The Effect of Bad Debt Management in Nigerian Banking Industry and Remedies - Dissertation Example

? The Effect of Bad Debt Management in Nigerian Banking Industry and Remedies – A Case Study of Afribank Nigeria Plc Table of Contents Table of Contents 2 CHAPTER ONE 4 1.Introduction 4 1.1Background of the Study 5 1.2Problem Statement 6 1.3Aim and Objective of the Study 6 1.4Significance of the Study 7 1.5Scope and Limitation of the Study 8 1.6Definition of Terms 9 CHAPTER TWO 10 2.Literature Review 10 2.1Nigerian Banking Industry and its Role in Economic Growth 10 2.2Deregulation of the Banking System 12 2.3Credit Risk and its Management Strategies 13 2.4Impact of Credit Risk 17 CHAPTER THREE 19 3.Research Methodology 19 3.1Justification of the Methodology 19 3.2Research Methodologies 20 3.2.1 Qualitative Methodology 20 3.2.2 Quantitative Methodology 21 3.3Data Collection 21 3.3.1Primary Data 22 3.3.2Secondary Data 23 3.4 Sampling 23 3.5 Reliability and Validity 23 3.6 Ethical Considerations 24 References 25 CHAPTER ONE 1. Introduction The history of Nigerian banking industry dates back to the year 1892 when the first bank was incorporated by the colonial British Empire (Okezie, Tella, and Akingunola, 2011). The business operation of the Central Bank of Nigeria (CBN) was initiated in the year 1959. The autonomy of CBN was lost to the Federal Government during the period 1968 to 1999. It resulted in Nigeria being surrounded by a loose monetary policy that was implemented by the Federal Government then. In the year 1999, the last of the military regime in Nigeria, gave back the banks legal autonomy in the field of exercising monetary policy and regulatory functions (Central Bank of Nigeria, n.d.). After the independence of Nigeria in 1960 till the beginning of 1980s, the banking industry of the country was mainly dominated by the three banks namely First Bank, Union Bank, and United Bank for Africa. The banking sector was deregulated by the Nigerian government in 1986 which resulted in easement of entry barriers for the new entrantsin the banking industry of Nigeria. As a result of this deregulation, many new banking firms made an entry into the Nigerian banking sector and the number of banks in the country rose to over 100 (Ekpenyong, and Acha, 2011). Many of these new banking firms were poorly managed and weakly capitalised. The regulatory supervision was also quite weak. This resulted in a series of bank failures and turned up to be banking crisis in the year 1990s. At the beginning of 1989, almost 20% of the loan portfolios were adjudged to be non-performing assets. Since the year 2002, the banking industry of Nigeria comprised of 24 commercial banks, 5 development finance institutions, 5 discount houses, 50 class A bureau de change, 598 class B bureau de change, 84 finance companies, 98 primary mortgage institutions, and 914 microfinance institutions (Iwukemjika, n.d.). One of the major concerns for the policy makers is the increasing level of cases of banks in being distress. Hence bad debt forms an important aspect of the banking industry in Nigeria. 1.1 Background of the Study It is a fact that the banking system is considered to be the engine of growth in any economy. It is so because of its function of financial intermediation. With the help of this function the banks are able to increase their performance, facilitate capital formation, and ultimately help in promoting economic growth (Badun, 2009). However, the ability of the banks to foster economic development and growth depends on the stability, health, and soundness of the system. The shareholders fund constitutes only a small portion of the total liability of the banks. This fact undermines the need for a reliable, viable and strong banking system. Hence, not surprisingly, the banking sector is found to be one of the most regulated sectors in an economy. In a modern economy, one can find clear distinctions between deficit and surplus economics units and also in the process of separation of the mechanism related to saving investment. This fact has led to the emergence of financial institutions whose primary responsibility includes transferring funds between savers and investors (Federal Reserve Bank of San Francisco, n.d.). If we speak of commercial banks, their essential features lies on the different types of services that are rendered to all its customers. Those services mostly include credit management, deposit stabilisation, consultancy services and money transmission. However, one of the most important functions performed by banks is credit facility and it has a significant impact on the overall economic development of a nation. Various types of financial services are performed by the commercial banks and through their activities capital investment increases, production increases and the standard of living of people also increases (Sooloo, n.d.). Credit extension management is another important function that is carried on by the banks. It is a critical function performed by the banks because the loan portfolio held by the banks is one of their riskiest activity carried on by them. Hence, if prudence and due care is not exercised in the process of credit management, it might result in bad debts for the banks. Bad debts are considered to be normal expenses incurred by the banks, up to a specific percentage derived upon by the respective banks, which are required to be considered while evaluating the profit or loss for a particular period of time. 1.2 Problem Statement The value and volume of bank loans that have eventually been classified as bad debts have started to rise at a faster rate as compared to rate at which the bank lends loans to its customers. This has a direct impact on the cash flow generation of the banks thereby having an adverse effect on its profitability. It is a common belief that majority of the debts of the bank that goes bad are due to the inadequacy of the loan recovery mechanisms followed by the bank and poor loan management. The problem of this research study is to appraise the credit management and lending policies of a particular commercial bank in Nigeria, Afribank Nigeria Plc. with a notion of finding the cause and effect of bad debts in banks. 