CHAPTER ONE

1.0   INTRODUCTION

        Bed debts are usually associated with the function of commercial banks and the incidence of bad debt remain as told as the essential function itself. Commercial banks like other business entities have one objective of being in business maximize their profit since banking is service industry.

        Commercial bank also strive to give efficient service to their customer at all time to make profit and remain in banking business.

        Therefore, commercial banks most learn in other to earn interest, which provides the revenue commercial bank can lend on loan or over draft to their customers, the choice of facilities repayable could be agreed installment over a good period of time while an over draft is short time which could be involving and required to be made good after one year. An over drat facility is the working capital of the business man.

        The lending function of the commercial bank can only be accomplished if such commercial, bank are in a position to collect deposit from other lending and the size and mode of lending loan an advice constitute a greater proportion of credit available in the economy, lending therefore, helps to satisfied the legitimate credit needs of the society.

Credit like money finds its main function in the production and service in facilitating the exchange of good credit has also help to make possible modern like scale production and wide spread division of labour.

        Because of the direct impact lending can have any economy, government all over the world usually integrate the activities of banks in to policy formulation. The commercial banks intermediation ruled in the economy is highlighted in the deposit creation lending of those banks. While the commercial banks collect deposit from those who have surplus funds, the part give out part of this funds to those who required more funds to expand an existing business or established in a new one.

        The depositor’s relationship with their banks is base mainly on their mutual trust while it is known from experience that all depositors can not call for their deposit at the same time commercial bank must always ensure that these are always a find to meet depositors requirement.

        In addition to the profitability and efficiency objective of commercial bank therefore the needs for sounds liquidity at all time is always emphasized.

        The liquidity object of commercial banks compelled most commercial to lend on short term  basis since most of their deposit is kept over a short period of time the depositor’s fund, which form the lenders working capital required prudent management if the working capital is to grow and not depleted. This position explain the reason why commercial banks take time to study business requesting for financial assistance.

        The bank manger and other officers appointed to give surplus of these credit appraise each proposes thoroughly ensuring their can on of lending which improved purpose and the amount required the sectorial classification of the loan required, the proprietors stake in the business and the security offered.

        Experience has shown however that money business that were appraised and which appeared attractive in the past continual of fall in recent years Nigeria now funds herself.

        Many business that appeared initially attractive failed because they can no longer obtain raw materials with which to produce some failed because they can not raise enough local currency to produce spare parts for their grounded machine while some find the current cost of capital too much to bear such business try to avoid the repayment of both interest and principal debt against them by switching to other banks.

        Business failures have for reaching effect on the ability of borrowers of banks fund to repaid their debts. The resultant effects if these failure is the ever growing incidence of bad debts in Nigerian banks for example union bank which is the one of three leading banks in the country has had an unpleasant share of the burden of those debts.

1.1   BACKGROUND OF THE STUDY

        The project work is made up of five chapters in which chapter one comprising introduction, background of the study, statement of the problem the need for the problem, the scope of the study, the significance of the study, objective of the study, definition of terms.

        The second chapter deals with review on inflation and bad debts bank credit, causes of bad debt, debts recovery, advantages and disadvantages of inflation causes, effects and control of inflation.

        The third chapters deal with research methodology, historical back ground of the case study, method of data collection the effect of inflation on bad debts in union bank growth and development of bad debts.

        Chapter four contains data presentation analysis of data and interpretation of data.

        Chapter five discusses summary recommendation and conclusion.

1.2   STATEMENT OF THE PROBLEM

        The impact of inflation on bad debts, which cut across all share of business society in Nigeria. Recently, the incidence of inflation has been the focused of government attention. In this project attempt will be made to analyse inflation causes and effect of the growth of the backing system in particular and the overall development and likely solution with a view to minimize it frequent occurrence detail of this may be found in next chapter.

1.3   THE NEED FOR THE PROBLEM

        The need for this project study has been amplified by the economic depression in which Nigeria has found here self in the past fourteen years the depression has brought with its economic problems which include huge foreign and interest debts high unemployment, severe raw materials and severe parts shortages, high rate of inflation and rapidly declining per capital income.

        The economics twist of fate of Nigeria that proper her departure from can era of economic boom in the mid seventies and eighties to a period of prolonged depression is first and foremost to the sharp decline in revenue derivable from crude oil.

        The depression economy can also be attributed to economic mismanagement by Nigeria leaders misplaced priorities, neglect of agriculture which can another veritable source of foreign exchange earnings, general depression in the world economy, high level of deficits spending by government and excessive imports which are not at par with exports consequent upon the dull economic climate therefore, may loans and overdrafts facilities granted by commercial banks to individuals and corporate bodies the past are no longer being regularly services may of the facilities which are totally bad are now abandoned.

        The growing brand of bad debt in the book of commercial banks is now a cause for concern to leading banker’s failures to pay an existing debt limits the credit creation capability of banks and this limitation will affect economic production the volume of which is always influence by the availability of credit.

        When production capacity can not be enlarged, new employment cannot be credited, when plant are under utilized labour gets retivialized or totally discarded.

        There is need therefore, to look at the correction between the prevailing economical depression and the increasing failure rate of banking lending which in affect can affects banks profitability and jeopardize their shareholders return on investment.