EFFECT OF BAD DEBTS ON PROFITABILITY OF BANKING INSTITUTIONS (A CASE STUDY OF UNION BANK OF NIGERIA PLC)

Abstract

This study was on effect of bad debts on profitability of banking institution. Two objectives were raised which included: To find out the causes of bad debt in union bank, to ascertain the effect of the inefficiency of bank regulation body have on the existence of bad debt in Union Bank and to ascertain the impacts of bad debt  on the regarded growth of the Nigeria Economy. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected construction companies in Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).

 Chapter one

Introduction

1.1Background of the study

Banking operation is very important in the stating of any economy in the functions of commercial bank in an economic system is the transfer of funds from the surplus unit to the deficits units. The surplus unit provides the fund needed to the deficits unit for investment purposes, this is essential for economic growth of any country. The commercial bank are the intermediaries between the demand side and the supply side.

Banks in the process of performing their code of financial intermediaries between surplus unit and deficit unit create deposit when a bank give out loan to a customer account with the amount involved. The credit to the customers account which has become now deposit which is allowable to the bank for further lending to their prospective borrowers.

The ability of a commercial banks to grant loan is on the level of deposit of hours generated and the legal reserve requirement supposed by the central bank A bank earns a return for performance of the role mobilizing is important as well as the bad debt account due to the numerous reason which may includes the likely death of a borrows, possible illegal diversion of funds, poor state of the economic, not all the loans granted by banks to if customers are rapid when due, such problems on loan and advances are classified as bad debt and doubtful debt.

This has two major concern to both management and shareholders, but debt are less as bank and therefore, are capable of reducing the returns that the shareholders and contributions of the bank to economic and social development of the country.

STATEMENT OF THE PROBLEM

        The study investigated into the management of debt in Union Bank, it had been discovered that several factors affects the decision of the bank management in the numerous factors considered are the time factors, the nature of the business of the company involved and its management team and the type of industry in to which the company’s falls.

A study concern itself with the examination of low factors like non products financial management, natural disorder, prevailing economic difficulties which has caused many countries to operate below capacity and other have affected management of bad debt.

1.2   AIMS AND OBJECTIVES

The objectives of the study are;

1. To find out the causes of bad debt in union bank
2. To ascertain the effect of the inefficiency of bank regulation body have on the existence of bad debt in Union Bank.
3. To ascertain the impacts of bad debt on the regarded growth of the Nigeria Economy

RESEARCDH HYPOTHESES

The following research hypotheses were formulated

Moi: There is no significant relationship between the menace of bad debt and the distress of Nigeria commercial banks

Mo2: there are no causes of bad debt in union bank

1.3   SCOPE OF THE STUDY

The scope of the research is created on the business operating and working on the union bank of Nigeria plc, which give on insight explanation on management of bad and doubtful debt in the loan and advances department and the effect of bad debt on the profitability of bank.

1.4   SIGNIFICANT OF THE STUDY

The significant of this study is firstly its ability prefer solution to the problem of fraud. Secondly if expose it expose student to information and builds them in the act research data and information collection and bold project writing. Thirdly, if serve as literature material to prospecting researcher for future researcher lastly if serves as an alert to the regulation body of financial institution on that, if fraud is not urgently death with it might just parallax the economy totally not spanning the banking section, as they say a study in time saris nine. The significance add if depended upon as a source of possible solution to the problem of fraud

1.5   LIMITATION OF THE STUDY

The study faced its highest limitation in the area of interview most of the bank officials were relevant to grant us their time for an interview based on the excuse that they were very busy. This study also faced limitation in the length given for the research project, which we consider as insufficient.

Definition of terms

Bad debt: Bad debt, occasionally called uncollectible accounts expense, is a monetary amount owed to a creditor that is unlikely to be paid and for which the creditor is not willing to take action to collect for various reasons, often due to the debtor not having the money to pay, for example due to a company going into liquidation or insolvency. There are various technical definitions of what constitutes a bad debt, depending on accounting conventions, regulatory treatment and the institution provisioning

Profitability; Profitability is a measure of an organization’s profit relative to its expenses. Organizations that are more efficient will realize more profit as a percentage of its expenses than a less-efficient organization, which must spend more to generate the same profit.

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