Title page I

Certification II

Dedication III

Acknowledgement IV

Table of content VI


1.0 Introduction 1

1.1 Statement of the Problem 3

1.2 Research Question 4

1.3 Objectives of the Study 4

1.4 Research Hypothesis. 5

1.5 Definition of Terms 8

1.6 Plan of the Study 10


2.0 Literary Review 11

2.1 Meaning of Bad Debt 12

2.2 Management of Bad Debt of Nigeria Money 

Deposit Bank in Nigeria. 13

2.3 Effects of bad and doubtful debt on Nigeria Money 

Deposit Banks in Nigeria. 19

2.4 Risk Analysis on Money Deposit Bank in Nigeria  22


3.0 Research Methodology 25

3.1 Sources of data 25

3.2 Population of the Study 26

3.3 Sample Size   26

3.4 Methods of Data Collection 27

3.5 Methods of Data Analysis. 27

3.6 Limitations of the Study 28


4.0 Data Presentation, Analysis and Interpretation 29

4.1 Data Presentation of Result 29

4.2 Data Analysis 32

4.3 Test of Hypothesis

General Statement of the Hypothesis 37

4.4 Interpretations of results. 39


5.0 Summary, Conclusion and Recommendation 41

5.1 Summary 41

5.2 Conclusion 44

5.3 Recommendation 46



Among the industrial sectors in Nigeria today, banking sector arouses the public interest most it is the most visible and of the fastest growing section in the economy a past from the fact that the monetary of every public guideline document issued by the central bank of Nigeria in January of every tear regulates the activities of the entire economy the banking sectors is responsible for carrying out most of the policy issued to frequent controls and reputations.

In  popular jargon, the banking sectors has become one of the most critical sectors and commanding height of the economy with wide implications on the level and direction of economic growth and transformation and such sensitive issues as the rates of unemployment and inflation which directly affect the lives of the people banking sector is without doubt of the fastest growing industries in the country today from total 26 in 1980 the number of commercial and merchant banks in the country growing steadily to 40 in 1985 where it stabilized until it increase to about 49 in 1987 beginning from 1987 and following the introduction of structural adjustment programme (SAP) in 1986 there had been a rapid growth in the number of bank increased by 15 i.e 30% to reach 66 and additional 15 joined it in 1989 which witnessed 21 new merchants to bring the total number of commercial and merchant bank to 102. before the government placed temporary ban on the opening of banks in 1991 there was not less than 125 bank operating in the country from N12 million and N20 million for merchant and commercial bank respectively paid up capital increased to N40 million and N50 million one notable implication from the development is the sudden rise in the volume of bad doubtful account which bank are compelled to carry in their books the increasing number of this problem loans had been on granted challenges facing in particular the old generation of bank usually reffered to as the “Big three First Bank of Nigeria Plc. The Union Bank of Africa Plc.

The problem posed by carrying large volume of bad loans or non-performing accounts was not fully recognized until in November 1990 when the central bank introduced the prudential guidelines in line with the general standard all over the world to ask the in the country assess themselves filling thereby determine how wealthy or prudent they are in their loan credit management.

Most banks cannot unequivocally declare that they have been introduced by problem loan. Certainly, it is a way of life in those tumultuous times of banking that virtually every one of them if faced problem or so-called works out loans.

Another important reason is to decline in the economic fortune which gripped the Nigeria economy.


The researcher therefore would like

1. What are the causes of bad debt?

2. Why provisions for bad debt are made?

3. How bad debts are written off?

4. How banks are financial institutions managing bad debt?

5. How banks estimate provision for bad debt?


How can bank manage a bad debt?

1. What is the effect of bad and doubtful debts

2. What is the effect of rising machine of bad debts on bank operation?

3. Can bad debt affect the profit making of bank?

4. What are the signs to know when loan is going bad?

5. What are the factors to consider when granting loan?


The broadax objectives of the study are to analysis the effects to rising machine of bad debts on banking operation since 1986 when the federal government adopted SAP. The focus on how to mange loans and reclaim the collateral assets securing them. In specific terms the study will inquire into the rising waves of bad doubtful account in our banks in general and First Bank Nigeria Plc in particular the aim is to determine the share of the major actors or factor in granting a loan.

a. Other customer

b. The banks and

c. The government or the economic environment.

Secondly, the study will examine impact of the prudential guidelines on the management of loans by banks since 1990 when the guidelines came into effect. What impact it has produces on the reporting system of bank. Before and after prudential guidelines and finally draw some policy lessons and predictions for the future.

Finally, the study will aspire to provide the essential strategies that may be used for loan recovery once a debtor enters bankruptcy.