1.3 Aim and Objective of the Study The primary objective of this research is to study so as to appraise the management of loans lent to the borrowers by the banks and appraising the whole procedure of lending. This objective would be achieved using Afribank Nigeria Plc. as a test case with the goal of highlighting the adequacy and effectiveness of credit management policy followed by the Nigerian banks in general and also minimising the occurrence and impacts of bad debts on the profitability of the banks. The reason behind choosing Afribank Nigeria Plc. as a test case is that being a staff member of the bank I have a prior experience of the tragedy encountered by the bank during the month of August 2009. Hence, I felt the necessity of reviewing the problems encountered by the bank and thereby examining the effectiveness of the remedies adopted by the bank. Thus, the research study has been designed to gain insight and have its focus on evaluating the following four main objectives: a) Evaluating the problem of bad debts faced by most of the Nigerian banks during and after their lending process. b) Identifying the immediate and remote causes behind the occurrence of bad debts in the banks. c) Determining the impact of such bad debts on the Nigerian economy in general. d) Recommending several remedial measures that can be taken up by the banks to help in minimising their bad debts occurrence thereby increasing its profitability and sustainability in the future. 1.4 Significance of the Study The ultimate failure or success of the banking industry is very much reliant upon managing the loans and advances offered by the banks in an effective and efficient manner. Efficient loan management by banks is crucial for safeguarding the assets and achieving adequate return on investments that are made during the lending procedure of securing such loans. The banker needs to be aware of the possible losses that can be incurred during the whole process of lending as well. The existing literature and research study related to the field of loan management and its recovery process is found to be limited. Hence, this study would help in adding to the existing literature of the banking industry. Effective management of the lending procedures followed by the banks recognises the fact that they are required to look beyond the use of same banking principles in case of giving away loans to the borrowers. The moment when the loans and advances lent by the banks appear to be doubtful, the banks need to deal with it as an urgent issue and are required to take prompt decisions and actions for resolving the issue. This process would help the banks to ensure that the loan repayments along with the accrued interests are received by them in the due course of time. With increasing intensity of rivalry and competition amongst the banks in the industry it is tough to earn substantial amount of revenue by any bank. Moreover, bad debts result in further reducing the profitability of banks. Hence, it would be appropriate to review the process of margin and proportions related to lending of loan portfolio so as to repay the loans in a proper manner and negate on part of doubtful and bad debts. This study is thus quite significant to the bankers. As a result of the recent global financial crisis, the monetary conditions in Nigeria have become tightened. Hence, this is the right time for appraising the lending and control mechanisms presently followed in banks to minimise the adverse impact on the investment outcomes. 1.5 Scope and Limitation of the Study This research study is supposed to have a wide scope in light of the areas covered in the study. This type of wide coverage would be helpful in gaining understanding about the credit management process followed in banks. In order to give emphasis on these facts adequate efforts were made to cover all the areas that would help in making the work meaningful. In relation to this fact, this research study has built upon the understanding and knowledge gained from secondary research using accountancy and finance textbooks, peer reviewed journals relevant to the study, newspapers, articles, etc. All these sources were utilised to present a good analysis of all the facts related to achieving the objective of this research study. Limitation It is quite obvious that some kind of problems would be encountered while undertaking this research study by one individual. Paucity of time was one of the major issues encountered while undergoing this research study. Apart from this, the lack of finance also played an important role and had an adverse impact on the overall conduction of research and presenting this research study. The capital aspect of this study could not be financed fully keeping in mind the present economic condition of the country as a whole. The findings and analysis of this research study is limited to the credit management of Nigerian commercial banks only with special reference to the Afribank Nigeria Plc. Hence, the research study does not include other aspects of the banking system besides credit management. 