CHAPTER ONE
INTRODUCTION
1.1Â BACKGROUND OF THE STUDY
Through the proper use of interest rate banks are able to attract depositors of various terms. Such depositors include, short term deposits ranging from 7 days to 6 months, long term, deposits current account. This is regarded as special borrowing by the bank since the bank of any purpose(s) could use any deposits without recourse to the depositors, and such depositors are only payable on demand or at any agreed date. It is these depositors, which provide the basis for banks lending to various customers. This is subject of the reserve ratio set by the central bank of Nigeria (CBN). The interest rates charged on loans by banks are usually higher than the rates they pay on deposit and are determined by the federal government. It was the interest rates chargeable and payable on loans facilities and deposits respectively. The numbers of volume of good loan and advance seriously determine the degree of profitable commercial banks. Consequently, profitable commercial banks have to limit or eliminate the number of bad account in their lending portfolio. It is necessary to note that all funds tied up in bad and doubtful account are not accountable for further onward lending. Also, with the advent of CBN prudential guidelines, non performing loans and advances whose interest have been outstanding on these account are not reflected in the earnings of commercial bank, but charged to interest suspense and charged income when realized. Bad debt is regarded as negative contributors to the profitability of commercial banks. So banks should be expected to be the most relevant to provide for bad debts unless it is unavoidable. Another dimension however is that critics are quick in pointing out that the high bad or doubtful debts figures in final accounts of commercial banks could be realistic. It is also alleged that banks could use such provision to evade tax. It also demonstrate the incompetence of the lending bankers in the management of loan able funds on the other hand, it is held that this provisions shows the level of convenience by the bank officer system. This views was expressed by the president of Association of Shareholders of Wema Bank, Mr. AkintundeAsaw. He alleged that some of the official of Wema Bank acted outside the specified authority and schedule by irregularly approving loans. He therefore gave the bank up to 1990 to recover all irregular loans while assuring that those involved in irregular disbursement of loans would be punished. The final accounts of most commercial banks in Nigeria have provisions for bad and doubtful debts of various figures while the funds of the level of such provisions is decreasing in the case of some commercial banks for other, it is increasing. The view of the provisions for bad and doubtful debts by banks in the country has necessitated an in-depth study into the fundamental factors for such losses by the bank. The research therefore seek to determine the effect of bad and doubtful debt on the liquidity asset of banks in Nigeria