The general hypothesis to be tested in the study

Ho = Bad debt will not have positive impact on Nigeria money deposit bank.

Hi = Bad debt will have positive impact on the Nigeria money deposit bank.


The motivation for eh study arises from the research interest in tracking the effect of economic reforms within the structural adjustment programme since deregulation of financial system of the economic reforms is expected to act the volume and pattern of landing by banks and the profitability of banks. It is necessary to investigate the extent to which profit that are being declare by banks actually reflect their true profitability position. Whether adequate precaution have been taken in their granting loans. The structural weakness of these bank is reffered in the heavy bad debt port folio, which is fact eroding their capital base. The introductory of prudential guideline has therefore exposed the weak foundation and the misfortune arising from bad debt structure data generated from the annual reports of banks with regards to eh volume of the bad debts have been fraught difficulties until the introduction of the prudential guidelines.

Firstly, it is a policy objective of the monetary authorities to recognize only income that is earned and not paper profits.

Secondly, it is also the objective of the monetary authorities to confirm with international prudential guideline.

Thirdly, it is to make banks more prudent in their lending decision through reducing incidence of bad and doubtful account.

Finally, it is to encourage bankers to become solid finally able in Ibadan the customers are partially sophisticated.

Of serious limitation of the study is the problem of data collection. Through thus is not peculiar to this study. It must be recognized that not until the prudential guideline came into effect November 1990. Most neither banks nor do they realize the need to make adequate provision of data for bad and doubtful debts what banks did at best was to make petty provisions for those classes of debts.


Malad and their rules differ from one country to another similarly the infrastructure, the role of financial institution and the attitude and type of introduction by regulation at least larger determined what types of investment instrument are available while exchanger central and tactic system effect the attractiveness of such instrument to foreign invests.

The base and reason of the project write up will be limited through and detailed investigated on the effect of bad debt in Nigeria money deposit bank in Nigeria economic particularly as it relate to the first bank of Nigeria plc.


MANAGEMENT: The act of running a business or the process of controlling, planning, organizing and co-ordinating a business or an organization.

BAD DEBT: It is an account renewable that will likely remain uncollectible and will be written off.

POPULATION: The total number of people who live in a particular area, city or country.

ECONOMY: The relationship between production trade and the supply of money in a particular region or country.

NIGERIA DEPOSIT BANK: It is an institution that accept money from the public for safekeeping

RISK: The possibility of something bad happening at sometime in the future.

Two Types of Risk

Pure Risk: a category of risk in which loss is the only possible outcome there is no beneficial result.

Speculative Risk: this type of risk involves gambling you might win, you might lose the outcome may be profit or loss example brokerage, smuggling e.t.c

FINANCIAL SYSTEM: It is the system that allows the transfer of money between savers (and investor) and borrowers.

MONETARY POLICY: Is the process by which the monetary authority of a country controls the supply of money in a country.

Inflation: a general rise in the prices of goods and services in a particular country resulting in fall value of money.

LOANS AND OVERDRAFT: loan is a money borrow from an individual while overdraft is the amount that you own a bank when you have spent more than what you have in your account.

Unemployment: the number of people not having a job.

MERCHANT BANK: bands that deals with large business.

CENTRAL BANK: a national bank that does business with the government and other banks, and issued country currency.

Customers: a person or an organization that buys something from store/business.

BANKERS: a person who owns a bank or has an important ob at a bank.


Ø Chapter one contains introduction

Ø Chapter two contains literature review

Ø Chapter three contains data presentation analysis and interpretation of results.

Ø Chapter five contains summary, conclusion and recommendations.



Given the ubiquitous application of bad debt in bank by both practitioners and academician. There is a dearth of corresponding theoretical and empirical research to support this method bad debt has been popularized   on its structural validity but its convenience recently.

The work of other author is reviewed with a view of finding out the fact of the subject under study.

According to Obisesan (2008) Debt is an obligation to make the future payment for credit received from a lender. A debt is considered to be bad when it becomes obvious that the debtor cannot meet his   obligation as at when due.

The Nigeria prudential guidelines (1990) describe bad debt as non debt into substandard doubtful and cost of the principal and nor interest are behind a schedule for goods days but less than 180 days but than 360 days or more respectively.

Rosehill College (2007) Bad debts are written off during the transaction.

William and Mary (2000) Bad debts as unrecoverable money by creditor resulting to a loss. 

Mary (2003) money written off by the creditor as a loss. 

Williams J. Quirk (2008), Too bad not to fail A synthetic collateralized debt obligation (CDO), the subject of the security and exchange. 




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