TABLE OF CONTENTS
TABLE OF CONTENT
1.1 BACKGROUND OF STUDY
1.2 STATEMENT OF PROBLEM
1.3 SCOPE OF THE STUDY
1.4 OBJECTIVE OF STUDY
1.5 LIMITAITONS OF STUDY
1.6 DEFINITION OF THE TERM
2.0 LITERATURE REVIEW
2.2 IMPORTANCE OF BANKS
2.3 BANK FAILURE
2.4 CAUSES OF BANK FAILURE
2.5 MANAGEMENT RELATED FACTORS
2.6 OWNERSHIP RELATED FACTORS
2.7 ENVIRONMENTAL RELATED FACTORS
2.8 CONSEQUENCES OF BANK FAILURE
2.9 MEASURES TO EMEDY BANK FAILURE
3.0 SUMMARY OF FINDINGS
The term bank means a place where money and other valuables are kept for safety. Modern commercial banking in Nigeria dates back to the colonial period.
The decline in barter system of trade and the rise in financial transactions of the colonial government goes rise to commercial bank for safety and transmissions of funds. It was for this purpose that African Banking Corporation bead in South Africa was invited in 1892 to open a branch office in Lagos. In 1894, its operations was taken over by the Bank of British west Africa. In 1899 the bank of Nigeria was established by the Royal Niger Company which was later absorbed in 1925 by the Bank of British West Africa.
The Central Bank of Nigeria (CBN) was established in 1957 and it began its operations on July 1st 1959 with an authorized capital of N1.5m. This CBN manages the cost, volume, availability and directions of money and credit in an economy with a view of achieving some desired economic objectives. The industrial and commercial bank was established in 1929 by the business men but it went into liquidation in 1930. The Nigerian Merchant Bank was also formed in 1931 but it went into liquidation in 1936.
These banks contributed significantly to the economic development as follows: -
- The Commercial Banks helps business sectors and grant credit to small and large scale industries.
- They provide employment opportunities
- They maintain large portfolios of local securities
- The aggressive mobilization of domestic savings
- The Central Bank act as bankers bank, banker to government and bank of issue
- The CBN manages the national debt of the country
- It also controls money and credit in the economy.
Prior to the introduction of Structural Adjustment Programme (SAP), the interest rate in banks were foxed by fiat. At the introduction of SAP, the interest rate was deregulated with this deregulation, the interest rates went as high as 45% per anum while the inter-bank rates went as high as 50%. However, in December 1992, the average inter-bank rates closed at 46% for commercial banks and 42 to 80% for merchant banks.
These high rates caused the collapse of many banks and companies. This trend continues until the government formally pegged the rate in 1994 as follows: -
- Savings/deposit rate at 12 – 15% per anum
- Maximum lending rate, 21% per anum.
This is applied to loan and advances, bankers acceptance, commercial paper and rediscounts. These rates continued to apply until the middle of 1996 when the interest rates were deregulated. On the long term funds from the capital market, this has been besieged by many problems and failures among banks and companies.
In 1995, 60 banks were adjusted distressed. In 1996 the number was 47 with 35 banks critically distressed while 12 banks were fairly healthy.
To highlights the issued of bank failure further the managing director of NDIC on 25th April 1995 during the Institute of Chartered Accountant of Nigeria national Award highlighted that: -
- 10 more distressed banks are to be put on sale bringing the total for sale to 16.
- N4billion (cash and assets) have been recovered from debtors of 52 distressed banks. This recovery represents 9.76% of N41billion depositors fund trapped and 6.93% of the institutions net assets estimated at N57.7billion 1996.
- About 48 cases have been prosecuted at the failed bank tribunal out of which to have been concluded
- About N46billion of government fund made up of overdrawn account with CBN, NEXIM, NEFRUND as well as SMS, projects that cannot be justified. This does not include government equity investment in some of these banks and debts owed to government agencies like NITEL, NEPA, Water corporation etc.
These become a source of worry to the public, managers and regulatory bodies like Central Bank of Nigeria, the Nigeria Deposit Insurance Corporation (NDIC) and a problem to the society at large.
This study however, intends to discuss the consequences of this bank failure on the economy of the country and also suggest the possible ways of solving the problem.
Disclaimer: Note this academic material is intended as a guide for your academic research work. Do not copy word for word. Note: For Computer or Programming related works, some works might not contain source codes
CITE THIS WORK
(2014, 10). The Bank Failure: Causes And Consequences.. ProjectStoc.com. Retrieved 10, 2014, from https://projectstoc.com/read/3441/the-bank-failure-causes-and-consequences-795
"The Bank Failure: Causes And Consequences." ProjectStoc.com. 10 2014. 2014. 10 2014 <https://projectstoc.com/read/3441/the-bank-failure-causes-and-consequences-795>.
"The Bank Failure: Causes And Consequences.." ProjectStoc.com. ProjectStoc.com, 10 2014. Web. 10 2014. <https://projectstoc.com/read/3441/the-bank-failure-causes-and-consequences-795>.
"The Bank Failure: Causes And Consequences.." ProjectStoc.com. 10, 2014. Accessed 10, 2014. https://projectstoc.com/read/3441/the-bank-failure-causes-and-consequences-795.
- Related Works
- The Effect Of Financial Accounting Reporting On The Management Of A Business (a Case Study Of Emenite Ltd)
- Impact Of Computerization On Financial Institution. (a Case Study Of First Bank Of Nigeria Plc, Enugu.)
- Spiral Growth Of Banks In Nigeria: Manpower Problems And Solutions. A Project Presented To The Department Of Accountancy, Institute Of Management And Technology (i.m.t.) Enugu
- Importance Of The Stock Exchange In Promoting National Growth And Development
- The Impact Of Loans And Advances In Community Banks A Case Study Of Ekulu Community Bank Enugu
- An Appraisal Of Auditors Independence In Private Sector
- Taxation As An Instrument Of Economic Development In Nigeria
- Inflation In Nigeria, Causes, Consequences And Control
- The Challenges And Uses Of A Computerized Accounting System
- Management Accounting Techniques In Manufacturing Firms (a Case Study Of Nigeria Breweries Plc. Aba)