1.6 Definition of Terms 1. Bank: Unless otherwise specified in this research study, banks refer to commercial banks. Banks imply any type of business organisation that has been incorporated after receiving the approval and license from the central bank of Nigeria to conduct the banking operations. In accordance with the Banking Act, 1969 the business operations to be conducted by the commercial banks include accepting deposits, cheque withdrawals including loans and advances. 2. Capital: Capital is considered to be the initial amount that is required for commencing business with subsequent additions during the course of the business. Capital is also considered to be a set out wealth that is used for further wealth generation by banks. 3. Loan Credit Risk: It is a type of risk concerned with the probability of a borrower not being able to repay the loan amount that have been granted to him by the bank. 4. Bad debt: Bad debts are referred to those loans that the borrowers are either unable or unwilling to repay due to some reasons. 5. Credit management: Credit management is related to consultancy services, money transmission, etc. that are undertaken by the banks. 6. Money rate: Money rate refers to the probability of the decrease or increase in the money value. 7. Market rate: Market rate refers to the probability of changes occurring in the interest rates. CHAPTER TWO 2. Literature Review 2.1 Nigerian Banking Industry and its Role in Economic Growth Economic growth of the country has been considered to be one of the major objectives of the Nigerian governments for a long time and it became more prominent after the independence of Nigeria in the year 1960. The idea of the Nigerian government is to promote economic growth of the country through the process of facilitating private investments in various industrial sectors. Private entrepreneurships were also considered on a serious note by the Nigerian government and it needed resources available locally in the country that can foster investment in some of the preferred industrial sectors of the economy. This resulted in the prominence of banks and their intermediation process in the Nigerian economic history. Banks in the form of financial intermediaries help people to save money which are not expended in consumption. It is these savings that are accumulated in banks that are ultimately extended as credit facilities provided to the industrialists and the entrepreneurs of the country. Most of the banks that were present in Nigeria before its independence were owned by foreign companies and thus were not found sharing the banks’ visions of financing the enterprises present locally. Initially the indigenous banks that were established in the country had the motive of supporting the upcoming entrepreneurs of the country, encouraging the local investors thereby leading to the growth in the economy. Unfortunately, many of these indigenous banks failed to perform and thus did not succeed in contributing towards the economic growth of Nigeria (Onoh, 2002; Ekezie, 1997). One of the major reasons behind the failure of such indigenous banks was that the banking sector in Nigeria was unregulated. The Central Bank of Nigeria (CBN) came into existence with the view of regulating the Nigerian banking industry. All the rules, regulations and policies that have been issued by the CBN indicate that its primary objective of promoting the banks’ contributions towards growth of the economy. Various guidelines issued by the CBN like giving priority to the manufacturing and agriculture industry for credit purposes, and the deregulation policy in 1986 are all having the motive of positioning the commercial banks as driving factors of economic growth. The consolidation of the financial sector and the liberalisation policies enacted by the Nigerian government are all based on the arguments laid down by the financial repression school. According to the viewpoint of financial repression school the regulations provide hindrance in the path of financial institutions’ ability to contribute towards the growth of the economy. Hence, it was suggested by the repression school that economic liberalisation should be done so that the financial institutions are able to perform the aforementioned growth function. Apart from this, the primary objective of consolidation of the financial sector was to expand the banks’ sizes. This was suggested on the basis of the belief that the expansion of banks’ sizes would result in strengthening the financial condition of the banks, and thus making them resilient to turbulent economic environment conditions. The banks would then be able to fund the real sector, thereby leading to the economic growth of the country (Soludo, 2004). Banks are also found to get themselves engaged in the process of financial intermediation. The mobilization of funds facilitated through banks by making them available as loans to the deficit economic units and sourcing funds from the surplus economic units. This process of granting loans to the borrowers help the banks to contribute towards the expansion and development of the economy by being able to finance investments and create credit. 