THE EFFECT OF BAD AND DOUBTFUL DEBT ON THE LIQUIDITY OF UNITY BANK PLC, KADUNA STATE

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CHAPTER ONE

INTRODUCTION

The word “bad and doubtful debt” is used in the banking to refer to the portion of loans, advances and over drafts granted by bank which has proved difficult and seemingly impossible to recover in full from the respective committed customer. Such debt do not emerge instantaneously but rather are a gradual result of “lending errors” by lending officers and subsequent improper administrative handling of the facilities among other factors. The commercial banks are in the services industry. They are aimed at providing financial assistance to individuals and corporate bodies without underplaying the importance of profitability to the shareholders and deposits alike. A bank is therefore expected to ensure that sufficient liquidity of funds meet cash demand by its customer at short notices. This in addition to maintaining sufficient profitability hold through proper and efficient management.

A business has two basic source of capital:

1. Owner’s Capital: That is equity contributed by shareholders (including retained earnings) which is essentially used for he purchase of the initial assets of the business and its initial working capital

2. Borrowed Funds: Which refers to external fund required and injected into the business by management subject to the articles and memorandum of Association. It is here that the commercial bank play an important role by granting long and short term loans and advances. It is in the process of granting those loans facilities that error occurs. Losses resulting from such errors will be the focus of this research.

THE EFFECT OF BAD AND DOUBTFUL DEBT ON THE LIQUIDITY OF UNITY BANK PLC, KADUNA STATE