THE PROBLEMS OF NEW BANKS IN NIGERIA (A CASE STUDY OF CITIZEN INTERNATIONAL BANK OF NIGERIA ENUGU)
In the study of the problem of new banks in Nigeria, it is important to takes a critical examination on related literature on the topic. Derrick G.H. (1985) defined bank as a business recognized as a bank by the bank of England under the banking Act 1977.
In recent years the banking industry has reserved a phenomenal growth in the number of banks established. From less than 25 during 1976, the number of licensed banks has risen to over 100. The growth is matched with the risk in the number of people who require the service of banks. As nation’s economic activities became more complex the need for a variety of banking service becomes necessary. This led the federal government as a deliberate policy to approved the establishment of move new banks.
2.1 FUNCTIONS OF BANKS IN NIGERIA
The new banks in Nigeria perform the following primary function for the economy.
- DEPOSIT ACCEPTANCE: –
The banks accept deposit from the household the business sector and the government. The deposit is kept in either the saving accounts, the fix deposit account and current deposit account. The saving so mobilized is employed development project in the country.
2.GRANTING OF LOANS AND OVERDRAFT FACILITIES:
Economic deficit Lents go to banks obtain loans and overdraft for financing their business venture. The bank’s change some interacts on the loans and overdraft based on the duration and risk associated with such facilities.
- AGENCY SERVICES:
New banks act as agents to their customers by the collecting proceeds of payment for the account of their customer. In return the new bank charge commission for rendering such agent service to their customers.
- SAFE CUSTODY FACILITIES:
People who have valuable item such as academic certificate, share certificates, gold. Title deeds and other valuable may keep them with the bank for safe custody. The banks provide facilities for securing the items on behalf of their owners. Some rewards are paid to the banks for rendering such services.
- PROVIDING STATUS REPORTS:
Banks write reports or answer to inquiries about the financial standing of their customers when the need advises. In writing the report the benefit must cross – check their information and be sure of its accuracy and reliability. Negligent report by bank may attract legal action on the based.
- STANDING ORDER:
This is standing instrument which customer leave with their banks to remit certain sums of money periodically to a named beneficence. The banks customer has enough money in their account to cover the remittance.
7.CASHING CREDIT FACILITIES:
The bank provides cashing facilities to their customers. This is an arrangement between a bank and its customers, which enable the customer to each his cheque at any branch of his bank. The facilities saves the customer the risk of being rubbed of his fund and also it saves him the convenience of carrying large sums of money from one business center to another.
- PROVIDING NIGHT SAFE FACILITIES:
The night safe facility is an arrangement that allows bank customers to deposit their safety in the bank after the normal banking hours. Businessmen who close for business late in the day make use of their facilities mare rampantly.
- INVESTMENT ADVICE:
The commercials bank of times act as investment advisers to their customer. Some customer who have capital but are not knowledgeable about how to invest the fund properly may approach their banks for investment advise. The banks have to advise their customer on the most appropriate investment opportunities bearing in mind risk and return trade off.
- EXECUTORSHIPS FUNCTION :
The banks may act as executor for deceased persens. The bank trace will have to distribute the estate of the deceased according to the provisions of his will.
- BUYING AND SELLING OF SHARES OF CUSTOMERS.
The banks may act as issuing hours for the purpose of selling share on behalf of their customer. Also the banks buy shares on behalf of their customers.
- LOANS SYNDICATION:
Where clients borrowing requirement are extremely large and exceeded the capacity of one bank. The bank arranges in close association with the customer syndicate facilities by grouping a consortium of banks to meet such financing requests.
- THE PROBLEMS NEW BANK IN NIGERIA:
Sir Odoh Nick N.(1998) opinion that a bank is said to have failed if it has not succeeded in achieving any of the objectives for which it was established.
A review of the operations of the banks in the past year shows that the most cause of poor portfolio management was the bank operators lack of integrity which compromise other and accountability and opened the way for doubtful debts as reflected in the rising ration of classified a climax in 1994 before some improvement in 1995 when accountability was taken seriously through law enforcement.
INTEREST RATE PROBLEM: –
Interest rate structure is one of the problem-facing banks. Most often the banks are ordered to lend at lower interest rates where interest rates are usually high.
LATENESS OF SUBSIDY
As the government such subsidies the operate of the development bank it is expected that subventions to these banks should be timely to enable them operate efficiency. The banks usually receive their subsidies in arrears thereby making them financially handle capped in their operations.
LOAN PREPAYMENT DEFAULT:
Most of the benefit cilia of loans do not repay the loans granted to them. Some may even on the process of bank given them loan defraud the bank.
INADEQUATE BRANCH OFFICES:
Some new banks do not have enough branch o offices to effectively cover their operation. Must of the interstices fund seekers do not have access to the banks because their offices arte not near enough for the customers.