2.2 Deregulation of the Banking System The banking industry of Nigeria was deregulated by the military in the year 1986. This step was a part of Structural Adjustment Programme (SAP) taken up by the Nigerian government. The banking operational system underwent a drastic change as a result of this deregulation policy. The regulatory environment also had a significant impact due to deregulation of the industry. Some of these drastic changes that took place in the Nigerian financial industry have been discussed below: The money market as well as the foreign exchange market was liberalised. Prudential accounting regulations and standards were introduced into the financial industry of Nigerian economy. The minimum paid-up establishment related to the Nigerian Deposit Insurance Corporation (NDIC) got enhanced and a new legal framework was established in the industry as a result of the deregulation of the financial industry of Nigeria. The Nigerian economy experienced a boom during the 1990s due to the sudden increase in number of players in the financial market of Nigeria. However, this sudden upsurge in the industry was associated with several issues. One of the major problems was that the increase in banks did not get aligned with the increase in human resources capacity. As a result of this several issues like financial crimes, poor system of credit appraisal, and poor quality of assets increased at an alarming rate. The ultimate consequence was that most of the banks failed to manage its business operations in an efficient and effective manner and there was an increase in the number of distressed banks during the period 1988 to 2009. In the year 1995, there were 115 banks in Nigeria. The number of distressed banks in the country rose to around 55 in 1994 which was around 7 in the year 1989. However, by the end of the year 2002 there was a significant decline in the figure and it got reduced to 13 distressed banks. In the year 1990, a circular was issued by the Central Bank of Nigeria (CBN) which was related to the capital adequacy norms to be followed by the banks. The circular stated that the banks were required to maintain 7.25 percent of risk-weighted assets in their portfolio as capital. Moreover, a minimum of 50 percent of the total capital held by the bank were required to be kept as reserves. This was done to ensure that the ratio of capital to risk-weighted assets of banks remained at least at the level of eight percent from the mon th of January, 1992. Likewise, the prudential guidelines that were introduced by the CBN in 1990 helped to increase the quality associated with risk assets held by banks. It also led to increase in efficiency of banks to carry out its business operations. 2.3 Credit Risk and its Management Strategies The responsibility of banks is not only limited to accepting deposits but also to grant loans or credit facilities. Hence, banks are ought to be exposed to credit risks. Credit risk is considered to be one of the major risks that is faced by banks and their success lies behind the fact as how efficiently they are being able to manage those risks (Giesecke, 2002).Chen and Pan (2012) explains credit risk as the tolerance limit up to which there are fluctuations in the derivatives and debt instruments caused due to the fluctuations in the credit quality of the counterparties and the borrowers. According to Coyle (2000) credit risk is referred to as losses incurred by banks as a result of the inability or refusal of credit customers to repay the debt owed to the bank in full amount and within the stipulated time limit. The credit risk faced by banks is also termed as counterparty risks. If the credit risks are not efficiently managed by the banks then the amount has to be siphoned to become a classified loan while operating its business activities. According to Kargi (2011) management of credit risk by banks help them to maximise its risk-adjusted rate of return through proper maintenance of their exposure to credit risk within an acceptable limit. The limit is set to gain insight on the effect that credit risk management can have on the overall profitability of the banks. According to Demirguc-Kunt, and Huzinga (1999), credit risk can be managed in two steps. Firstly, it is required to realise the fact that after the occurrence of losses it has become unbearable for the banks. Secondly, gaining knowledge about the various developments that have taken place in the field of financing securitisation, and commercial paper and how it has compelled the banks to look for viable borrowers of loans. If we look at various sources of credit risk faced by banks it primarily includes inappropriate policies related to credit, institutional capacity being limited, volatility in the interest rates, inappropriate laws, poor management, low levels of liquidity and capital, bank licensing on a large scale, direct lending, poor quality of lending practices, and supervision by the corresponding central bank being inadequate (Kithinji, 2010). With the rise in credit risk the banks are faced with several solvency and liquidity problems. Next, if we speak of the management strategies related to credit risk it can be defined as those measures that are employed by the banks to minimise or avoid the negative impact of credit risk. In order to enhance the profitability and sustainability of banks they are required to have an effective and efficient management framework related to credit risk. Lindergren (1987) suggests some of the important principles to be followed by the banks in their process of credit risk management and they have been discussed in a sequential manner as: a) forming a clear structure or framework, b) allocating responsibilities, c) prioritising the processes, and d) communicating every responsible person about their responsibilities. Thus, some of the strategies to hedge credit risk mostly include the following processes: