1.0 Introduction
Banking services in Nigeria started in 1892 with Elder Dumpster and Company a British organization, engaged in the business of moving coins ups and down the country. During this period, the colonial officers observed the risk involved in carrying these coins about and therefore decided to assist Elder dumpster company in this banking corporation.
However, African Banking Corporation failed in 1892 and was taken over that same year by banks of British West Africa. Between 1892 and 1928 more British banks came and opened banking offices in Nigeria but these banks were discriminatory in their practice, especially as it affected Nigerians.
However the monopoly which these foreign banks exercised sparked off the setting up of indigenous banks between 1929 and 1951, even through many of them failed due to mismanagement, aggressive competition mounted by these foreign banks and under capitalization the same problem which the current CBN management is attempting to address.
Osubor / Okafor (2006) institutional finance.
1.1 Background of the Study
As a result of the indigenization and economic boom of 1970s, more commercial merchant and development banks were established in Nigeria to cater for the banking needs of the people. This trend continued into 1990s and 2000s and with the recent deregulation of the economy and recapitalization of the banking industry, banks in Nigeria consolidated their position with the result that we now have about 25 mega-banks with each having owners capital of #25 billions and above.
This was unexpected because various policies put in place so as to achieve a realistic exchange rate for the naira disputed price levels. There was a multiplier and down stream effect which crystallized all economic endeavours. It was patently evident that the injection of fresh credit and increased efficiency in the service delivery form the financial sub-sector are imperative for full realization of the economic reforms being pursued under the structural adjustment widening of the sphere which banks could operate.
The general deregulation permits banks to do a cot of more business and particularly the distinction between merchant and commercial banking is now getting very fine, therefore, the upsurge in member of banks itself is a positive development, because more people are now aware of banking services.
According, to the service provided by Nigeria commercial bank includes:
- Collection and payment services
- Depository services
- Credit management services
- Miscellaneous service like business advisory services.
- Provision of specialized facilities such as funding trade transaction, trust services and agency duties.
In order word it involves the protection of commercial banks investment in debtors it's therefore based on the background that the researcher wish to assess and ascertain in the non-performing loan / debt problem using intercontinental bank and Eco Bank of Nigeria plc as a case study.
1.2 Statement of the Problem
Huge debt / non performing debt has a negative effect to both the bank and its customers. The loan portfolio repayment defaults by some borrowers, there will be no available of fund in the bank to meet up the desire of their customers. This will affect the customer because even through there is available of fund, bank officials will have a kind of fear to lend to their customers. Some other negative effects of huge bank debt profile are as follows:
- It causes a lot of harm and impediments to the economic growth and development of Nigeria
- Causes of liquidity and profitability problem
- Difficulty for commercial banks in Nigeria to settle their financial obligation as at when due.
- Shortage of investment funds in the economy as it limits the loanable fund which banks can grant to a particular borrower.
- It causes banks to look for other means of investing rather than giving out loan.
1.3 Objectives of Study
The objective of this study are as follow:
- To evaluate how huge debt profile has affected the liquidity of the bank
- To examine the causes of huge bank debt by the borrowers
- To examine how huge debt profile has affected the economy
- To make recommendation on how to solve the problems associated with huge bank debt repayment default by borrowers on commercial banks.
- To minimize bad and doubtful debt which invariable deplete profitability of a bank.
1.4 Research Questions
The aim and objectives of this research:
- How can huge bank debt affect the economy?
- Why is that huge bank debt affecting the customer's deposit?
- How does huge bank debt affecting shareholders equity?
- How does the huge debt affecting the organizational profitability ratio of bank its aim and objectives of this research is to find out those solution to question listed above?
1.5 Statement of Hypothesis
With reference to this research problems the objective of this empirical study, the researcher hereby formulated of the following;
- Ho: Huge debt profile in the banking system can not be checked.
- HA: Huge debt profile in the banking system can be checked.
- Ho: Huge debt profile have no negative impact on the banks.
- HA: Huge debt profiles have so much negative impact on the banks.
1.6 Significance of Study
There is a gap between management theory and management practice in Nigeria Ejiofor, P.N. (Ibid 260) identified theory gap as being brought about by the separation of the tourists from the practitioners.
Fortunately, this research study draws the experience of the practicing banker, it is hoped that the research finding would be communicated in a way meaningful to the policy maker as well as future researchers. If therefore, the results do not explicitly solve the problems, it would have created a starting point or policy debate and further research in the field of huge bank debt profile.
