data collection, the effect of inflation on bad debt in Banking Industry, Growth and Development of Band debt.
- Chapter four contains, Data presentation, Analysis of data and Interpretation of data.
- Chapter five contains summary, conclusion, recommendation, and bibliography.
Chapter One
1.0 Introduction
Bed debts are usually associated with the function of commercial banks and the incidence of bad debt remain as told as the essential function itself. Commercial banks like other business entities have one objective of being in business maximize their profit since banking is service industry.
Commercial bank also strive to give efficient service to their customer at all time to make profit and remain in banking business.
Therefore, commercial banks most learn in other to earn interest, which provides the revenue commercial bank can lend on loan or over draft to their customers, the choice of facilities repayable could be agreed installment over a good period of time while an over draft is short time which could be involving and required to be made good after one year. An over drat facility is the working capital of the business man.
The lending function of the commercial bank can only be accomplished if such commercial, bank are in a position to collect deposit from other lending and the size and mode of lending loan an advice constitute a greater proportion of credit available in the economy, lending therefore, helps to satisfied the legitimate credit needs of the society.
Credit like money finds its main function in the production and service in facilitating the exchange of good credit has also help to make possible modern like scale production and wide spread division of labour.
Because of the direct impact lending can have any economy, government all over the world usually integrate the activities of banks in to policy formulation. The commercial banks intermediation ruled in the economy is highlighted in the deposit creation lending of those banks. While the commercial banks collect deposit from those who have surplus funds, the part give out part of this funds to those who required more funds to expand an existing business or established in a new one.
The depositor’s relationship with their banks is base mainly on their mutual trust while it is known from experience that all depositors can not call for their deposit at the same time commercial bank must always ensure that these are always a find to meet depositors requirement.
In addition to the profitability and efficiency objective of commercial bank therefore the needs for sounds liquidity at all time is always emphasized.
The liquidity object of commercial banks compelled most commercial to lend on short term basis since most of their deposit is kept over a short period of time the depositor’s fund, which form the lenders working capital required prudent management if the working capital is to grow and not depleted. This position explain the reason why commercial banks take time to study business requesting for financial assistance.
The bank manger and other officers appointed to give surplus of these credit appraise each proposes thoroughly ensuring their can on of lending which improved purpose and the amount required the sectorial classification of the loan required, the proprietors stake in the business and the security offered.
Experience has shown however that money business that were appraised and which appeared attractive in the past continual of fall in recent years Nigeria now funds herself.
Many business that appeared initially attractive failed because they can no longer obtain raw materials with which to produce some failed because they can not raise enough local currency to produce spare parts for their grounded machine while some find the current cost of capital too much to bear such business try to avoid the repayment of both interest and principal debt against them by switching to other banks.
Business failures have for reaching effect on the ability of borrowers of banks fund to repaid their debts. The resultant effects if these failure is the ever growing incidence of bad debts in Nigerian banks for example union bank which is the one of three leading banks in the country has had an unpleasant share of the burden of those debts.
1.1 Background of the Study
The project work is made up of five chapters in which
- Chapter one comprising introduction, background of the study, statement of the problem the need for the problem, the scope of the study, the significance of the study, objective of the study, definition of terms.
- The second chapter deals with review on inflation and bad debts bank credit, causes of bad debt, debts recovery, advantages and disadvantages of inflation causes, effects and control of inflation.
- The third chapters deal with research methodology, historical back ground of the case study, method of data collection the effect of inflation on bad debts in union bank growth and development of bad debts.
- Chapter four contains data presentation analysis of data and interpretation of data.
- Chapter five discusses summary recommendation and conclusion.
1.2 Statement of the Problem
The impact of inflation on bad debts, which cut across all share of business society in Nigeria. Recently, the incidence of inflation has been the focused of government attention. In this project attempt will be made to analyse inflation causes and effect of the growth of the backing system in particular and the overall development and likely solution with a view to minimize it frequent occurrence detail of this may be found in next chapter.
1.3 The Need for the Problem
The need for this project study has been amplified by the economic depression in which Nigeria has found here self in the past fourteen years the depression has brought with its economic problems which include huge foreign and interest debts high unemployment, severe raw materials and severe parts shortages, high rate of inflation and rapidly declining per capital income.
The economics twist of fate of Nigeria that proper her departure from can era of economic boom in the mid seventies and eighties to a period of prolonged depression is first and foremost to the sharp decline in revenue derivable from crude oil.
The depression economy can also be attributed to economic mismanagement by Nigeria leaders misplaced priorities, neglect of agriculture which can another veritable source of foreign exchange earnings, general depression in the world economy, high level of deficits spending by government and excessive imports which are not at par with exports consequent upon the dull economic climate therefore, may loans and overdrafts facilities granted by commercial banks to individuals and corporate bodies the past are no longer being regularly services may of the facilities which are totally bad are now abandoned.
The growing brand of bad debt in the book of commercial banks is now a cause for concern to leading banker’s failures to pay an existing debt limits the credit creation capability of banks and this limitation will affect economic production the volume of which is always influence by the availability of credit.
When production capacity can not be enlarged, new employment cannot be credited, when plant are under utilized labour gets retivialized or totally discarded.
There is need therefore, to look at the correction between the prevailing economical depression and the increasing failure rate of banking lending which in affect can affects banks profitability and jeopardize their shareholders return on investment.
1.4 Scope and Limitation of the Study
It would be very unrealistic have been gathered in the process of this study this is so because the information gathered is limited to those available by the respondent, financial experts analysts, economist and accountant such information provided may not be tree bases, hence a source of inadequacy of findings.
