Problem And Difficulties Being Face By Banks As A Result Of Bank Failure With Specific Reference To Banks
Banks grapple with a myriad of challenges stemming from the specter of bank failure, which not only jeopardizes their stability but also undermines depositor confidence and overall financial integrity. One of the foremost predicaments faced by banks in this regard is the erosion of trust among depositors, leading to mass withdrawals and liquidity strain. Additionally, bank failures inflict significant financial losses on both depositors and shareholders, amplifying systemic risks within the financial sector. Regulatory burdens escalate as regulators intensify scrutiny and impose stringent requirements to fortify banks’ resilience against failure, straining operational capacities and escalating compliance costs. Moreover, the aftermath of bank failures engenders reputational damage, impeding customer acquisition and retention efforts while tarnishing the bank’s brand image. Amidst these challenges, banks grapple with the arduous task of restoring solvency, navigating legal complexities, and ameliorating organizational vulnerabilities to forestall recurrence.
The aim of writing this project is to explain the problem and difficulties being face by banks as a result of bank failure with specific reference to banks.
To achieve this aim the research work has been classified under five chapters.
The first chapter deals with the introduction statement of problems, objectives of the study, purpose of study, significance of the study delimitation and limitation of the study.
The second chapter, deals with the literature review or review of literatures/related.
The third chapter deals with the bad debt in banks.
The fourth chapter deals with statistical analysis of data and discussion of the result.
The last chapter deals with recommendations and conclusion.
TITLE PAGE
APPROVAL PAGE
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF CONTENT
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose of the study
1.4 Objectives of the study
1.5 Limitation of the study
CHAPTER TWO
REVIEW OF RELATED LITERATURE
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Sources of data (secondary source only)
3.2 Location of data
3.3 Method of data collection (literature work only)
CHAPTER FOUR
FINDINGS
CHAPTER FIVE
RECOMMENDATIONS AND CONCLUSION
INTRODUCTION
The term bank means a place where money and valuable are kept for safety. So bank failure means the inability of the bank to meet its statutory obligation.
The financial sector of any economy plays an important role in promoting and supporting economic growth and development. When the financial sectors in distress it cannot perform this role effectively.
Modern commercial banking business commenced in Nigeria at about 1992. At that time, it was solely a business for the foreigners.
Even at independence in 1960, about 80% of Nigeria banking business remained in the hand of foreigners.
The skews in the ownership structure in fall our of foreigners was probably responsible for the observed lack of access to bank credits by indigenous during the period.
To redress this situation and meet the financial requirements of Nigeria business, some indigenous banks commenced operation in the late 1920 and 1930 at that time the banking business was virtually unregulated those new indigenous commercial and merchant bank were later to be faced with problem of under capitalization in experienced management hostile and unfair competition from foreign bank.
The British Colonial authorities suddenly saw the need to regulate banking business in Nigeria and therefore commissioned Mr. G.D. Pation in 1948 to study and determine the need for banking regulation in Nigeria, following patlon’s recommendations, the bank ordinance of 1958 was enacted the implementation of which led to the failure of about 16 indigenous banks.
By 1954, 21 of the 25 indigenous banks operating in the country collapsed of the remaining four only two are still operating in Nigeria today.
This become a source of worry to the public, manageress and regulatory bodies like Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC).
This study however, intends to sue Cobi bank as a case study, it is hoped that the end of the study, the causes and lost of bank failure and suggestion offered to deal with the problem.
1.1 BACKGROUND OF THE STUDY
The term bank means a place where money and valuable are kept for safety. Therefore, following this bank important role in an economic is failure constituting a problem to me hence the resolution to embark on this research study.
This study however, intends to use bank as a case study. It is hoped that at the end of the study the cause and cause and cases of bank failure in the modern economy will be know better and suggestion offered to deal with the problem.
1.2 STATEMENT OF THE PROBLEM
This research work intends to assess the major causes of bank failure in Nigeria and also proper possible solutions to those problems.
1.3 PURPOSE OF THE STUDY
The purpose of this research work is to meet the requirement as a pre-requisite for the award of national diploma (ND) in banking and finance.
1.4 OBJECTIVE OF THE STUDY
(i) To identify the major causes of bank failure in Nigeria.
(ii) To describe implications of the bank failure to the economy.
(iii) To suggest possible ways of tracking the problem.
1.5 SIGNIFICANCE OF THE STUDY
The researcher assumes that identifying these bank failure products and as certain public awareness will go a long way in improving banking/bank failure in Nigeria secondly.
Respondents – the right people with require information, truthful, honesting.
Data current and reliable, method of investigation data collection, data analysis.
1.6 LIMITATION OF THE STUDY
This research work has been easy as a result of time factor. This is because time management constitute a manor constraint that under the debt coverage of the scope, also the researcher encounters financial problem in the course of collecting data for the research.
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Problem And Difficulties Being Face By Banks As A Result Of Bank Failure With Specific Reference To Banks:
Bank failures can have far-reaching consequences for financial institutions, their customers, and the broader economy. While the specific problems and difficulties faced by banks as a result of a bank failure can vary depending on the circumstances, here are some common issues they may encounter:
- Loss of Reputation: Bank failures can severely damage a bank’s reputation. Customers may lose trust in the institution, leading to a loss of deposits and business. Rebuilding trust can be a long and difficult process.
- Run on Deposits: When news of a bank’s failure spreads, depositors may rush to withdraw their funds, causing a bank run. This can deplete the bank’s reserves and potentially lead to a cascading effect, affecting other banks.
- Liquidity Problems: Bank failures often result from liquidity issues, meaning the bank cannot meet its short-term financial obligations. This can lead to difficulties in funding daily operations and can exacerbate the bank’s problems.
- Credit Losses: Banks may have lent money to individuals and businesses that are unable to repay their loans. When a bank fails, it may have to write off a significant portion of these loans as losses, impacting its balance sheet.
- Capital Adequacy: Regulatory requirements mandate that banks maintain a minimum level of capital to absorb losses. A bank failure can lead to a breach of these requirements, requiring the bank to raise capital or be taken over by regulators.
- Legal and Regulatory Issues: Bank failures often trigger investigations by regulatory authorities and legal actions by affected parties. Banks may face lawsuits, fines, and regulatory penalties, which can be financially draining.
- Operational Challenges: The process of resolving a failed bank can be complex and time-consuming. Liquidating assets, paying off creditors, and managing customer accounts can overwhelm the bank’s existing operational infrastructure.
- Systemic Risk: A bank’s failure can pose systemic risks to the broader financial system. If the failure is large or interconnected with other financial institutions, it can trigger a chain reaction of failures, causing widespread economic instability.
- Employee Morale and Retention: Bank employees may face uncertainty about their jobs and the future of the institution, leading to low morale and potential staff turnover.
- Market Contagion: A bank failure can lead to a loss of confidence in the overall banking system, affecting the stock market and other financial markets. This can lead to a broader economic downturn.
- Customer Disruption: Customers of the failed bank may face disruptions in their financial transactions, including delayed access to their funds, direct debits, or loan repayments.
- Increased Regulatory Scrutiny: Regulators may intensify their oversight of surviving banks after a failure, leading to additional compliance costs and restrictions.
To mitigate these issues and stabilize the banking system in the event of a bank failure, governments and regulatory bodies often have mechanisms in place, such as deposit insurance and resolution frameworks, to protect depositors and maintain financial stability. However, the fallout from a bank failure can still have significant and lasting effects on the institution and the broader economy.