The financial sector plays a terribly vital role in the event of any country or nation. The banking sectors, as a significant player within the money system, is a major concern to any or all and varied during a country most importantly the govt. through its agencies just like the central bank and therefore the ministry of finance. Recently, there has been a big upheaval in the Nigeria money sub-sector i.e. the banking sector as the Central Bank of Nigeria and therefore the Governor, Sanusi Lamido Sanusi, audited the accounts of some banks and came up with a listing of banks that are found faulty.
THE CONCEPT OF BANKING AND BAD DEBT
Banking could mean different things to different people. Students, bank professionals and even laymen had outlined the concept and lots are still happening to capture what banking denotes in the current time taking into consideration the changing world environment. A number of definitions shall be thought-about here:
Banking, in line with InvestorWord (2009) has been defined as partaking in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit, etc. But, from finance perspective, it’s outlined as ‘the management of money and credit 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 conjointly provides a number of definitions as to the word banking. First, it defines banking as the transacting business with a bank deposit or withdrawing funds or requesting a loan, etc. A second definition sees it from money perspective, deforming banking as the industrial activity of providing funds and capital. A lot of relatively modern term is that that defines banking from home banking perspective as ‘that in that transactions are conducted by suggests that of electronic communication (vial telephone or computer). Different definitions as provided by Wikipedia are:
i. Banking is the business of a bank or of a banker (role perspective)
ii. Banking is the art of transacting business with bank, depositing or withdrawing funds or requesting a loan etc.
iii. Lastly, banking as partaking in the business of banking, maintaining savings and checking accounts and issuing loans and credit, etc.
In all, banking is a nebulous concept however one might curl out some cogent terminologies so vital the concept of banking to incorporate the subsequent: Exchange, account, business, savings, checking, loans, credit, finance, deposit, withdrawal, fund or capital, transaction, and issuing.
THE CONCEPT OF BAD DEBT
There is no organization, whether banks or others kind of multinational that prays for dangerous debt. Ironically, dangerous debt is table in some bound organization, additional 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 add-up to unhealthy debt which used to cause great threat to the survival of most banks. The recent audit of some bank’s records which reveals anomalies in the operations of such banks and which caused the removal of seven bank chiefs (CEO) up-to-date has been the talk of the city and a a lot of controversial issued each locally, nationally and at the planet’s scene.
Here, we have a tendency to shall be looking at a number of the definitions of dangerous debt as it were and do a little bit of exigency on the concept.
The investor word takes a comprehensive study the concept from two views Vis-a-Vis Non- GAAP and GAAP. Additionally, dictionary of finance and investment terms defines it as open account balance or loan receivable that has proven noncollectable and is written off.
The dictionary of Banking terms describes dangerous debt as loans classified as a probable loss and has no economic values.
Lastly on definitions, the dictionaries of Business terms see bad debt as debt that is not collectible and is therefore worthless to the creditor. Therefore noncollectable as a result of the debtor is insolvent; while the dictionary of marketing terms put bad debt as ‘customer failing to acquire the merchandise or service received; additionally called dangerous pay’.
The highlights from these definitions are:
i). Dangerous debts are receivables
ii). they’re perpetually noncollectable
iii). the debtors are typically insolvent
iv). Unhealthy debts are sometimes written off
v). They’re treated as expenses within the income statement
vi). They’re loss to the going concern
vii). Such quantity is worthless to the creditor
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