Banking and Finance Project Topics

The Causes and Consequences of Bank Failure on Nigerian Economy

The Causes and Consequences of Bank Failure on Nigerian Economy

The Causes and Consequences of Bank Failure on Nigerian Economy



The main purpose or objective of this research is to examine the causes and consequences of bank failure on Nigerian economy. The specific objectives of the study is:

  1. to conduct investigation on the causes of bank failures
  2. To know the effect of bank failures on companies i.e (investors) in the economy
  3. To explore and reveal the various failures of banks
  4. To proffer solution and recommendations on the possible ways to solve the problems of bank failures in all sectors of the Nigeria economy




Commercial banking started with the goldsmith, who developed the practice of strong people’s gold and valuables for safe-keeping, Samuelson and Nordhans (2002: 522).

In Nigeria, commercial banking started in the year 1872 with the establishment of the African Bank corporation (ABC). This corporation was responsible for the distribution of British currency notes in Lagos and it is environs, Augustine (2003: 46)

In the 1880’s, there was Elder Dempester and company which lasted until 1894. The British Bank of West Africa (BBWA) operated between 1894 -1912 when it entrenched its position by taking over the Anglo African bank limited, which became closely associated with the local enterprise colonial bank (1917) and the Barclays Bank (1925) were the two foreign owned and operating banks before the emergence of the indigenous bank in 1929 by A. A. Oshodi, pH. Williams and D.A Taylor. This Indigenous bank failed in 1930 as a result of mismanagement, over lending, accounting, irregularities etc. after this, break through, there was an upsurge of indigenous commercial banks in Nigeria that includes merchant bank ltd (1931), national Bank of Nigeria (NBN) 1993 and after this time five (5) Indigenous banks were established, the within 15 months period to, from February 1951 to May 1952 not less than eighteen banks  were arises and failures were great set back for the indigenous banking movement, and the spread of banking habit in Nigeria. This period was described by Mr. A. A. Ayida as “chaotic banking situation in Nigeria. This necessitates the banking legislation and it was promulgated as an ordinance governing the banking system in the economy (1952 ordinance).

Young (2002) says that, ample evidence exists that individual integrity of those running the banks today has never been at a higher level. Never before have we seen attention to the actual steps; procedures and control of monetary transactions. Employees as well as firms in all industries engage in fraudulent practices all over one world. Although the existence of fraud in our banks is not an uncommon or unexpected behavior, the prevalence of it is what is worrying because of all the various problems confronting the most untraceable (Ogwuma, 1985) and Akindele R. I et al (2008).

Frauds in banks early lead to loss of monies that ordinarily belong to someone other than the banks.

The loss results in some ceases in reducing the level of resources available for use in the operations of the banks. In very bad cases where frauds occur with crippling frequency and in wholesomeness, the bank may be forced to close down as a result. When the bank loses money and is wound up, the customers lose money. This leads to loss of confidence and eventually reduced patronage. Another reason for worrying in the banking industry is the vast variety of nature, character and methodology employed in fraud. Moreover, the control of identified species seems to give birth to another that is invariably more sophisticated and complex.





This chapter carefully examines the method and procedure used in generating data for analysis purpose.

As Nachimas and Nachimas (1982) noted, a research methodology would enable interchange of ideas and information. It would help us to form common accepted rules and procedures and to develop correspondent methods and techniques.


This study covers the management staff of a particular bank i.e Ecobank plc as a case study. These include the managers, accountants and top officials of the bank, many questionnaires were distributed to the staff of this bank.


Actually in determining sample size it does not depend on the size of the population being. It is misleading to assumed that the bigger the sample, the better the study. The level of precision required in the estimates, the intrinsic level of validity of factors to be estimated, the homogeneity of the population the prior information about the population, the number of categories of data to be analyzed and the level of aggregation of the result are some of the factors that should be considered to have a desirable sample size.



The data obtained during the investigation were presented, analyzed and the statistical tool used to measure the data was chi-squared (x2) test, contingency test. A total of 200 staff were obtained representing out population and 109 staffs were drawn for questioning. Out of the 109 questioned, 105 returned the filled questionnaires. These responses were classified according to the six department in the three banks selected.




This study was carried out with the prime aim of scavenging the “causes and the effects of bank failures on the Nigerian Economic Development”. It was obviously, observed by the researcher that so many factors are the vendors to the financial epidemic. The researcher was able to pinpoint some of these factors that is the “cog in the wheels of banking efficiency”, failures were not created the same day with the various companies but was employed by those who were called upon to oversea or manage those resources. It was widely understood that the workers (employees ) are the chief designers of all forms of failure in the Bank.

Accordingly, bank failures are inimical to the welfare of other companies (manufacturing and other wise). As banks and other companies are interrelated, this makes the bank the ultimate financial watch Dog” and the major custodia to all forms of monetary and collateral dealings. This study ahs tripped off the clothing of the weakness, the fraudulency and the secrets of the managers and workers of the various financial dealings on departments and sectors.


The test in the previous chapter rejected the first and second hypothesis, showing that there is a strong relationship between poor management of banks and bank distress and the second one, is that bank fraud are the main causes of failure in the various companies. It is hoped that findings from these three companies could be generalized as applicable to others.

However, this exactly may not be the case but it will go a long way in explaining what happens in other companies. It is widely experienced and known that bank failures are set banks to the Economic Development of this country (Nigeria).

One of the major effects of these short-comings are the ability of the foreign investors to divest their former interest in the Nigeria economic investment, thereby causing the economy to lose a huge sum of money or revenue.

The ability of a business organization to survive; lies on how much the could sustain their financial growth from one accounting period to the other. It is pertinent that bank interest parties who have dealings in their (the managers) firms where there is a frequent occurrence of fraud in a company, it is a “cleanse away” gesture to investors for this reasons, and many more, the failures in the baking sector should be minimized if not completely eliminated.


In a developing country like Nigeria, there are so many problems that accrue evenly among the sectors of the entire economy.

Government on its own side contributes to some of the failures in the control strategy of the country. In some developed nations, the government of such places provides for them half of what their needs could be summed up to.

In Nigeria, most Crimes are conducted for some reasons of inadequate working facilities. Failures are much in the so called public owned corporations, which was supposed to be the most effective and trust worthy sector of the economy at large. Some of the top officials see their positions as the ripe opportunity to lost, cheat, feather their own next and make some selfish fail without the heads of the top officials joined clandestinely in the crime. It was discovered in this study tha frauds are the misapplication or misrepresentation of financial facts. In the interest of the fraudsters or the partaker and with some technical devices, some detective measures could be adopted to set off this attitude of dubiousness, which includes the adoption of internal control and internal auditing this may be useful in the check and control of various notorious and cunning ways of those perpetrators and brings about efficiency.


Based on the findings of this research work, the following recommendation will help: thus

  1. Banks should employ competent staffs that can handle the affairs of the bank properly.
  2. Precautions should be taking in dishing out loans to customers in order to avoid inability to return such loans.
  3. With the invention of information communication technology in the banking sector, precaution must be taken to avoid exposing the bank secrets to rivals.
  4. The government monetary policy should be able to pave way for the smooth running of the banks since the role of the banks in economic development can not be over emphasized.


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