The Problem Of Banking Systems In Nigeria

The Problem Of Banking Systems In Nigeria
Proposal
Banking in Nigeria has gone through very changes within this decade. The industry has grown beyond optimistic expectation. Over the period, the number of banks expanded five fold, banking operations were substantially deregulated, competitions increased and banks were forced to be more innovative and service oriented.
Banking system is expected to offer effective and efficient services to its customers and the economy as a whole.
It is seen that a bank with limited problem will support and revitalize a respectable and dependable banking system.
Unfortunately, the uncontrolled rate of growth of the industry has produced undesirable side effects like increase in fraud and other form of banking malfeasance cash shortages while mismanagement, bankruptcy and illiguidity are found to cut across the whole banking system through the activities of board members.
These inspired me a lot to write on the project topic:
The problems of banking system in Nigeria
Chapter one serves as an introduction of the topic, which ex-rayed issues likes: Background of the study, statement of the problem, purpose or objective of the study, significance of the study and limitation of the study.
Chapter two is purely based on the review of related literature 1 used in the course of my study.
Chapter three dealt on research design and methodology, that is sources of my data secondly source only location of the data and method used in collecting data, literature work only.
Chapter four is purely based on the summary of my findings.
Chapter five is my recommendation and conclusion.
Chapter One
Introduction
1.1 Background of the Study
Banking business started as far back as the seventeenth century. When the receipts issued by Goldsmiths to depositors were used as a means of exchange in commercial transaction. Because these receipts were accepted generally, they became transferable too.
A bank is an institution where money and valuables are kept for safety purposes. Bank also lend money known as loan, pay out money on the customers order by means of a change and bank draft and also give over draft to customers.
The structure of banks can be grouped into the following namely.
Central Bank:
This is the apex financial institution which is charged with the responsibility of managing the cost, volume availability and direction of money and credit in an economy with a view to achieving some desired economic objectives.
This was established in March 1958 and started full operation by 1st July, 1959 which was after many banks like West African Currency Board (WACB) in 1912, and the international bank for Reconstruction and Development (IBRD) in 9155 failed to perform their objectives, and they later folded up.
Commercial Bank:
They are financial which carry out the ordinary banking business of receiving deposits, advancing loan, discounting bill and offering related services to the general public. This started in Nigeria in 1892 with the establishment of African Banking Corporation and folded up in 1893. Then British Bank of West Africa (BBWA) was established in 1893, started operation in 1894 and later fold up too. Many other banks came into existence, which equally folded up. This is classified into main group, which are as follows.
Indigenous Bank:
These are banks fully owned and controlled by Nigerian citizen including government. The first Indigenous bank in Nigeria was the National Bank of Nigeria (NBN). Which started operation in 1933 followed by African Continental Bank LTD (ACB in 1947.
Mixed Bank:
These are bank jointing owned and controlled by foreigners and Nigerian Citizens including government.
Foreign Banks (Expatriate Bank):
These are bank fully owned and controlled by the foreigners.
The Nigerian indiginization Act of 1972 converted most of these foreign banks, which was later phased out long time.
However, the 1995 budget has reintroduced the foreign (expatriate) trade in which banking system is an integral part of it.
Merchant Bank:
This is a bank that specialize in providing who engaged in whole sale banking, medium and long term financing, equipment leasing debt factoring, investment management, acceptance bills and management of unit trust. This was established in 1964.
Development Bank:
This is bank which specialize in providing long term fund for industrial, agricultural, commercial and mortgage development.
Also, it helps entrepreneurs by providing loans and consulting services to them. This is classified in the following groups namely.
Nigerian Industrial Development Bank (NIDB)
This was established in 1964 to replace the investment corporation of Nigeria. This assists the public and private sector companies.
Nigerian Bank For Commerce And Industry (NBCI)
This was established I 1973 to see to the financial implementation of the enterprises promotion decree of 1973. This assists the indigenous businessmen.
