Effect of Bad Debts on Profitability of Banking Institutions (a Case Study of Union Bank of Nigeria Plc)
CHAPTER ONE
AIMS AND OBJECTIVES
The objectives of the study are;
- To find out the causes of bad debt in union bank.
- To ascertain the effect of the inefficiency of bank regulation body have on the existence of bad debt in Union Bank.
- To ascertain the impacts of bad debt on the regarded growth of the Nigeria Economy.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
ACCOUNTING PERSPECTIVE THEORY
Accounting is a service activity, where its function is to provide quantitative information, especially information regarding the financial position and company performance results, which are intended to be useful in making economic decisions (in making a choice among various alternatives exist) (Erivan, 2009:15). Accounting is the process of identifying, measuring and reporting economic information to allow for assessment and a clear and unequivocal decision for those who use the information, according to the American Accounting Association (AAA). According to the Decree of the Minister of Finance of the Republic of Indonesia (No. 476 KMK.01 1991), Financial Accounting is a process of collecting, recording, analyzing, summarizing, classification and reporting of financial transactions from an economic entity to provide financial information for the report users that is useful for decision-making. Term Definition Bank accounting is the accounting process of bank aims for the interest of recording, analyzing, and interpreting of financial data in order to meet the needs of various parties. The financial statement of the bank must be in accordance with the accounting principles that have been widely accepted or bookkeeping techniques, posting, and recording all transactions made in the operation of a bank (Francis, 2013). Indonesian banking aims to support the implementation of national development in order to improve equity. According to the Law No. 10 of 1998 about banking, the types of banks are grouped into; first Commercial Bank is the bank that conducting its business conventionally and or based on Sharia principles which in its activities provide services in payment traffic. Second is Community Bank, it is a bank that conducting its business conventionally and or based on Sharia Principles which in its activities do not provide services in payment traffic. In this study, we discuss about loan, debt and profitability related to rural banks, the explanation about the loan and debt is as follows. The definition of credit based on Banking Law No. 10 of 1998 concerning change of Act 7 of 1992, is, “credit is the provision of money or equivalent receivables under contracts or agreement of lending between banks and other parties who require the borrower to pay off the debts after a certain period of time with interest.” Based on the above understanding, it can be explained that the loan or financing can be either cash or debt whose values are measured by money and the agreement between the bank (loanor) to customer (debtor).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine effect Of Bad Debts On Profitability of Banking Institutions. Union bank forms the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
TEST OF HYPOTHESIS
Moi: There is no significant relationship between the menace of bad debt and the distress of Nigeria commercial banks
Mo2: there are no causes of bad debt in union bank.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain effect of bad debts on profitability of banking institution. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of effect of bad debts on profitability of banking institution
Summary
This study was on effect of bad debts on profitability of banking institution. Two objectives were raised which included: To find out the causes of bad debt in union bank, to ascertain the effect of the inefficiency of bank regulation body have on the existence of bad debt in Union Bank and to ascertain the impacts of bad debt on the regarded growth of the Nigeria Economy. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected construction companies in Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
The study further concludes that profitability increases with the control variables, that is, size and sales growth. The study also found a significantly negative association between bad debt and profitability which implies that an increase in the long-term debt position is associated with a decrease in profitability hence firm’s performance. This the study, explains by the fact that long-term debts are relatively more expensive and therefore, the banks’ management fear that employing high proportions of them could lead to low profitability and hence firm’s performance.
Recommendation
The study recommends that owing to the less cost incurred in obtaining short term loans than long term ones, banks should go for short term loans since despite changing the firm’s capital structure to the worse, this will improve their performance as increasing short term debts with a relatively low interest rate will lead to an increase in profit levels. This is more profitable than taking long-term loans as banks are wonted to doing at times.
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