a. Credit Derivatives: This type of financial instrument helps the banks to formulate strategies for managing credit risk which does not have the necessity to make any adjustments to the loan portfolio. According to Shao, and Yeager (2007), credit derivatives help the banks to facilitate them with a new income source and they have the opportunity to decrease the amounts of their regulatory capital. One of the most common credit derivatives in use is the credit default swap. It is a financial instrument through which there is an agreement between the seller and the buyer wherein the credit risk associated with a loan gets shifted to the protection buyer. Credit derivatives are thus found to be helpful for the banks and they are encouraged to lend in quantities more than what they usually do and that too to riskier borrowers and at lower rate of interest. Some of the recent innovations that have taken place in the credit derivatives market suggest that there has been a marked improvement in the abilities of the lenders to facilitate credit risk transfer to different other institutions and at the same time being able to maintain good relationship with the borrowers (Marsh, 2008). b. Credit Securitisation: It is a mechanism through which credit risks are transferred to an insurance organisation. The banks thus get relieved from the responsibilities of monitoring the activities of the borrowers and also the fear of possible negative impacts originated through classified assets. This is how the lending activities followed by banks get insured. There has been a recent upsurge in the popularity of this process of securitising the credit risks due to the fact that banks are found to diversify their exposure to credit risks through the use of securitisation as a financial instrument. Moreover, in the process of selling off the transactions, the banks are able to realise the opportunities of liquidity improvements and regulatory arbitrage which in turn provides them with an alternative funding source (Michalak, and Uhde, 2009). According to Marsh (2008), Loan obligations which are collateralised through cash is found to be a type of securitisation wherein assets in the form of loans offered by banks are ultimately removed from their balance sheets and packaged into various types of marketable securities that are eventually sold off to the investors with the help of a special purpose vehicle (SPV). c. Complying with Basel agreement: In order to ensure the stability and soundness of banks certain international regulations and principles are laid down which are referred to as Basel Accord. This Accord came into existence and was introduced in Switzerland in the year 1988. Complying with the Basel Accord actually implies that the banks have the ability to track, identify, generate and report on various data which are associated with risk in an integrated manner. Moreover, the data so reported should be transparent and auditable. Complying with Basel Accord thus help to create an opportunity for the banks to improve upon their risk management procedures. The Basel Capital Accord that has been introduced recently places the onus of adopting a sound internal management system related to credit risk on the banks itself. Through this process the banks can assess their requirements related to capital adequacy (Chen, and Pan, 2012). d. Adopting a sound policy related to internal lending: The banks are guided to disburse loans to the borrowers or the customers through their lending policy. The easiest and cheapest method of managing credit risk is through strictly adhering to the lending policies of banks. Moreover, the lending policy formulated by the banks should be in conformation with the overall strategy of the bank. Apart from this, the factors that should be considered while designing the lending policy of a bank should include the following: a) the credit policy followed by bank at present, b) industry norms, c) the prevailing conditions of the country’s economy, and d) the country’s economic condition in general (Kithinji, 2010). e. Credit Bureau: Credit Bureau is considered to be those institutions that are found to compile information and then eventually sell that information to the bank. This information mostly corresponds with the borrowers’ lending profile. Credit score which is termed as statistical odd is assigned for a borrower by the credit bureau. This type of credit rating of borrowers helps the banks to take decisions regarding whether to lend money to the borrower or not in quick time. The Central Bank of Nigeria (CBN) has a Credit Risk Management System (CRMS) which is an example of credit bureau in Nigeria. 2.4 Impact of Credit Risk Credit risk is considered to be a major issue in almost all the banks and it possesses a threat to their performance levels in a significant manner. The existing literature and viewpoints of various researchers in this field has been discussed in this section. The effect of credit risk on the overall profitability of the banks located in Nigeria has been studied in one of the research studies by Kargi (2011). In this research study the performance of banks were measured through the use of financial ratios. The annual reports of a chosen sample of banks in Nigeria during the period 2004 to 2008 were the source of data related to credit risk. The findings of the study suggested that the profitability of the banks were significantly affected by the risk management mechanisms followed in the banks. The findings of the study also revealed the facts that there was a negative relationship between the profitability