Bank failure and economic development in nigeria A critical appraisal

 INTRODUCTION:
Over the last couple of decades, the Nigeria financial system has grown remarkably. From the almost crude of it was characterized with in pre –colonial and colonial days. It has become so sophisticated toady that economic experts can proudly thumb their chests. With due regards to the ownership structure of the institution, the regulatory flame work, the instruments employed, and the number of established institution, Nigeria can be said to posses the most sophisticated financial system in Africa.

Within the Nigeria financial system itself, the banking system itself, the banking institution has been the most remarkable in growth. This is just as well in any case considering the critical position, which they occupy. In a complex financial position, which they occupy, in a complex financial position, which supplies the money and the credit, need of the economy.

The work bank and banker is neither used or define. In the central of Nigeria (CBN) degree NO 24 of the 1991 nor bank or other financial institutions decree (Bofio) No 25 of the 1991 2 of P5.115 of exchange act 1881 provides that bankers include a body of persons whether incorporated or not who carry out the business of banking. Section (1) of the evidence act define banks or bankers as any person or persons, partnership or company carrying on the business of banking.

Financially, the banking act of 1969 produces that bank means any person who carries out the business of banking and include commercial bank and an acceptance house. The role of banks is thus an important one in the process of economic development in the sense that they mobilize fund form the surplus spending and for the economy. In this way they increase the quantum of national saving and investments. Secondary though an appropriate investment multiplier. The volume of goods produced increase as a result of projects financed by bank funds, all of which lead to a successful promotion of an efficient system of payment. Creating banking habits development in the society and providing employment opportunities.

In view of this highlights, it become easily comprehensible why the failure of the bank has a far – reaching consequence.
The ability of a bank to operate successfully rest on how well they are able to obtained the confidence of the public. If that confidence is missing, the gap will be too great for the bank to fill. The effect of bank failure on the economic development of Nigeria can be express in a nut –shell to be the following;

Lack of effective and efficient financial intimidation:
Loss of public confidence in the system, further depression of the economic additional burdens on the regulatory authorities – education of the social vice for the sake of the citizenry and in the interest of economic development, there is an expedient need to device a host of remedying situations.

The fact that a bank fails today is not to say those incidences are not systematic. There must be a number of ways out of any predicament. The only crack is how effectively employed. Such remedy includes;

a) The cultivation of a stable political environment.
b) The strengthening of the regulatory agency
c) The taking over by regulatory bodies of all termnacy distressed banks.
d) Encouragement of banking education
e) Sincere pursuit by government of all economy and monetary policies
f) All regulation pertaining capital, adequacy, minimum paid up capital, requidity ratio and quality should be reviewed in relation to inflation rate.
g) Privatization and commercialization of all government owned banks
h) All dept owned banks by government (state, federal and even parietals) should be paid back immediately.
i) All laws relating to bankruptcy and default should be reviewed and made more effective.
An address like this will go a long way in remedying the situation and restoring public confidence in the system.

1.2 STATEMENT OF THE PROBLEMS
In the light of the vital role which banks play in the development, the national economy in their capacity as vectors of fund for saving, investment and employment opportunities. It will be expedient to point out that Nigeria banking system in all its advancement and sophistications has not succeeded yet in effectively archiving this mission. The reason is not just the fact that some banks have failed, but some factor continues to militate against the successful performance of banks.

The problem of economic under – development in Nigeria can arguably be traced to the fact that banks has been as efficient as they ought to be. But then a number of factors have been responsible for the conditions in which banks have found themselves in today. The effect of bank failure ranges from lose of depositors fund to loose of confidence (which is the spicing board in the business of banking) to a total lack of effective financial intermediation such as to reduce rending to priority sector of the economy and an unusual increase of distress in other sub – sector. Then the problem of bank failure is not peculiar to Nigeria neither is it peculiar to this third world countries, it is universal and the cause are generally in the same district categories. The only different lies in the different way through which the situation can be remedied.

THE CAUSE OF BANK FAILURE
Incompetent management (both shear holders and management executives), capital inadequacy, poor internal control, poor asset quality compilation and such factors as economic environment, socio – political environment and government

1.3 THE OBJECTIVE OF THE STUDY
The objective of this study is to critically appraise “ bank failure and economic development. That is the impact which bank failure has had on the development of the Nigeria economy with a view to highlighting the implication on the depositors, the public, the affected bank, the entire banking industry and the general micro – economy. Subsequently, and engenders will be portrayed as to how the tied will be stemmed and the situation tackled in an effective manner.
The study will go ahead to reveal the prospect of banking in the future.

1.4 SIGINIFICANCE OF THE STUDY
The study is significance in the sense that a careful appraisal with intent to reveal the genesis of bank failure in Nigeria, he root causes of bank failure, how to avert bank failure and in the event of an inability to avert this, how to deal with the situation effectively.
The study will be of immense use to scholars in the field of banking and officials of regulatory agencies and intellectuals in the field of banking.

1.5 LIMITATIONS OF THE STUDY
The sensitive nature of the study made it very difficult for the researcher to obtain some very vital information from the banks. A wind who asked that we direct all information to bank executives stationed at there head offices, as they were not competent to speak on such matters. Now to see there executive necessitate traveling a great distance.

This has a telling effect on us financially. And talk about the attendant risk involves considering the state of our high ways. Another constraints was that even the executives of known bank currently under liquidation refuses to admit this and so kept a lot of information from us that is as regards briefs from (B.M. or N.O.I.C). The most telling constraint however was time. The time on our hands was very limited. It was not very easy for us to lay our hands on all the secondary data, which wee require for the study as the N.O.I.C in Enugu has not got a library and the C.B.N library was not equipped to our taste.

1.6 DEFINITION OF TERMS
1. Risk asset: Asset, which by there nature is prone to lose.
2. Liquidity: This is the mobility of a bank to meet its liability as they mature for payment.
3. Liquidity Ratio: this is the ratio of liquid asset to total deposit liability.
4. Insolvency: This is when the value of realizable asset is less than total value liability.
5. Liquidation: – The taking over of the asset and liabilities of a bank by the regulatory agent after the bank has been adjudged failed.
6. Holding action: This is action, which prohibits or curtail certain activities of boards or management or certain activity required of them to ensure bank safety.
7. Macro economy: These are the action taking by the government agency responsible for the conduct of economic prices to archive desired objectives.
8. N.D.I.C: Nigeria deposit insurance company.