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In banking, the term “bad and doubtful debt” refers to a fraction of a bank’s loans, advances, and overdrafts that have proven difficult and virtually impossible to recover in full from the individual committed customer.

Such debt does not appear overnight, but rather develops gradually as a result of “lending errors” by lending officers and later faulty administrative handling of the facilities, among other things.

Commercial banks operate in the service sector. They are intended to provide financial support to individuals and corporate organisations while also emphasising the importance of profitability to shareholders and deposits.

A bank is therefore expected to ensure that sufficient liquidity of money meets its customers’ cash demand at short notice. This is in addition to retaining adequate profitability through proper and efficient management.

A company’s primary sources of financing are:

a) Owner’s Capital: This is equity given by shareholders (including retained earnings) that is mostly utilised to purchase the business’s initial assets and working capital.

b) Borrowed Funds: This refers to external funds that are necessary and injected into the firm by management in accordance with the articles and memorandum of association.

Commercial banks play a key role here by granting long and short term loans and advances. The error happens throughout the process of granting those lending facilities. The losses caused by such errors will be the focus of this study.

Banks can attract deposits of varying terms by making good use of interest rates. Short-term deposits ranging from 7 days to 6 months, long-term deposits, and current accounts are examples of such depositors.

This is considered special borrowing by the bank because the bank could utilise any deposits for any purpose(s) without recourse to the depositors, and such depositors are only due on demand or at any agreed period. These depositors serve as the foundation for banks’ lending to various consumers.

The reserve ratio established by the Central Bank of Nigeria (CBN) governs this. Banks often charge greater interest rates on loans than they do on deposits, and these rates are set by the federal government. It referred to the interest rates charged and payable on loans and deposits, respectively.

The volume of good loans and advances heavily influences the profitability of commercial banks. As a result, profitable commercial banks must reduce or eliminate the quantity of bad debts in their lending portfolio. It is important to highlight that all funds held in poor and questionable accounts are not eligible for further lending.

Furthermore, with the implementation of CBN prudential requirements, nonperforming loans and advances with outstanding interest are not shown in commercial bank earnings,

but are charged to interest suspense and charged revenue when realised. Bad debt is viewed as a negative contributor to commercial bank profitability.

So, unless it is inevitable, banks should be expected to be the most significant in providing for bad debts.

However, opponents are quick to point out that the high bad or doubtful debt statistics in commercial banks’ final accounts could be realistic. It is also claimed that banks might exploit such a clause to avoid paying taxes.

It also demonstrates the inefficiency of lending bankers in the management of loanable funds; yet, it is believed that this provision demonstrates the level of convenience provided by the bank officer system. Mr. Akintunde Asaw, president of the Wema Bank Association of Shareholders, voiced these sentiments.

He said that some Wema Bank officials acted outside of their jurisdiction and on time by improperly authorising loans. As a result, he granted the bank until 1990 to recover all illegal loans while promising those involved in “regular disbursement” of shareholder funds that they would be penalised.

Most commercial banks in Nigeria have provisions for bad and doubtful debts of varied amounts in their final accounts, while the funds of the level of such provisions is dropping in the case of some commercial banks and increasing in the case of others.

This was reflected in the Chairman of the Board of Directors of such commercial banks’ comments. Provision for bad and doubtful debts at the Bank of the North was N6.8 million in 1993, N6.7 million in 1994, and N213.5 million in 1995.

This demonstrates an increasing tendency from 1992 to 1995, which may or may not be related to the President of Wema Bank’s shareholder complaint.

The country’s banks’ provisions for bad and doubtful debts have demanded an in-depth investigation into the basic issues causing such losses. As a result, the primary goal of this research is to discover the causes of bad and questionable debts, as well as the measures used by banks to reduce or eliminate such loans.

We will be able to establish the efficacy of the control otherwise in the banks lending system by doing so. As a result, relevant recommendations for improvement might be given.


The bank was founded on September 17, 1957, with an initial share capital of 12500 dividends divided into 1200 ordinary shares of N1 each. It began operations in January 1960 with two branches in Kano and Kaduna, which opened to consumers on January 7th and 5th, 1960, respectively.

The Northern States of Government and Northern Nigeria Investment Corporation, a subsidiary of New Nigeria Development Company)NNDC, jointly own the bank. By 1989, procedures had been completed to expand the bank’s N30 million share capital to N100 million, with N22.35 million fully paid up.

The bank’s growth was constant from 1960 to 1970, with a loss of 36,925 that was stated to have been reversed after four (4) years of operations, during which time they were able to distribute dividends.

In 1970, the issued share capital was N 2.7 million, with 12 branches and a staff of somewhat more than 360 people. In addition, the bank’s total asset has climbed to N30 million, with deposits standing at N26 million and loans and advances standing at N17 million.