Nigerian Agricultural And Co-Operative Bank (NACB)
This assists the agricultural sectors individual farmer and co-operative bodies and is fully owned by the federal government.
This was established in 1973 with a capital of twelve million naira (N12 million).
Federal Mortgage Bank (FMB)
This is a bank established by the government to help people build house by giving them long-term loans. The customers pay back what they own the bank by mortgaging the land and house till they finish what they are owing.
Specialized Bank:
This is another types of bank which was established by the government and it includes the following namely.
Peoples Bank Of Nigeria:
This is set up by the Nigerian government in 1989 to help petty traders. They also provide loans in-group at no interest rate but an administrative cost of fifteen percent (15%) of the loan.
Community Bank:
This is self-sustaining bank owned and managed by a community or a group of communities to provide financial services to that community. This was established in1990.
Banking system is the system at which banks operate. This is divided into four groups namely.
Until Banking:
This is a types of banking system where the bank involved operate without branches. This is commonly found where commercial bank exists.
Branch Banking:
This system relate to a situation where there are few bank with a large number of branches. This then falling the readers that the bank seen here operate with branches.
Group Banking:
This system is a situation where three more independent banks are brought together under one control through the exercise of majority share stock ownership.
Despite the creation of all these banks by the government to and entrepreneurship development. The Nigeria banking system still encounters a lot of problem, which has disrupted its operation in the country.
1.2 Statement of the Problem
The problem in a nutshell includes such practices as fraudulent activities and mismanagement by bank officials poor, liquidity and unavailability of adequate credits to deserving customers. The phenomenon technically referred to as “Bank distress” has become a regular feature in the Nigeria banking industry. It connotes the erosion in the capital base of the enterprises, which is commonly traceable to indigenous banks.
Nigerians set up these banks as earlier mentioned with sole objective of meeting the business needs of follow Nigeria. For insurance the National bank, when established in1933, work towards catering for the interest of Nigerian. Which aimed at assisting indigenous companies and individual who were victims of the discriminating practices of foreign banks. These banks have achieved a lot in the country since their inception irrespective a very serious set backs caused by unco-operative attitudes of bank delfors and hard regulatory polices as well as unpatriotic attitudes of the citizens.
1.3 Objectives of the Study
The main objective of this study is to critically analyze the problems of banking system in Nigeria. Specific objectives include:
- To evaluate the cause of banking problems in Nigeria.
- To find out the impact of the banking problems on the performance of tf the sector.
- To find out the possible prevention strategies or failure resolution options of problems of bank systems.
1.4 Research Questions
- What are the causes of the problems in the banking system?
- What is the impact of the problems in the banking system?
- What is the profit growth rate of commercial bank during the problems?
- What are the effects of the problems in the banking system?
- What are the possible solution options to this phenomenon in the banking scene?
1.5 Research Hypotheses
- H1: banking system problems has no effect on the average profit of commercial banks.
- H0: banking system problems has effect on the average profit of commercial banks.
1.6 Significance of the Study
It is of importance for banks and business organization to know the cause of the problem in the banking industry and the possible ways of solving them.
It will also aid most banks and business organization to realize the need to encourage the growth in Nigerian banking industry. That our banks should not be allowed to die having lived to their responsibilities.
The projects will also make Nigerians realize the need for hones try, handwork and patriotism so as to encourage and inculcate banking habit not only to the masses but also to the rural dwellers.
Also, this project will serve as material for future research, economists and the economy of the country.
1.7 Definition of Terms
The terms used in this work needs to be defined to facilitate the understanding of the reader. As one of the greatest Greek philosophers Aristotle (348-322BC) would put it, he says, “Before a discussion can be intelligible there must be a definition of terms.
Definition of bank or banker: It can be defined as any person or corporation that provides the minimum banking services and which is licensed as a bank by the federal government of Nigeria as a banking institution.
Banking system is the system at which bank operate.
