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BANKING FINANCE

AN EXAMINATION OF THE IMPACT OF FAILED BANKS ON NIGERIA ECONOMY

AN EXAMINATION OF THE IMPACT OF FAILED BANKS ON NIGERIA ECONOMY

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AN EXAMINATION OF THE IMPACT OF FAILED BANKS ON NIGERIA ECONOMY

ABSTRACT
The purpose of this research on failing bankers is to assess their impact on the Nigerian economy. The problem statement in this study endeavour sought to determine whether there are decreases in the flow of inventible resources that could be channelled to the productive sector of the economy.

Section II demonstrated how the researcher selected 100 respondents at random from three selection banks to arrive at a sample size of 50, implying that 50 questionnaires were given and all were returned.

In part III, the researcher was able to identify the forms and causes of bank failure in Nigerian banks, something other researchers were unable to do.

Section IV’s major finding was summed up in a single sentence: “Bank failure has almost crippled the Nigerian economy, implying that bank failure slows the economy’s rate of capital formations and,

ultimately, the face of economic growth.” Section V concludes with the researcher suggesting that further research be conducted on the role of monetary authorities in bank failure prevention.

INTRODUCTION TO CHAPTER ONE

1.1 BACKGROUND OF THE STUDY

The banking sector’s importance in any economy stems from its activities in financial intermediation, providing an efficient payment system, and allowing the implementation of monetary policy. Banks mobilise savings from the economy’s surplus limits and redirect these funds to deficit units, primarily private sector businesses, with the goal of enhancing their productive potential.

The liabilities of the banking system act as the medium of exchange in the payment mechanism. Banks act as agents for implementing monetary policies. As a result, an efficient and effective banking sector is required not only to promote efficient intermediation,

but also to protect depositors, encourage healthy competition, maintain system confidence and stability, and protect against systematic risk and collapse. For any economy’s banking business to achieve its goals, the industry must be stable, safe, and sound.

In Nigeria, the number of bank failures has increased rapidly, and the scope of the crisis has reached historic proportions.

The problem has now taken on a more generalised dimension, causing worry among the government, regulatory authorities, bankers, the general public, and international financial organisations such as the world banks and the International Monetary Fund (IMF).

The goal of this research is to assess the effects of bank failure on the Nigerian economy. Different people interpret bank failure differently.

Some people believe that a bank collapses only when it ceases operations, even if it has not been legally declared liquidated. In a broader sense, a bank that is unable to meet its obligations to its stakeholders as of when due to weaknesses in its financial operational and management conclusions, which might have made it illiquid and/or insolvent (CBN/NDIC, 1995).

Depositors, bank owners, and the economy as a whole are all significant stakeholders to a bank. From the foregoing, it is evident that failed banks would comprise not just liquidated banks, but also problem banks that have demonstrated some type of weakness in their financial operational and managerial conditions, rendering them either illiquid and/or insolvent.

1.2 STATEMENT OF THE PROBLEM

In Nigeria, the number of collapsed banks has increased rapidly, and the scope of the crisis has reached historic proportions. Bank failures in Nigeria’s banking industry have recently taken on an intractable dimension.

The situation appears to be such that regulatory authorities appear to be waging a lost battle in their efforts to clean up the system. As a result, public trust in the banking system has eroded, reducing the flow of inventible resources that could otherwise be channelled to the productive sectors of the economy.

As a result, the researcher thought it was appropriate to investigate the impact of collapsed banks on the Nigerian economy.

1.3 AIMS AND OBJECTIVES OF THE STUDY

Because of the vital role that the banking system plays in the growth and development of any economy, the goals of this research are as follows.

1. Determine whether there is a lack of trust in the banking system.

2. Determine whether or not bank deposits have decreased.

3. Determine whether there has been a decrease in foreign investment.

4. Determine whether bank collapse can cause the Nigerian currency to depreciate.

5. Determine whether bank failure can result in job losses due to worker retrenchment.

1.4 RESEARCH QUESTIONS

The researcher plans to provide a critical and empirical analysis of the impact of collapsed banks on the Nigerian economy.

To that purpose, suitable responses to the following study questions are required.

1. Is there a loss of trust in the banking system as a result of bank failure?

2. Is there a decrease in bank deposits as a result of bank failure?

3.Does bank failure result in a decrease in foreign investment?

4. To what extent might bank failure lead to currency depreciation in Nigeria?

5. Is bank collapse associated with unemployment?

1.5 RESEARCH HYPOTHESES

1. Ho: Poor portfolio management cannot be the reason of bank failure.

Ho, bad portfolio management can lead to bank failure.

2. Ho: The government’s debts to banks cannot cause bank failure.

HO: Government obligations due to banks may result in bank failure.

3. Ho: Monetary authorities have no important role to play in managing inflation.

failure of a bank

Hi: Monetary authorities play an important role in managing inflation.

The failure of a bank.

1.6. SCOPE OF THE STUDY

This study is limited to the Nigerian economy. The researcher was unable to cover much land due to time limits, funding constraints, and other factors.

1.7. DEFINITION OF TERMS

1. Insolvent: A bank’s inability to fulfil its creditors’ claims as and when they become due.

2. Stakeholders: Individuals who have made a financial investment in the bank.

3. Bank failure: This term refers to a bank’s inability to meet its obligations on time due to weaknesses in its financial, operational, and managerial conditions.

4. Depositors: Individuals who make a deposit with a bank.

5. CBN: Defined as the Central Bank of Nigeria.

NDIC is an abbreviation for Nigeria Deposit Insurance Corporation.

 

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