It is envisaged that the research would:
- Serve as a guide to the present and potential borrowers in a commercial banks
- Draw the attention of the regulating activities to the need for a stand advised policy of accounting with regard to bad debt provision
- Provide curious researcher and bank analysis with some index of bank analysis.
However, the research work would be of immense important to their researcher since it is partial fulfillment for the reward in banking and finance.
1.7 Scope of the Study
This research work is concerned with huge bank debt profile problem in Nigeria commercial banks, a case study of intercontinental bank and Eco Bank of Nigeria Plc. It excludes the central bank of Nigeria merchant and development bank as well as other financial institutions, it is committed to debt recovery officers in each branch officers of the bank as well as the officer in charge of legal debt recover, control and review section of the regional loan advance department at the regional headquarters of intercontinental bank and Eco Bank.
1.8 Limitation of the Study
Limitations of Study are made without varying degree of limitation. But limitations are bond to be many when a research involves the use of bank financial data.
Banks are known for their discrete secrecy and information sought outside the published account would be near impossible to obtain. Therefore I did not find it easy to carryout this research work due to trips to different banks involved:
Finance:
The finance available at the researcher's disposal is limited, the money the researcher is using to buy credit cards in the internet and consult the various publications, available for the study.
Time:
The time allotted to the research for this research work is limited since the same time is used for reading for the second semester examination as well.
Also there is a general resentment on the part of some respondents, all the problems not withstanding the researcher made a very satisfactory effort to ensure that this research was conducted for scientifically valid conclusions.
1.9 Definitions of Terms
1. Bad debt
According to Maxwell Ekwerike (2007:26) it's normal business expenses and must be charged as such when calculating the profit and loss for a period.
2. Non-performing Loan:
A loan where the borrowers is not likely to pay any interest nor to repay the principal.
3. Bank:
According to Dictionary of banking and finance is a business which holds money for its clients, lends money at interest, and trade generally in money.
4. Bank (by bill of exchange act)
Also the bill of exchange Act 1582 defined bank as a body of persons whether incorporated or not, who carry on the business of banking stary up to six months to one year without any returns from it.
5. Security:
Is only taken an insurance i.e, something to fall back on against unforeseen adverse development in the course of the business that make repayment from carrier source unattainable. Also is defined as freedom from danger of fear.
6. Amount:
The bank will also seek to know the amount which the customer owns applying for the amount required as loan by the customer would raise a number of relevant question like how much does he earn? Is he a salary earner or business man.,
7. Character:
It is very important and necessary to determine the degree of a borrowers integrity and honestly before advancing a loan to him to avoid having bad debts.
8. Repayment:
The source of repayment and method of payment should equally be given serious consideration.
9. Distress:
A state of banks existence without funds. The act of taking someone's goods to pay for debt.
10. Default:
A failure to carry out the terms of a contract, especially failure to pay back a debt.
11. Profitability:
Is the ability of a commercial bank to make profit and to give maximum returns on the investment of their investors or shareholders (Ngozi Iheduru and Nwokoro Ifeanyi .E. 2003:70)
12. Liquidation:
A state of winding up or closing down book and selling of its assets for a payment of a debt.
13. Equity:
Is financing that comes from investors and does not necessarily have to be repaid, although investors will normally expect a degree of return for their investment.
14. Debt:
Is a cash advance of money that will have to be paid back, normally with an interest figure on top.
15. Research:
This is the careful study of a subject in order to discover new faults or information about it.
16. Recapitalization:
This is an effort to redistribute and change the capital structure of an organization through exchange of stock, stock dividend repurchase a mergers, acquisition or amalgamation.
17. Money:
Is anything that is generally acceptable as a means of exchange and at the same time, act as a store of value and a standard for deferred payments.
18. Credit ceiling:
According to Godwin .E. Anuforo 2004:28) This instrument involves an administrative order preventing commercial banks from increasing total advance or certain specific advances above a level suggested by the central bank of Nigeria
19. Debtor:
A person who owes money.
20. Document:
A document is defined in 5. 468 of the criminal code to include register, any paper, parchment, or other materials whatsoever, used for writing, printing, which is marked with any letters or marks denoting words or with any other signs capable of conveying definite meaning to persons conversant with them, by any means do not include trade mark on a goods. A document is not only in writing paper as in vouchers, cheque etc. but includes writing based on word or stone or mental.
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