This application letter is usually require by development banks to get financial assistance and must be accompanied by several documents required by their banks many of the fund seeker are unable to meet the requirement and as such can not get the facilities they are seeking.
ILL TIMING O DISBURSEMENTS:
The disbubursement of fund by the banks is in most case ill timed. The funds are in most case released to accommodation seeker later this has led to the application of fund to other purpose and repayment became difficult if not impossible.
PROBLEMS OF INFRASTRUCTURE:
The operations of the new bank are hindered by lack of adequate infrastructure facilities, constantly power supply, portable water good housing facilities and securities. Those facilities militate against the operate of the new banks.
Despite the salutary effects of regulatory changer between 1986 and 1995,which tended to strengthen the banking sectors generally, some were introductions to the system.
2.3 WITHDRAWAL OF GOVERNMENT FUND FROM BRANCH:
BOTH COMMERCIAL AND MERCHANT BANKS.
Ezeudiyi, F.U (1996) is of the view that the transfer of public sector deposit fund banks to the CBN in1989 proved too sudden, especially for weak banks with prudential lapses: the viability of such banks were seriously impaired because they were unable to get alternative deposits in the meanwhile.
Concord newspaper, February 12,1998 highlight that accounts of Parastatals were suddenly withdrawn from commercials merchant banking and transferred to CNB on the order to the federal government. This has been fingered by banks as one of the causes for distress in the banking industry.
Since the expiration of the deadline, the central bank of Nigeria, which has not hesitated to bite in recent time with its newly sharpened teeth, has vigorously enforced the directives and according to its officials, owner four billion (N4million) has been withdraws from the banking system. The bank especially the new ones are not in a due trait since the withdrawal is tantamount to large-scale destruction on the deposit base of the banking industry. Again under this dispensation bank incomes and profits will inevitably shrine and with time time, making it enoligh for most of them to break even.
And also taking into connivance the fact that banks must maintain a certain ratio between new loans created and the deposit liabilities coupled with central banks guideline on capital fund adequacy which insists that banks maintain a ratio of not less than.
1.12 between its adjusted capital funds and its total loans and advance .
2.4 PROBLEMS OF PAYMENT OF INTEREST ON CURRENT ACCOUNT:
Howard Crosse and Geoge Herpes (1980) expressed that correct account may be withdraw by cheque or transferred to some one else by the depositor at any time without previous notice to the bank. The payment of interest on current account prolixity by banking Act of 1993 the aggregation amount of demanded deposits in this country at any given time is the result of federal reserve monetary action central – because bank are still most freely permitted to pay interest on demanded deposit each bank must complete primary on the basis of services rendered the depositor. The most essential service compensated for by demand depositor in the collection and payment service in all its various forms.
Noil B. Murphy and Pauls. Anderson opinioned that average number of checks drawn per account had no influence on total demanded deposit fluctuation of the banks since there was no payment of interest during the publication of their book titled“ current perspectives in banking operation management and Regulation (1976)
Ivakobo C.O (1989) emphasized that until 1989 when bank were by law require to pay interest on current accounts, no payment of interest was being made instead on such account, cheque were imposed on service rendered to the operators of current. That was against handsome internist being paid to depositors of savings.
However by the law the banks were required to pay interest to holders of current account. It was noted that neither minimize nor maximize interest rate was fixed as the banks tended to fix whatever rate they fell like paying. Thus some paid a little as 5% other paid as mush as 10% rate of interest.
The important fact however is that no matter the rate of interest a banks paid to its customer on current account, such payment now constitute an additional source of expenditures on the banks. As an expense, it is a barding and has consequently reduced the rate of growth of new banks.
2.5 PROBLEM OF DEFAULT IN INTER BANK INTEREST
Arnold A. Dill (1973) expressed that commercial banks are required by law to maintain reserves equal to some percent of their deposit liabilities banks that are member of the federal reserved keep the bulk of these reserve as deposit are their federal bank and the rest in davit cash. Some reserve losses such as those resulting from seasonal deposit draws or loan inverses are more or less predicted, other are not. To offset these reserve declines banks may find it advantageous or necessary to security reserve by borrowing from other banks.
Sayers R.S (1967) suggest that the problem or disturbing factor of inter bank market is the non- clearing of bank money borrowed.
Business times (1989) highlights that liquid banks participate in inter banks market and source fund for short-term need, which has result to pay their creditor back. The CBN recently banned distressed banks ex change market (ITEM) as a punitive measure or threat to make the defaulting banks pay their creditors.
Moreover, CBN has lifted the banks as a rethink on the argument of the distance banks. Above all, these default in inter bank exchange market by some participating banks has initiated against improvement of service offered by the commercial banks especially the new ones .