Chapter Five
Summary, Conclusion and Recommendation
5.1 Summary of Findings
This research work is concerned with the banking system problems of profit growth in commercial banks in Nigeria banking industries.
The review of 104 years of banking experience in Nigeria has been characterized by significant growth in the number, structure and the spread of the financial institutions. In other words, the Nigerian banking sector had over the years undergone a series of structural and institutional changes. The system has moved from an under-developed state with few banks in the 1960s to a more diversified and competitive industry with an avalanche of commercial and Merchant banks, as well as specialized banks.
However, this positive impact of the reforms was undermined by the advent of the problems in the banking system in the banking system, even though generally modest until 1989. The banking system problems in the industry had become generalized, spreading to virtually all the system’s sub-sectors.
5.2 Conclusion
The main thrust of this study was an investigation into the nature, extent and causes of the problems in the banking system in the Nigeria financial industry, particularly the banking sub-sector.
The study confirmed the presence of the problems in the banking system in the banking industry, but generalized that the banking system problems could not be described as systematic since a good number of banks remain healthy to which many customers “flown for safety”. On the whole, 80.9% of the banks are believed to be healthy, 11.1% believed to the mildly distressed, and 8.09% confirmed to be severely distressed. All the major factors causing banking system problems namely; institutional, economic, and political etc. contributed in varying degrees to the distress, rating institutional factors (in terms of poor management, credit policy, ineffective machinery for debt recovery, insider dealings, abuses, fraud and poor credit administration) highest thus, significant to the distress.
The findings of this study as shown above, revealed that various banking system problems resolution option were used by the regulatory/supervisory authorities in trying to address the problems of the problems in the banking system in Nigeria banking system without any success. The resolution framework appears to have some inadequacies associated with it. Some of the inadequacies include the lack of sufficient resources to handle failure resolution and the ineffectiveness of holding actions to handle distress.
Based on the above, we can conclude that the ineffectiveness of the existing banking system problems resolution framework that resulted in a continuous increase in the depth of the problems in the banking system and number of the problems in the banking system banks in the system, can be attribute to the inadequacies/lapses inherent in the operational framework. This therefore, calls for reform of the operational aspect of the existing banking system problems resolution framework for it to be effective in addressing banking system problems problems in the Nigeria banking system.
5.3 Recommendations
In order to minimize the effect banking system problems on banks clientele and the economy as a whole and also avoid the encroachment of the factors responsible for banking system problems into the banking system, the regulatory authorities may have to use better measures of evaluating the feature of the problems in the banking system at an early stage. This will no doubt create sufficient lead-time to apply remediable solution before serious damage is done.
It can also be seen that the relative ineffectiveness of the existing banking system problems resolution options can be traced to a great extent on the inadequacies in the operational framework. This therefore, calls for substantive reforms as they affect banks banking system problems resolution options. Accordingly, the following recommendations are being proposed:
a) Measures to minimize the undesirable effects of holding actions
- To the extent that banks on which holding actions are imposed are not bidding for their own account, they should be allowed to participate in the foreign exchange transaction on behalf of their customers since foreign exchange is sold on cash and carry to the customers through their banks. This could minimize the loss of good business and high network customers.
- Banks could allow lending to “first class customers” beyond the level of preceding month’s recoveries, with the prior approval of the relevant supervisory agency as long as the bank’s account with the CBN is not overdrawn. Indeed, banks should no longer be allowed to overdrawn their accounts with the CBN.
b) Need to Set aside financial resources to handle bank distress
Since the government is so much concerned with the need to deal with widespread bank insolvency in the system, there is the need for an explicit financial provision in the national budget to deal with defaults and banking system problems in the nation’s financial sector. Such commitments on the part of the government will go a long way in restoring public confidence in the banking system.
c) Increased supervisory capacity.
There is need for increased bank supervisory capacity especially in the off- site surveillance, where emphasis should be on development of an early warning model for early indemnification of distress, and on – site inspection.


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