Bad Debt – The Effects and the Way Out

There are number of impacts on the Nigeria economy as a result of the non-performing loans. Some of the effects are briefly discussed below:

1. There has been serious cut-off in the importation and refusal to accept letter of credit. This has seriously affected international trade and importation of stocks into the country.

2. There has been serious problem of trust in the banking sector by the customers. Many could no longer feel free to go to bed since they don’t know what will happen to their money.

3. There is high credit risk and it is a high potential risk if not quickly addressed

4. There is the problem of low wealth and poor development levels and these have currently encumbered Nigeria as a whole.

5. This problem has also led to job loss. Most banks are forced to relief some of their personnel of their jobs.

6. With the problem of inter-banking transaction, there has been shortage of liquidity and acute shortage of credit.

7. Most banks now suffer from what could be described as cash drain as customers are withdrawing their money.

8. There are also high fluctuations in stock market development.

9. Most banks are characterized with ‘corporation financial loss’ as a result of the
bad loans.

10. Of importance is also the de-cumulation of foreign reserves and pressure on
exchange rate i.e. deprecation.

11. Also, there is the problem of uncertainty in the industry-banking sector.

12. Lastly, the economy is faced with a credit squeeze.

SUMMARY

This work has within its capacity dealt extensively with the current national and prevalent issue of non-performing loans and its effects on the banks and economy at large. This work took-off by explaining deeply the concept of banking and bad debt in relevance to contemporary issue.

The causes of bad debt are also explained while cognizance is also given to the effects of the non-performing loans (bad debt) on the banks and the Nigerian economy.

The issue could not be looked into in its wider perspective due to contract of time and space, however, justice has be done to the topic

CONCLUSION

The issue of non-performing loans and the Nigerian banks is a topical one, not only at the national level but also at the global issued. Experts and observers have ever sine been watching with cautions how this has been affecting business globally. It has been established here that there is the problem of non-performing loans and also that this problem has caused serious alarming challenges in all national spheres. However, some measures are suggested here as a way of curbing future recurrence of such in the future.

RECOMMENDATION

It is believed that if these points are properly considered, it could be good ways of saving the nation from its present situation and further stop future recurrence.

i). The CBN to see to proper administration of banks by establishment more viable regulations and monitoring plans.

ii). Banks are expected to have time tested trusted and competent MD’s to enhance good corporate governance.

iii). The ministry of finance should work out modalities for enhance banks transparency and avoidance of shady bank practices.

iv). Banks should maintain compulsory reserve for uncollectible accounts.