Between 1971 and 1979, the bank opened 31 branches, and it now has branches in all of the Northern States of the Federation, including the Federal Capital Territory of Abuja. As a result, the bank has grown steadily since the 1980s, thanks to the assistance and patronage of northern states,

marketing boards, Ahmadu Bello University Zaria, and a large number of manufacturing and commercial enterprises. The number of employees has climbed to 200, the total assets have increased to N900 million

and the net profit has surpassed N10 million. Loans, loans, and overdrafts were also alleged to have grown dramatically over the period.

The bank refers the following services to its customers at both the head office and branch levels, with only the size of each branch network varying:

1. Personal loans, which are short-term loans for short-term commercial purposes or the purchase of consumer durables;

2. Revaluing overdraft arrangements in order to suit customers’ working capital needs;

3. Project financing, which could include short, medium, and long-term loans for eligible projects.

4. Loan syndication that is completed as soon as possible;

Agricultural financing is number five.

6. Customer domiciliary account and acceptance of account deposits as competitiveness rates.

7. The housing/vehicle scheme.

8. Finance advises consumers on how to best handle their financial concerns, such as developing new projects, acquisition, capital restructuring, mergers and reorganisation, and equipment leasing.


Recent incessant and massive cash withdrawals by individuals and corporate customers for commercial banks, as well as a rapid increase in credit facilities extended by banks to meet the demands created by the Structural Adjustment Programme (SAP) and recent transfer of accounts by governments, parastatals,

and agencies of the Central Bank of Nigeria (CBN), have created a liquidity problem and disparity in the banks’ deposit (assets) versus loans and advances (liabilities) ratio.

The majority of the country’s commercial banks are presently facing an undesirable position with uncalled liabilities (loans, advances, and bad and doubtful accounts) exceeding total deposits available to them.

As a result, banks are forced to impose a temporary moratorium on further credit facility expansion while increasing deposit base by intensifying exploitation, recalling some of the debts, and, most importantly,

recovering the huge figures in their bad and doubtful debt accounts. The fundamental problem is thus that of identifying and effectively utilising the most efficient and appropriate measures of recovering bad debts and controlling further losses due to


The following are the aims and objectives of this research study:

1. Determine the numerous causes of commercial banks’ continuously rising bad and doubtful debt portfolios.

2. To determine the control measures used by commercial bans to limit the formation and growth of such accounts.

3. To determine the effectiveness, or otherwise, of such bank-implemented control measures.

4. To offer further control measures to assist banks in dramatically reducing the number of losses (bad accounts).


1. H1: Adequate security is provided for the loan/advances.

2. H0: There is insufficient security provided for the loan/advances.

3. H1: There is financial regulation that guides the bank’s management.

4. H0: There is no financial regulation that controls bank management.


It is undeniable that the amount of loanable capital available to commercial banks impacts the overall credit available to various consumers.

The recent increase in money supply in the Nigerian economy, which was cited as one of the key causes of the naira’s depreciation and rising rate of inflation,

may be traced back to an increase in credit facilities granted to customers by financial intermediaries (particularly commercial banks). This was made feasible by the increased availability of funds to commercial banks through more favourable interest rates, particularly the deduction of government departments and parastatals.

However, the amount of profitability of commercial banks is determined by earnings from extended good credit supplied to consumers. Recent withdrawals of approximately N4 billion from commercial banks to the Central Bank of Nigeria have caused credit liquidity concerns for the banks and made the quest for deposits more satisfying.

As a result, any deposits accessible to the bank necessitate the prudent use and adoption of central bank procedures that will assure appropriate lending and prevent the creation of bad accounts. Such methods will undoubtedly pique the interest of banks, particularly loan officers and managers.


As previously stated, the research aims to determine the causes and control of problematic accounts by commercial banks, as well as to offer effective methods of minimising or limiting the formation of such accounts. As a result, only one bank (Bank of the North Ltd) is chosen for the purposes of the study.


– Bad Debt: This is a company’s or organization’s irrevocable debt or debt that cannot be recovered.

– Banker: A person in a high-level position in a bank. He is a financial doctor who acts as a bridge between the deficit and surplus sectors of the economy.

– Collateral: Customer security as a guarantee for a bank loan.

– Customer: A person or company who has a bank account, whether it be a current savings or a deposit account.

– Lending: This is a phrase used to describe the process by which one organisation lends money to another for a set length of time.

– Retained Earnings: An organization’s undistributed earnings that is maintained for unanticipated eventualities.

– Overdraft: Is a possibility of drawing a cheque for more than what is in the current account to a specific level. Commercial banks provide this service to current account holders.

– Advances: The money paid down by the consumer for the goods he wishes to buy.

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