THE IMPACT OF BANK FRAUD AND DISTRESS ON BANKING HABIT IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Historically, there are records to show that indirectly, banking activities started in Nigeria about 1861 when shipping company Elder Demster Line started objective of making easier transaction with the company’s customers in Nigeria. In 1892 African Banking Corporation (ABC) was established as the first banking institution which was initiated by the chairman of Elder Demster.It open its first branch in Lagos in 1892, by 1975, there were seventeen banks operating. Before 1892, Nigeria was evidently underdeveloped economically, even in 1975 despite the growth in number of banks Nigeria is still developing, it is true, however that the number of bank should  not be the only major aspect of development that would relate to economic growth.  So many other factors are determined with the various resources endowment, labour supply and of course capital. 

The problem of distress in the financial sector, including outright bank failure, has been observed in Nigeria as back as 1930 when the first bank failure was reported indeed, between 1930 and 1958 when the central bank of Nigeria (CBN) was establishment over 21 bank failure were recorded. However, the degree of intensity and scope of the distress has never been as serious as has been observed since June 1989 when government directive to withdraw deposits of government and other public sector institution from bank to the CBN exposed the weak financial condition of most financial institution and the severity of problem has progressively here used. The distressed condition has been traced to a wide range of causes, some of which are listed on literature review. Eventually, when distress came to into the scene, fears of loosing fund to the banks influenced negatively, the banking habit of the rural dwellers. The banking sector consist the pillar on which the economy of any nation can financial service is one of the main point of which economy revolves. The unique roles of banks can be attributed among other things to the importance of money in scheme of things as it perform a fundamental role in shaping the economic destiny of the country Nigeria. Bank support local economic by mobilizing funds from the surplus sector to deficit sector; by serving the credit needs of the communities and provide a safe for the cash balance of individuals, businesses and government. The institution itself has witness a tremendous growth from a few indigenous banks in the 50’s to one hundred in the 90’s.  

There had been great diversification in the banking industry as most Merchant Banks now have license to practices universal banking. It is widely recognized that the responsibility of banks are multifarious and sometime conflicting as interest of many parties regarding the activities of banks of variance.  Depositors expect maximum liquidity and highest return for their deposit, borrower want deep money and shareholder expect maximum profitability.  The government regulatory authorities are interesting in prudency and safe operation so as to systematic stability because the failure of single bank will have more micro and macro impact on the institution in other industries as a result banks should synchronize these conflicting interest  and they cannot afford to fail.