The Effect of Bad Debt Management in Nigerian Banking Industry and Dissertation

The Effect of Bad Debt Management in Nigerian Banking Industry and Remedies - Dissertation Example 2. Literature Review 10 2.1 Nigerian Banking Industry and its Role in Economic Growth 10 2.2 Deregulation of the Banking System 12 2.3 Credit Risk and its Management Strategies 13 2.4 Impact of Credit Risk 17 CHAPTER THREE 19 3. Research Methodology 19 3.1 Justification of the Methodology 19 3.2 Research Methodologies 20 3.2.1 Qualitative Methodology 20 3.2.2 Quantitative Methodology 21 3.3 Data Collection 21 3.3.1 Primary Data 22 3.3.2 Secondary Data 23 3.4 Sampling 23 3.5 Reliability and Validity 23 3.6 Ethical Considerations 24 References 25 CHAPTER ONE 1. Introduction The history of Nigerian banking industry dates back to the year 1892 when the first bank was incorporated by the colonial British Empire (Okezie, Tella, and Akingunola, 2011). The business operation of the Central Bank of Nigeria (CBN) was initiated in the year 1959. The autonomy of CBN was lost to the Federal Government during the period 1968 to 1999. It resulted in Nigeria being surrounded by a loose monetary policy that was implemented by the Federal Government then. In the year 1999, the last of the military regime in Nigeria, gave back the banks legal autonomy in the field of exercising monetary policy and regulatory functions (Central Bank of Nigeria, n.d.). After the independence of Nigeria in 1960 till the beginning of 1980s, the banking industry of the country was mainly dominated by the three banks namely First Bank, Union Bank, and United Bank for Africa. The banking sector was deregulated by the Nigerian government in 1986 which resulted in easement of entry barriers for the new entrantsin the banking industry of Nigeria. As a result of this deregulation, many new banking firms made an entry into the Nigerian banking sector and the number of banks in the country rose to over 100 (Ekpenyong, and Acha, 2011). Many of these new banking firms were poorly managed and weakly capitalised. The regulatory supervision was also quite weak. This resulted in a series of bank failures and turned up to be banking crisis in the year 1990s. At the beginning of 1989, almost 20% of the loan portfolios were adjudged to be non-performing assets. Since the year 2002, the banking industry of Nigeria comprised of 24 commercial banks, 5 development finance institutions, 5 discount houses, 50 class A bureau de change, 598 class B bureau de change, 84 finance companies, 98 primary mortgage institutions, and 914 microfinance institutions (Iwukemjika, n.d.). One of the major concerns for the policy makers is the increasing level of cases of banks in being distress. Hence bad de bt forms an important aspect of the banking industry in Nigeria. 1.1 Background of the Study It is a fact that the banking system is considered to be the engine of growth in any economy. It is so because of its function of financial intermediation. With the help of this function the banks are able to increase their performance, facilitate capital formation, and ultimately help in promoting economic growth (Badun, 2009). However, the ability of the banks to foster economic development and growth depends on the stability, health, and soundness of the system. The shareholders fund constitutes only a small portion of the total liability of the banks. This fact undermines the need for a reliable, viable and strong banking system. Hence, not surprisingly, the banking sector is found to be one of the most regulated sectors in an economy. In a modern economy, one can find clear distinctions between deficit and surplus economics units and also in the process of separation of the mechanism re lated to saving investment. This fact has led to the emergence of financial institutions whose primary responsibility includes