The financial sector plays a very vital role in the improvement of any country or nation. The banking sectors, as a major player in the financial system, is a major concern to all and sundry in a country most importantly the government straight through its agencies like the central bank and the ministry of finance. Recently, there has been a big upheaval in the Nigeria financial sub-sector i.e. The banking sector as the Central Bank of Nigeria and the Governor, Sanusi Lamido Sanusi, audited the accounts of some banks and came up with a list of banks that are found faulty.
The understanding Of Banking And Bad Debt
Banking could mean dissimilar things to dissimilar people. Scholars, bank professionals and even laymen had defined the understanding and lots are still going on to capture what banking denotes in the present time taking into observation the changing world environment. A number of definitions shall be thought about here:
Banking, according to InvestorWord (2009) has been defined as inspiring in the firm of holding money for savings and checking accounts or for change or for issuing loans and credit, etc. However, from finance perspective, it is defined as 'the administration of money and prestige and banking and investments. From right of offset perspective, InvestorWord sees banking as the legal right of a bank of seize deposited fund to cover a loan that is in default.
Wikipedia also gives a number of definitions as to the word banking. First, it defines banking as the transacting firm with a bank deposit or withdrawing funds or requesting a loan, etc. A second definition sees it from financial perspective, deforming banking as the market performance of providing funds and capital. More relatively contemporary term is that which defines banking from home banking perspective as 'that in which transactions are conducted by means of electronic transportation (vial telephone or computer). Other definitions as in case,granted by Wikipedia are:
i. Banking is the firm of a bank or of a banker (role perspective)
ii. Banking is the art of transacting firm with bank, depositing or withdrawing funds or requesting a loan etc.
iii. Lastly, banking as inspiring in the firm of banking, maintaining savings and checking accounts and issuing loans and credit, etc.
In all, banking is a nebulous understanding but one could curl out some cogent terminologies so important the understanding of banking to comprise the following: Exchange, account, business, savings, checking, loans, credit, finance, deposit, withdrawal, fund or capital, transaction, and issuing.
The understanding Of Bad Debt
There is no organization, either banks or others kind of making ready that prays for bad debt. Ironically, bad debt is table in some confident organization, more importantly in the banking sector where loans are being given out in millions and billions on even daily/weekly basis.
Backlog of irrecoverable loans could sum-up to bad debt which used to pose great threat to the survival of most banks. The modern audit of some bank's records which reveals anomalies in the operations of such banks and which brought about the removal of seven bank chiefs (Ceo) modern has been the talk of the town and a more controversial issued both locally, nationally and at the world's scene.
Here, we shall be finding at some of the definitions of bad debt as it were and do a bit of exigency on the concept.
The investor word takes a total look at the understanding from two perspectives Vis-a-Vis Non- Gaap and Gaap. Also, dictionary of finance and speculation terms defines it as open catalogue equilibrium or loan receivable that has proven noncollectable and is written off.
The dictionary of Banking terms describes bad debt as loans classified as a probable loss and has no economic values.
Lastly on definitions, the dictionaries of firm terms see bad debt as debt that is not collectible and is therefore worthless to the creditor. So noncollectable because the debtor is insolvent; while the dictionary of marketing terms put bad debt as 'customer failing to pay for the merchandise or assistance received; also called bad pay'.
The highlights from these definitions are:
i). Bad debts are receivables
ii). They are all the time noncollectable
iii). The debtors are regularly insolvent
iv). Bad debts are regularly written off
v). They are treated as expenses in the revenue statement
vi). They are loss to the going concern
vii). Such number is worthless to the creditor