of the banks and the amount of loans and advances, deposits and the non-performing loans. This led to the exposure of banks to risks associated with liquidity thereby leading to its distressed situation. In another research study by Epure, and Lafuente (2012), the performance of banks in Costa Rica in the presence of risk during the period 1998 to 2007 was studied. The results and findings of the study suggested that regulatory changes have an impact on the performance levels of the banks. Moreover the non-performing loans or bad debts of the banks had an adverse impact on the efficiency levels of the banks as well. CHAPTER THREE 3. Research Methodology Research is a necessity in every aspect of the business. Whether a company thinking of international expansion or it wants to launch a new product in the market, the importance of research remains the same. This section of the dissertation will throw light on the methodology to be adopted for conducting the research and preparing the report. Apart from that, this chapter will also justify the methodology considered over the other methodologies. In addition, it will also emphasize on the research design, sampling, data collection instruments and then will check with the validity and authenticity of the data. This section will be segmented into 6 sections. The first section i.e. 3.1 will highlight the methodology chosen for this study and will be also justifying the choice. The second section of this chapter will emphasize on the available methodologies. The third section will emphasize on the data collection methods. The next segment i.e. 3.4 will shed light on the sampling process. The fifth section will be about checking the authenticity and validity of the collected data. Finally, the last section of this chapter states the ethical dimensions that have been considered while conducting the study. 3.1 Justification of the Methodology The primary objective of the study is to underpin the effect of bad debt management in Nigerian banking industry and also to find out the remedies of this issue. In addition, the other objectives of this study are evaluating the problem of bad debts faced by most of the Nigerian banks during and after their lending process, identifying the immediate and remote causes behind the occurrence of bad debts in the bank, determining the impact of such bad debts on the Nigerian economy in general and also suggesting several remedial measures that can be taken up by the banks to help in minimising their bad debts occurrence thereby increasing its profitability and sustainability in the future. Now in order to meet the objectives, both qualitative as well as quantitative methodology will be used. The area of study is broad and hence both the methodologies need to be put into practice. The quantitative approach will be less as compared to qualitative as according to the objectives, the study requires less statistics. The study also requires high amount of observation, which is again a qualitative approach. However, the study also has some objectives that require statistical information. Hence, quantitative approach is also needed. Thus considering the above facts, a combination of qualitative and quantitative methodology will be used meet the objectives of the study. 3.2 Research Methodologies 3.2.1 Qualitative Methodology Qualitative methodology is a type of research method, where there is no involvement of statistical calculation and analysis. Rather than recording statistical information, this methodology tries to gain insights of the human behaviour and also tries to underpin the factor that governs human being to depict such behaviour (Boeree, 2012). In other words, with the help of qualitative research, researchers try to uncover the elements such as ‘why’ and ‘how’ rather than ‘where’, ‘what’ and ‘when’. Therefore while conducting qualitative research, it is important consider small and focused sample. Since this study will be conducted by using both qualitative and quantitative methodologies, small sample will be taken. Some of the evident ways of collecting data through qualitative methods are field notes, unstructured interview, observations and various other techniques. 3.2.2 Quantitative Methodology Quantitative methodology is a type of research methodology where the study is conducted by using different statistical, mathematical and computational techniques. This methodology therefore involves large amount of numerical data that can be measured. In other words, quantitative methodology is about recording the responses of the participants in a structured manner and converting them into statistical information (Baxter and Jack, 2008). The objective of the study is to uncover the effect of bad debt management in Nigerian banking industry and therefore to actually know about the level of impact, quantitative methodology will be important. Some of the most common forms of collecting data in quantitative method are surveys and questionnaires. Such methods of data collection help researchers to transform raw fact into meaningful information. In general, researchers use large sample for quantitative methodology, but for this project small sample will be used as the topic is very much focused to the Nigerian banking industry. The method of data collection to be employed for this study is questionnaire survey, as the data to be recorded will be structured and will also help in analysing the data. 3.3 Data Collection Data collection is probably the most important activity of accomplishing a research study. The current project is about underpinning the impact of bad debt management in Nigerian banking industry. Hence relevant data pertaining to bad debt management in Nigerian banks need to be collected. The data therefore will be collected from both primary as well as secondary sources. The primary data or the raw data from the market will be collected with the help of questionnaire survey. On the other there will be also some amount of secondary data. The secondary data will help in understanding the impact of the issue on the banking industry of other country. In addition, it will also help with additional data, which may be required to carry out the study. 