PROBLEMS OF BANKING SYSTEM IN NIGERIA
(A CASE STUDY OF CO-OPERATIVE AND COMMERCE BANK OF NIGERIA)
CHAPTER ONE
- Introduction 1
1.1 background of the study 6
- Statement of the problem 9
- Purpose of the study 10
- Significance of the study 11
- Limitation of the study 12
- Statement of hypothesis 12
- Definition of terms 13
CHAPTER TWO
- Literature review 16
2.1 Definition of a bank 16
- History of co-operative and commerce banks 20
- Types of banks and their functions 23
- The role of banks in the national economy. 25
- Types of problems facing commercial
banking industry in nigeria 29
- Competition in banking 46
- Organizational problem 49
- Causes of bank failure 50
CHAPTER THREE
- Research design and methodology 53
3.1 sources of data 53
- Location of data 58
- Sample of data 59
- Method of investigation 60
CHAPTER FOUR
- Data presentation and analysis 61
4.1 tabulation of frequency result 61
- Test of hypothesis 67
- Analysis of data 71
- Interpretation of data 74
CHAPTER FIVE
- Summary of findings, conclusions and recommendation 76
5.1 Discussion of findings 76
- Recommendation 88
- Conclusion 90
Bibliography. 94
CHAPTER ONE
- INTRODUCTION
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 transactions. Because these receipts were accepted generally, they become transferable too.
A back is an institution where money and valuable are kept for safety purposes. Banks also lead money known as loan, pay out money an the customer’s order by means of a cheque and bandraft and also give overdraft to customers.
The structure of banks can be grouped into the following namely:
- CENTRAL BANK: This is the opex institution in the financial system of any country. It is charged with the responsibility of managing the monetary polices of the government. This was established in March 1958 and started full operations by 1st July, 1959. Which was after many banks like the West African Currency Board (WACB) in 1912, and the International Bank for Reconstruction and Development (IBRD) in 1955 failed to perform their objectives, and they later folded up.
- COMMERCIAL BANK: This was started in Nigeria in 1892 with the establishment of African Banking Corporation and foded up in 18 93, then British Bank of west Africa [BBWA] was established in 1893. started operation in 1894 and later folded up too. May other bank come into existence which equally up. This is classified into three main groups which are as follows.
(a) INDIGENOUS BANK: these are bank fully owned and controlled by Nigerian citizen including government. The first indigenous bank in Nigeria was the national bank of Nigeria (NBN), which started operations in 1933 followed by African Continental Bank Ltd (ACB) in 1947.
(b) MIXED BANKS: These are banks jointly owned and controlled by foreigners and Nigeria citizens including governments.
(c) FORIGN BANKS (XPATRIATE BANKS): These are banks fully owned and controlled by the foreigners.
The Nigeria Indeginization Act of 1972 Convert Most of these foreign banks which was Ider phased out ling time ago. However, the 1995 budget has reintroduced the foreign (expatriate) trade in which banking system is an integral part of it.
- MARCHANT BANK: This is a bank that specializes in providing financial services to commercial firms and industries. This was established in 1964. this was established to assist large corporation , government, investor and individual in their financial and management problems.
4 DEVELOPMENT BANK: This is a bank sep up to handle special development projects in the country. Also it help entrepreneurs by providing loans and consulting services to them, this is classified into the following groups namely:
- NIGERIA INDUSTRIAL DEVELOPMENT BANK (NIDB): This was established in 1964 to replace the investment corporation of Nigeria. This assists the public and private sector companies.
- NIGERIA BANK FOR COMMERCE AND INDUSTRY (NBCI): This was established in 1973 to see to the financial implementation of the Enterprises promotions Decree of 1972. this assist the indigenous businessmen.
- NIGERIA AGRICULTURAL AND CO-OPERATIVE BANK (NACB): this was established in 1973 with a capital of twelve million naira (N12 million) and is fully owned by the federal Government. This assists the agricultural sectors individual farmers and co-operative bodies.
- FEDERAL MORTGAGE BANK (FMB): This is a bank established by the government to help people build house by giving them ling term loans. The customers payback what they own the bank by mortgaging the land and house till they finished what they are owing.
- SPECIALISED BANK: This is another type of bank which was established by the government and it includes the following namely:
- PEOPLES BANK OF NIGERIA: This is set up by Nigerian government in 1989 to help petty traders. They also provide loans in groups at no interest rate, but an administrative cost of fifteen percent (15%) of the loan.
- COMMUNITY BANK: This was established in 1990, for rural development. It was credited to bring the banks closer to the community to assist people in their business transactions and daily running.
Banking system is the system at which banks operates. This is divided into four groups namely:
- UNIT BANKING: This is a type of banking system where the banks involved operate without branches. This is commonly found where commercial banks exists.
- BRANCH BANKING: This system relates to a situation where there are few banks with a large number of branches. This is then telling the readers that the banks seen here operate with branches.
- GROUP BANKING: This is a situation where three or 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 aid entrepreneurship development. The Nigerian banking system banking system still encounter a lot of problems which has disrupted its operation in the country. This project will look at most of these problems and their causes and also provide possible solutions to avoiding these problems in the development of banking system.
- BACKGROUND OF THE STUDY
Commercial Banks as financial Institutions were established to cater for the savings and credit needs of small scale producers. Commercial banks are the pioneering institutions in the art of banking followed by other banks. The art of banking and industrial financial needs developed gradually and involved a lot of learning and perfection. The early businessmen who were involved in this art learning and perfection were extra careful in management either because they could not accurately fore cost very well into the future or the risk involved in such find management was such that they could not by the use of the tools and techniques available to them totally avoid, or reduce to a manageable level . pioneers of banking business realized early in life from the more unpredictable and the grate. The risk involved in lending.