2.6 CAUSES OF BANK FAILURE:
According to banking and finance history of banks failure has showed that economic conditions are important constituting causes, for example, the recession of the early 1926
- Undisclosed negative worth:
The distressed banks generally and in real term are operating at a loss due to large preposition on non – performance loans the management had taken into income.
2.7 MANAGEMENT OF CITIZEN BANK OF NIGERIA:
Citizen banks of Nigeria was commissioned on 14th may 1990 by the president and commander in chief of the Nigeria armed force of Nigeria of Nigeria General Badamosi Ibrahim Babagida. It was incorporated on December 1987 with an initial authorized capital of N15 million.
In early 1982 the equity base was restructured and increased to N25 billion to allow for 40.52 private sector participation.
In 1987 the bank paid up share capital was 110.20 million naira. Its ownership structure is 15% (state) and 85% (private Nigeria). The bank has 27 branches.
The following department exists at the citizen’s banks of Nigeria.
- The current deposit account department (CDA).
- The savings deposit account department (SDA).
- The foreign exchange department (FED).
- The cash department.
- The loan and advance department (LAD).
- The personal department.
- The account department
- The inspection department.
- The audit department.
- The training and development department (TDD).
- The public relation development (PRD).
- Corporate and planning department (CPD).
The current deposit accounts department (CDA) performs the function of accepting deposit and making possible withdrawers. They also give and close account for customers. They also provide information and facilities necessary for opening and close of accounts by the (CDA) customers.
The savings deposit accounts the job of accepting deposit and making possible withdrawers of many to saving deposit account customers. They provide information and facilities necessary for opening and close of new accounts to in the USA was quite sharp and especially serious in agriculture areas of the nation. Although banks suspension current throughout the nation, the rate was unusually high rural areas and small towns. The great depression of the 1930 was no respect of any areas of the economic sector. Banks as well as other financially institution encountered difficulties in remain solvent in a economic development as this kind.
However since 1935 economic condition have not been the major contributor to banks failure as they were in the 81920 and 1930’s.
Although it is difficult to identify the cause of bank failure in recent years, managerial weakness and illegal practices rather than economic conditions have been failures.
Other cause includes self-serving and unusual loan practices and policies, cheques kites and other manipulation.
Ezeudiyi F.U (1996) said that banks declared distressed had manifested greed related characteristics among shareholders board management and staff through the following:
- Ownership tussles
- Boardroom squabbles
- Large scale fraud
- Fraudulent management.
Orji J. (1996) also highlighted some of the cause of banks distress as follows:
- Poor treasuring management:
- Majority of the distressed banks apply poor treasury management technique which head to liquidity and asset and liability mismatch.
- Passive participation by board:
- The board member of some of the distressed banks are passive that they do not participate actively in the articulation of some strategic plans for the banks some member are rather more interested in collecting their allowance and other financial benefits.
- Poor loan management in charge of loans and advances in most distressed banks are not able to appraise monitor and recover their loans as a result of lack of well articulated and communicated loan policies to guide lending operations.
The foreign exchange department performance the task of bill preparation documentary letter of credit foreign exchange advises lending of foreign draft. They also do the transaction of foreign exchange market (FEM) bidding on behalf of their customers buying and selling of traveler’s exchanges, buying and selling of foreign current, opening of domiciliary accounts (now abolished expert financing) and advices.
For the cash department their job is to count and lodge money with the Central Bank of Nigeria (CBN). The loans and advances department on their parts offer a number of prepaid borrowing scheme which includes overdraft: if the need for an overdraw account arise in any of their branches where you operate accurately account ask the manger for this facility.
Personal loan: if you want money for specific purpose you are must likely to be offered a personal loan.
Business loan: these loans are granted for commercial purpose.
From this it is pertinent to point out that the citizen bank of Nigeria plc has undergone structure change in its operating policy. A year development plan has been made by the bank, it tries to involve corporate saving strategies that will enable the bank remain competitive as well as chart a course for geographical expansion.
- The target plan is to optimize the profitability of citizen Bank of Nigeria as commercial enterprises as well as increase efficiency through flexibility and rapid increase.
- It acknowledges the fact that the strategies of each branch are expected to be peculiar to a certain extent.
- An optimize mechanism is inbuilt in the flexibility parameter such that of
- New and unique structure for citizen bank of Nigeria branch emerged. Under this structure each branch should exercise individual initiative as a light margin within a broader uniform structure.
- The plans for geographical expansion have been produced utilities available library information.
- Integrated corporate statistics is aimed at bringing the analysis of banking in Citizen Bank Nigeria and the anticipated Nigeria banking environment in the year 1993 through will keep the bank in profitable business.
These strategies are in six parts: –
- Flexible and responsive structure
- Think tank
- Corporate banking.