Information that relate to inflation on bad debt is kept confidential, regardless of the purpose for which they are intended. Hence, a general a pathy and reluctance to provide answer to the question asked willingly and truth fully.
1.5 The Significant of the Study
The significance of the study stems from the assumption that the attack on the impact of inflation on bad debt was originally incurred by business promoters to finance the acquisition of one thing or the other. The purpose could be an item of fixed asset, it could also be for the purpose of financial working capital what ever the case may be, inflation as it is the case in the Nigeria economy has an unfolding impact of the performance of fixed asset financed by back loan and the adequacy or other wise of the firm’s working capital.
1.6 Objective of the Study
One of the main objectives of the study is to analyze the impact of the inflation on bad debts in union Bank through effective debt management. It is also the objective of this study to suggest ways and means by which loans liquencies can be drastically reduced through effective lending controls.
To be able to achieve these objectives, it will be necessary to ascertain the means of inflation and to show it affect bad debts and their financial intermediation role to the economy.
Although, the study, as union bank of Nigeria Plc in view the project work is to serve as a relevant working paper and guide to other commercial bank in Nigeria.
1.7 Definition of Terms
Inflation:
Inflation is the persistent rise in general level of goods and services. It is also a period in which there is a rise in the general level of price measured by price indexes.
Moderate inflation:
Moderate inflate occurs when prices are rising slowly
Galloping inflation:
Galloping inflation occurs when price start rising at double prices
Hyper inflation:
Hyper in inflation is a period of extra-ordinary rises in price
Bad debt:
It is the money that can no be recovered
Chapter Five
5.0 Summary, Conclusion and Recommendation
5.1 Summary
Bad debts are issue that many banks these days do not want to discuss. The growing size of these debts in each of the book of the bank and the difficulties experienced in recovery the debts by these bank’s make any discussion on bad debts and unpleasant issue to the bank.
Most bank want to keep the actual size of their had debts to themselves and only make available to the researcher their annual provision figures contained in their annual audited balanced sheet. They always see any researcher as aspy trying to say into their corporate secret. Bank official were not ready to assist and the few data collected from that and were obtained for in willing helpers of the branch.
Some customers of union Bank of Nigeria Plc whose business collapsed as a result of the economics depression and whose account in the bank went bad as a result of these failures where untriendly when approached for discussion on how the bank has been trying to help them out of their problems.
The cases listed in chapter three were only put together after studying the advance files of the customers listed in the branches were they maintained their accounts.
The forgoing limitation are not meant to scare anybody who may went to research in to loan delinquencies in Nigerian bank but to prepare.
The mind of the prospective researcher for the likely obstacles that may come his/her way in the course of his/her study for any way successful work to be taken on this study in the future the researcher must be tactful in extracting information from bank officials and allow himself sufficient time to work on the project.
5.2 Conclusion
Chapter one of this study shows how the current economic depression has aided the growth of debt bad debts in union bank. The chapter rises to discuss the relevance of commercial bank to economic growth through the intermediation role they play in the economy and how bad debt which destroy this money in the banking may prevent the bank from playing the role more effectively.
The chapter also the history of union Bank of Nigeria Plc which has been chosen as a case study for the project work.
The literature review of this study is contained in chapter two under which the theoretical firework that underlines bad debts and opinion of different scholars on lending, bad debts and loan recoveries are discussed.
The effects of inflation on bad debts with three life case studies in union bank are discuss in union bank are discuss in chapter three which are exact representation of real life reports on some account in the branches of the bank. The case who the reason why each customers failed and how those failures could have been averted.
Chapter four of this project focuses its attention on growth and management of bad debt that is how the prevailing economic depression has led to the collapse of many business has resulted in their inability to meet their financial obligation to bank.
Chapter five examines that limitation of the study which is intended to serve as guide to others who may want to undertake similar studies in the future.
The chapter also offers policy recommendation to union bank plc in particular and other commercial bank in general on how growth of bad debts can cured and their management in proved by these banks.
It is hoped that the policy recommendation offered in this study which are designed to cured the growth of these debt will be useful for commercial bank in Nigeria for the good of the nations economy.
5.3 Recommendation
This study has tried to show the effect of bad debts on the profitability of the banks in particular and on the economy in general.
In order to stem the tide of growth of these debts and in the process minimize their negative effects on the profitability of the bank and the economy the following.
Recommendation are offered better appraisal of loan request.
- This implies that the bank manager must look critically at factor that may affect this customers business in the forcible future and which may jeopardized to this customer the need for him to consolidate because booms do no go on forever
- Policy lending: Most bank lending which were influenced by the merit of the proposal normally goes bad. Lending managers who take such lending decision are always subjective into their judgments. Approval of bank loans should not be linged on friendship. The bank senior executive’s manager under them when those junior managers are approach by their friend or relations for bank facilities advance appraisals be left for through professional appraisal in the growth of bad debts is to pegged in the banks.
- Provision of Good security for bank facilities security consideration from one of the cannons of lending but this consideration is to serve as insurance against default. It is a consideration that has been relegated to the background over the year the absence of which may not necessity stand against the approval of a loan.
- Period check on Branch Accounts. The present system whereby a branch mangers performance scrutinized by the bank’s inspectors once in eighteen month has to be received periodic visit to branches from the area offices by the area advances managers to scrutinize the branch accounts. Such visit will serve as a moral check on the activities of branch managers and will enforce their compliance with their superior institution before loan are disbursed.


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