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Banks all over the world have through their unique position in an economy, contributed immensely to the economic growth and development of a nation. The significance of the banking sector in any country stems from its role of financial mobilization from surplus to deficit units of any economy, provision of a competent payment system and facilitation of the implementation of monetary policies. In intermediation, banks mobilize savings from the surplus units of the economy and channel these funds to the deficit unit, particularly private business enterprises, for the purposes of expanding their productive capacity. As intermediaries to both suppliers and users of funds, banks are effectively situated in a continuum that determines the pulse of the economy.

The banking sector has become one of the most critical sectors in the economy with wide effect on the level and direction of economic growth and transformation and also on some economic variables such as the rate of employment and inflation which directly affect the lives of the people. Worldwide, the ability or inability of banks to successfully fulfill their role as intermediaries has been a central issue in the financial crisis that has been witnessed so far. Diamond (1984) posits that a special feature of banking activities is to act as delegated monitors of borrowers on behalf of the ultimate lenders (depositors). In this special relationship with depositors and borrowers, banks need to secure the trust and confidence of their numerous clients. Though this requires safe and sound banking practices, it is not always the case as bank failures in different countries have come to prove.

The failure of banks to adequately fulfill their role arises from the several risks that they are exposed to; many of which are not properly managed. One of such risks which is increasingly becoming a source of worry is, the banking risk associated with incessant frauds and accounting scandals. Olufidipe (1994) defined fraud as “deceit or trickery deliberately practiced in order to gain some advantages dishonestly”; According to Boniface (1991), fraud is described as „any premeditated act of criminal deceit, trickery or falsification by a person or group of persons with the intention of altering facts in order to obtain undue personal monetary advantage‟; Idowu (2009) also sees fraud as a deliberate falsification, camouflage, or exclusion of the truth for the purpose of dishonesty/stage management to the financial damage of an individual or an organization.

In a nutshell, fraud, which literarily means a conscious and deliberate action by a person or group of persons with the intention of altering the truth or fact for selfish personal gain, is now by far the single most veritable threat to the entire banking industry. It is indeed worrisome that while banks are constantly trying to grapple with the demands of monetary authorities to recapitalize up to the stipulated minimum standards, fraudsters are always at work threatening and decimating their financial base. Also more worrying is the rise in the number of employees who are involved in the act as well as the ease with which many escape detection thus encouraging many others to join in perpetuating fraud (Onibudo, 2007).

Idolor (2010), stressed that the spate of fraud in the banking industry has lately become an embarrassment to the nation as apparent in the seeming inability of the law enforcement agents to successfully track down culprits. Whereas the activities of armed robbers are given widespread reviews in the pages of newspapers, especially during major thefts, it is an irony that what they cart away from banks is only a slice of what fraudsters remove from bank tills. Corroborating the view of Idolor, Oseni (2006), stated that the incessant frauds in the banking industry are getting to a level at which many stakeholders in the industry are losing their trust and confidence in the industry.

ics on the activities of fraudsters in the industry have been both amazing and confounding. In 2001, 943 fraud cases involving 11.2 billion were recorded. Ogbu (2003:42) stated that frauds in Nigerian banks continued to rise in 2002 with 77 banks of the 90 in operation, cases involving the sum of N12.9 billion. Onyeogocha (2001:34) attributed it to insider abuses and even board tussles. The NDIC report (2001), showed the actual loss to have exceeded the expected provisions for only N1.3 billion. Such an amount would have been enough to set up a least eleven micro finance banks in the current period. Forgeries currently constitute the greatest challenge facing the industry. Also the number of insiders (staff) who connive with outsiders to perpetuate the act is alarming. ly worrisome is the rise in the number of top management staff that have either been indicted or accused of engaging in bank fraud. Against these backgrounds, the main purpose of this study is to thus, impact of fraud on profitability of banks in Nigeria.


The larger society expects greater accountability, fairness, transparency and effective intermediation from banks, ensuring that they carry out their responsibilities with sincerity of purpose and unquestionable integrity with respect to their operations as a means towards earning public trust and goodwill. The banking business has become more complex with the development in the field of Information and nication Technology () which has changed the nature of bank fraud and fraudulent practices. Berney (2008) observed that customers rely heavily on the web for their banking business which leads to an increase in the number of online transactions. Gates, Jacob and Malphrus (2009) assert that the internet provides fraudsters with more opportunities to attack customers who are not physically present on the web to authenticate transactions.

Also, In Nigeria, in spite of the banking regulation and bank examination by the Central Bank of Nigeria (CBN), the supervisory role of the Nigeria Deposit Insurance Corporation (NDIC), and The Chartered Institute of Bankers of Nigeria (CIBN), there is still a growing concern about fraud and other unethical practices in the banking industry. Evidence from the NDIC Report (2008) revealed that the report of the examinations and special investigations from the banks were still bedeviled with problems of fraud, weak board and management oversight; inaccurate financial reporting; poor book-keeping practices; non-performing insider-related credits; declining asset quality and attendant large provisioning requirements; inadequate debt recovery; non-compliance with banking laws, rules and regulations; and significant exposure to the capital market through share and margin loans. Okpara (2009) found that one of the factors that impacted the most on the performance of the banking system in Nigeria was fraudulent practices.


The main aim of the study is the impact of fraud on profitability of banks in Nigeria (a case study of Skye bank Nigeria plc). Other specific objective includes:

1. to determine the relationship between fraud and profitability of banks in Nigeria.

2. to examine the prevention and control of fraud in Nigeria banking system.

3. To identify effective control strategies for managing banks fraud and forgeries in Nigerian banking sector.

4. to determine the impact of fraud on profitability of banks in Nigeria.


1. what is the relationship between fraud and profitability of banks in Nigeria?

2. what ways can fraud in Nigeria banking system be prevented and control?

3. what are the effective control strategies for managing banks fraud and forgeries in Nigerian banking sector?

4. what is the impact of fraud on profitability of banks in Nigeria?


1. H0: fraud has no significant impact on profitability of banks in Nigeria.

2. H1: fraud has significant impact on profitability of banks in Nigeria.


The impact of bank fraud on the operations of banks in Nigeria and indeed the economy at large is of interest to researchers and industry practitioners. Studies concerning bank frauds in Nigeria have highlighted the contribution of frauds to bank distress (Udegbunam, 1998). The study also seeks to improve on the methodology and findings of past researchers by conducting some statistical tests of significance.

Furthermore, the study will be of value and very useful to all categories of bank managers, financial information users such as existing and potential shareholders, creditors and fund providers and the relevant government agencies. Besides, researchers and students in the field of banking and finance who want to know more about fraud, its causes and possible ways of preventing it will also find the study very beneficial.

Finally, the study will serve as research tool and material for further investigation and study by other researchers on this study.


The scope of study will cover the impact of fraud on profitability of banks in Nigeria (a case study of Skye bank Nigeria plc).


1. Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

2. Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.


Impact: the action of one object coming forcibly into contact with another.

Fraud: wrongful or criminal deception intended to result in financial or personal gain.

fitability: the degree to which a business or activity yields profit or financial gain. fitability is ability of a to use its resources to generate revenues in excess of its expenses. In other words, this is a ’s capability of generating profits from its operations.

Banks:  Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.

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