BANK FAILURES IN NIGERIA; HISTORY, CAUSES, IMPACTS AND APPLICABLE SOLUTIONS

1.0 Introduction

1.1 Background of the Study

Banks have vital roles to play in the overall development and sustainability of a nation's economy; whether a developed, developing or an under-developed economy.

A bank in this project is used in the sense of a commercial bank which is a financial institution saddled with the responsibility of accepting and managing deposits from depositors and giving out the deposits on demand. They also issue out loans to help those who have good business ideas without the necessary financial powers to back up their ideas.

In view of the various problems which have rocked the banking environment (from the era of expatriate, to the present era of indigenous banking in Nigeria), various banks have faced various crisis ranging from mismanagement, fraudulent acts, lack of technological innovations and unprofessionalism.

Though there has been some improvements but a lot needs to be done. Lessons must be learnt and final solutions needs to be applied so as to ensure sound efficient service provision by the banks and a healthy economy at large.

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1.2 Statement of the Problem

Banks sometimes fail to live up to the expected height. This may come as a result some problems which may be;

Mismanagement:

Banks are financial institution and thus, need the best and viable hands to direct the proceedings of its affairs. But when people cannot manage these banks based on global based practice, they simply run into trouble.

Un-Professionalism:

Banking practitioners or operators should be doing things/ performing their duties not opposed to the expected standards. If one is trained and has banking knowledge, he/she should work according to the ethics and principles governing the profession.

Fraud:

When there is mismanagement of depositor's funds due to unprofessionalism, managers and their likes tend to convert the chances to embezzle the funds of the bank. Customers also capitalize on it and rid the bank of her funds which will be devastating.

Misappropriation:

When certain funds which are meant for certain things are diverted or taken to other things rather than the supposed, the bank is liable to run into distress.

Unreliable and Inadequate Information and Communication System / Customer Relationship:

When banks fail to tell their customers what they need to know and when the staff also have no sufficient information about the charges in global banking, the bank finds it difficult to meet up with competitors from other banks and ends up in failure/ distress.

Lack of Technological Advancement and Upgrading of Equipments:

The world is a global village as we are now said to be living in a computer age. When banks fail to meet up with best global practices and cannot implement the decisions of the apex bank (CBN), in order to serve their customers right and evenly, they end up loosing lots of money and running into losses due to depreciation of some facilities and sub-standard nature of their equipments.

Unhealthy Competition:

When a bank cannot meet up with the needs and demands of her customers, when a bank fails to listen to the directives of the apex bank (CBN), when it fails to upgrade the knowledge of its staff and customers, when it could not adapt to best global practices and embrace full digital banking, they simply could not stand the heat in the system as other viable banks keep on devising many means of progressing, the bank will have to wind-up its services or get merged with another in order to survive the heat.

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1.3 Objectives of the Study

1. This study is aimed towards finding the causes of bank failures in Nigeria (using Fidelity Bank in Owerri as a case study)
2. Pointing out the impacts and effects of the various bank failures on the Nigerian economy and development at large.
3. Finding lasting solutions to the various problems discovered in the course of this study.

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1.4 Research Questions

• What are the effects or impacts of mismanagement on the existence and performance of the bank?
• How can a bank trying out the best in her staff so as to ensure high level efficiency?
• Does bank-customer relation affect a bank's capacity to function?

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1.5 Significance of the Study

Transformation:

This research work is designed to provide for the bankers (both those who own the banks and their staff) with the tools to innovate and have what it takes to survive even in the midst of other banks both nationally and internationally.

Fact Finding:

The work is expected to equip various managements with the tools to identify and manage both internal environmental and external environmental problems. It provides the means of preventing future occurrence of failure in banks.

This research work has also been designed not just to benefit the banks but to help to set Nigerian economy on the high side. Since the banks are said to be the back bone of any economy, this efficiently and stability in banking industry will lead to a boom in the economy of Nigeria as a nation.

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1.6 Scope of the Study

The scope of this research is limited to Fidelity Bank Plc in Owerri. Though references could be made to other banks if the need arises.

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1.7 Limitations of the Study

Finance:

The study was affected by the inability of the researcher to meet as may respondents as possible and extend the research to other vital aspects like the apex bank headquarters (CBN in Lagos)

Time Factor:

The study runs concurrently with the school calendar and hence a student is expected to come out with high rating in both, it becomes tasking and challenging.

Withholding of Information:

Sometimes in the course of this study, the researcher is being faced with or is given a shallow or inadequate information by major operations in the banks (Managers). The other correspondents sometimes conceal vital in formations for fear of their safety.

Lack of Awareness On Research:

Because Nigerians have failed to develop the spirit or investigating things to find out the root or cause of some problems or answer some questions. It was difficult working among people who doubt have the zeal and hunger to embark or fact finding missions.

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1.8 Definition of Terms

Economy:

This is the relationship between production, trade and the supply of money in a country or region.

Financial Institutions:

These are go-betweens or intermediaries that stand as a connection from owners of funds to the users or those who need these funds. We have bank and non-bank institutions.

Deposits:

A deposit in the banking sense, is a sum of money or other equivalent paid into an account of a bank by a customer either for personnel savings or for debt settlement.

Bank:

A bank is a financial institution established by law (Bank and other Financial Institutions Act – BOFIA) where financial services are done. They serve as the heart of the economy of a country.

Expertrate Banking:

This is the type of banking operations carried out by foreigners or non-citizens of a country.

Indigenous Banking:

Operation of legal banking services by citizens of a particular country in that particular country.

Un-Professionalism:

This is the act of not reaching or opposed to the standards expected in a particular area of skill or mastery. One becomes a professional by subscribing and sticking to the ethics and guidelines governing the particular profession.

Misappropriation:

A means of assigning or posting something (which could be money), from an appropriate area or sector where it is needed, to a sector or area where there's no augment of concrete need of such fund.

Respondent:

A person is said to be a respondent when he/she answers or is in a position to provide answer(s) to a researcher or an investigation on a research mission.

Correspondent:

A correspondent is one who is on a fact finding mission and interacts with a person or persons with the view of finding answers to some questions.

Bank-Customer Relation:

The kind of relationship or treatment that exist between bank staff and the customers of the bank. When there is good relationship between a bank and her customers, there's the tendency of the bank getting to great heights.

Finance:

Finance literarily means money. It can also be said to be the provision of money.

Money:

This is “anything” used as a medium of exchange, provided that “anything” is durable, scarce, portable and acceptable both domestically and internationally.

Depreciation:

This is the wear and tears or loss of in value of an asset.

Embezzlement:

This is the act of using carelessly or wrongly, money kept or placed in one's care, to benefit him/her.

Winding-Up:

This is a means of living business. A firm may decide to close operations if it can't manage the activities well.

Merger:

merger is the integration of two or more companies or business in order to achieve a positive goal.

Industry:

His is the name used for people or companies who provide the same type of good or service e.g. Banking Industry.

Apex Bank:

By apex, we mean to. Therefore, apex bank is the bank at the top of the banking hierarchy that regulates the activities of other banks. (In Nigeria, we have the Central Bank of Nigeria as the apex bank).

Manager:

A person who controls a business or similar organizations e.g. a bank.