Moreover, for the fact that they could not predict the time their depositors will come for their money, they always keep their money handy-lending short. This marching principle and the confidence of utmost good faith which characterized early banking practice was the hinge on which commercial banking successfully started.
As the economy grew, the need to hoslen growth of a particular segment of the economy may arise. This may be through different finding to boost development in that sector, a priority which under normal circumstances, the existing financial arrangement could not after. So the need to establish financial institutions, designed to act as catalyst, to provide the needed fund to galvanize the development of the less privileged sub-sector for the economy into action and to grow along with other sub-sectors of the economy. In Nigeria, this need to provide and package special type of financing to some less privileged sub-sectors of the economy gave rise to the establishment of the people’s Bank, New Nigeria Bank etc.
In a barker economy, there was no financial needs as economic and social needs were met by a mere exchange of goods and services. However, with growth and development, there arose financial needs of which commercial Banks adequately took care of but not for long. With time the gap started again of which the existing commercial Banks could not fill.
It is quite unfortunate that some commercial banks not quite long after establishment will start experiencing multi – purpose problems. Most of these institutions have ill-defined objectives-objective so broad that usually the institutions do not have the means nor the experience and capabilities to achieve them. Further more political interference affects development institution. Most of these institutions are mostly government owned banks and are prone to politics and government, interferences. It becoming a norm that instead of appointing experienced and qualified persons as Board members of these institutions to make expert policies, political consideration favouritism takes upper hand with the result that Board members will not be contributing their best. Also government direct or indirect interferences in the lending policies of these institutions, have not helped matters. Lack of qualified and experienced staff to man, these institutions did not help matters, with the result that decision and results were not what are expected to be. It is on this background that the research is carried on for effective check and control.
- 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 faceable to indigenous banks. These banks as mentioned were set up by Nigerians with sloe objective of meeting the business needs of fellow Nigerians. For instance the National Bank, when established in 1933, work towards catering for the interest of Nigerians. The African continental Bank (ACB) was established in 1947, which aimed at assisting indigenous companies and individuals who were victims of the discriminating practices of foreign banks. These banks have achieved a lot in the country since their inception irrespective of very serious set backs caused by unco-operative altitudes of bank debtors and hard regulatory policies as well as unpatriotic attitudes of the citizens.
- PURPOSE OF THE STUDY
The purpose of this project is to identify and provide possible solutions to the problems in the Nigerian banking industry. So having identified the problems to which this study address itself, the researchers shall in this work, make a critical insight into the problems of banking system in Nigeria (case study of co-operate and commerce bank Plc Enugu) and determine the effects and reactions of the situations in the following:
- The profitability of the bank.
- Their reaction to the various policies of the government through central Bank of Nigeria and Nigerian Deposit Insurance corporation to correct their irregularities.
- The overall impact of these two situations on the bank existence and to their customers.
- SIGNIFICANCE OF THE STUDY:
It is of importance for banks and business organization to know the cause of the problems in the banking industry and the possible ways to solve them.
It will also and 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 project will also make Nigeria realize the need for honesty, hard work and patriotism so as to encourage and inculcate banking habits not only to the mosses but also to the rural dwellers. Also its project will serve as material for future research, economist and the economy of the country.
- DELIMITATION, SCOPE AND LIMITATION OF THE STUDY
The problems of Nigeria banking system is a very broad topic, but its project will concentrate on the indigenous banks with its scope being limited to the co-operate and commerce bank Enugu which has experienced in recent times a big short fall in its operation.
The Nigerian Deposit insurance corporation (NDIC) which was set up to monitor the activities of these falling bank in Nigeria declared the bank (ACB) in 1993 as one of banks distressed.
Other limiting factors as to the successful conclusion of the project was the inability of the members to visit other banks that are distressed at Enugu and other Eastern zone due to the limited time factor. Owing to this fact, the members of the group decided to do with the available data.
- STATEMENT OF HYPOTHESIS
Using the information collected the researcher will attempt to test the validity of the following hypothesis
- Ho: Banks in Nigeria are not lucrative because of problem facing them.
H1: Banks in Nigeria are lucrative upon the problem facing them.
- H1: The policy of central bank affect the operation of banks in Nigeria.
Ho: The policy of central bank do not affect the operation of banks in Nigeria.
- 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 (348-322 B.C) would put it he says “Before a discussion can be intelligible there must be a definition of terms”.
In defining the terms used, this project will prove that its content has been intelligibly written as to avail the reader of acquiring knowledge. Used are as follows:
- A.C.B. African continental Bank Plc
- PLC Public Liability Company
- IBRD International Bank for Reconstruction
and development.
- NBN National Bank of Nigeria
- WACB West African Currency Board.
- CCB Co-operative and Commerce Bank
- BBWA British Bank of West Africa
- FORIGN (EXPATRIATE)
(BANKS) These banks are banks where 51 percent of their equity shares are held by foreigners.
- ENTREPRE NEUR: One men business or sole business sector this means where one person organizes and manages a commercial understanding or business.
- NDIC Nigeria Deposit Insurance corporation: Thiscompany belong to the government and it’s is set up to help those banks that are distressed and to monitor their activities.
- SFEM: Second-tier foreign Exchange Market.
- CBN: Central Bank of Nigeria which is the Apex
bank
- SAP: Structural Adjustment Programme
- ABC: African Banking Corporation.
- FM: Frequency Moderation
- ESBS: Enugu State Broad Casting Service
- BOFID Bank and other Financial Institutions Decree
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