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Wednesday, 28 October 2020





1.1 Background to the Study

The financial sector in Nigeria plays crucial roles in economic growth and development by virtue of its financial intermediation roles which includes savings mobilization, risk management, project evaluation among others. Channelling of funds from depositors (surplus units) to investors (deficit units) is a key role played by banks (Negera, 2012). To ensure sustainability and profitability, banks procure cheaper loanable funds from customers‟ deposits, and lend these funds to borrowing customers at a relatively higher rate of interest (lending rates) than that paid to the depositors (deposit interest rates) (Warue, 2013). One of the difficulties in lending is the precise prediction of whether a loan and interest will be paid back in full. This implies that lending involves credit risk especially default risk. Banks use diverse internal techniques such as client screening to minimize their level of loan default (Warue, 2013). The causes for loan default vary in different countries and have a multidimensional aspect both in developing and developed countries. Theoretically, there are so many reasons as to why loans fail to perform which maybe in terms of internal factors (some of this include Capital Adequacy Ratio, Loan Loss Provision and Loan to Total Asset Ratio among others) or external factors (such as Exchange Rate and Crude oil Prices among others) (Negera, 2012).Bank-specific factors involve those factors that are peculiar to the operation of the bank and it can be manipulated by the bank while the macroeconomic variables are those variables that are beyond the control of any individual bank and affect all bank in the system. It is quite natural that banks try to lend in safe ventures at one hand and to increase the profitability on the other hand. Therefore, the banks are usually extremely vigilant when it comes to giving loans at a riskier avenue because the situation can be financially inviable if a large amount of loans default is involved, which can ultimately lead to the insolvency of the banks as a result of the failure of their borrower to pay back the principal and interest as at when due and increase the level of non-performing loans in the industry. Nigerian banking sector has experienced a number of bank failures with non-performing loans becoming the precursor to eventual bank failures in Nigeria(CBN, 2014). Basel committee (2001), defines Non-performing Loans asthe total amount of money borrowed and which the borrower has been unable to fulfill his or her debt obligations within 90 days after the maturity date for repaying the principal or interest due on the loans. Assets quality of the bank, measured in terms of the ratio of non-performing loans (NPLs) to gross loans, weakened in the first half of 2016 deteriorating by 6.4 percentage to 11.7 per cent at end-June 2016(CBN financial report 2016). Researchers such as Warue, (2013),Zhang and Daly (2013) and Etale,Ayunku andEtale (2016), among others explain NPLs as bad debts whose recovery is highly doubtful as they are not being serviced as required. In the banking system, bad loan problems consist of a stock component (old debt) that is not performing and a flow component (new lending) that may become non-performing (Clementina & Isu 2014). Extracts of the bank financial statements show that the NPLs grew from N363.31 billion in 2014 to N649.63 billion in 2015 and N 1.678 trillion at end-June 2016 (CBN, 2016). The Total banks loans as at the end of 2015 was N13.1 trillion, up by a miserable 1.5 per cent against N12.9 trillion in 2014 and rose to 16.372 trillion in 2016. Giving a breakdown of the figures, the Central Bank of Nigeria (CBN) observes that in the industrial segment, oil and gas firms‟ aggregate credit stood at N2.153 trillion as at March 2015, compared to N2.3 trillion in February 2015 and N2.047 trillion as at December 2014 and 3.307 at end of 2015. Nigeria oil and gas sector accounted for the largest percentage of bank loans and advances which may be as a result of the over dependence of Nigeria government on oil and gas sector and banks usually direct their credit to the economy main source of revenue(CBN, 2016). The increase in the NPL ratio maybe attributed largely to either bank-specifics (Loan to total asset ratio, loan loss provision and capital adequacy ratio) or macroeconomics variables (exchange rate and crude oil prices) (Amugo, 2015). For instance, the price of Nigeria‟s crude oil fell by about 60 per cent to US$38.22 at end-December 2015 from US$62.01 at end-June 2015, and this reduced Government revenue and strained fiscal positions.

Format: MS Word
Chapters: 1 - 5, Preliminary Pages, Abstract, References
Delivery: Email
No. of Pages: 125

NB: The Complete Thesis is well written and ready to use. 

Price: 10,000 NGN
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Masters Project Topics in Accounting and Finance

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