3.3.1 Primary Data Primary data is the data which is observed or collected directly from the market. Apart from that primary data also has some other characteristics. Primary data are those which has not yet been published anywhere and also are more authentic, reliable and objective. In addition, primary data cannot be modified by human being and hence offer greater validity in comparison to secondary data. Some of the sources of primary data are experiments and surveys. Now in this study, the primary data will be collected with the help of questionnaire survey. 3.3.1.1 Questionnaire A questionnaire is defined as an instrument which is used in investigation or exploration studies to record and store information from the respondents of the study. In general, a questionnaire consists of a number of questions which are presented to the respondents for the purpose of gaining their thoughts about the area of study. There are two types of questionnaires namely open ended questions and closed ended questions. In this context of the study, closed ended questions will be used. The closed ended questions will allow respondents to give specific answer and will also help researchers to assemble data in structured manner. There are several advantages of using questionnaire survey as the method of collecting information. The biggest advantage of questionnaire is that, it offers users with options and thus providing a standardised response. This also helps in the process of data evaluation and analysis. Some of the disadvantages of questionnaire survey are that, it does not allow researchers to get deep insights about the respondents regarding the topic and at times respondents may answer the questions superficially. Despite of that, closed ended questionnaire will be the most appropriate way of collecting data for this project. For this study, the questionnaire will be e- mailed to the sample and their feedbacks will be stored for analysis. 3.3.2 Secondary Data Secondary data is the information, which is collected from any published sources. Secondary data is extremely useful for qualitative studies. Apart from that there are several advantages of using secondary data. The biggest advantage of using secondary data is cost effectiveness. In comparison with primary data, secondary data is very much cost effective. In addition, data is easily available and can be collected easily. Moreover, the data collection time of secondary data is also less than primary data. This study will also collect data from secondary sources, regarding the impact of bad debt management in the banking industries. Some of the sources from where the data will be collected are electronic sources, printed journals, articles, books and scholarly notes. In addition, data will be also collected from electronic books, journals and articles. 3.4 Sampling Sampling is a process by which the respondents of a research study are identified and selected. It can be also defined as a process by which certain numbers of people are chosen from a group of people (Deming, 1966). It is impossible to review each and every individual’s thought and hence a subset of that population is used to get an overall view. In addition sampling makes the data collection process faster, cost effective, and ensures homogeneity to the project. In this context of the study, the sample will be the employees of Afribank Nigeria Plc and the sample size will be 10. Small sample size will help to organize and analyse the data properly. 3.5 Reliability and Validity It is important to have good quality data, for a research to be successful. On the other hand, non-reliable and unauthentic data may hamper research quality. Hence to ensure quality data is collected, the reliability and validity of the data will be assessed. Reliability: In order to ensure data is reliable the outputs of the data will be tested several times in order to ensure it displays the same result. This will confirm that the collected data is reliable. Validity: The validity of a study is about examining whether the report has actually carried out the activities what it intended to do so (Mehrens and Lehman, 1987). For this study, to ensure the collected data is valid, several validity tests will be carried out. 3.6 Ethical Considerations This research has been conducted after considering several ethical aspects while conducting the study. The ethical considerations of this study are presented below: - The questionnaires are set in such a manner, that it does not interfere in any of the respondent’s personal matters. Each questions of the questionnaire consist of 4 options where, and in those 4 options one options is ‘did not answer’, which provide users the opportunity to skip the question if they feel to do so. References Badun, M., 2009. Financial Intermediation by Banks and Economic Growth: A Review of Empirical Evidence. Financial Theory and Practice, 33 (2), pp. 121-152. Baxter, P., and Jack, S., 2008. Qualitative Case Study Methodology: Study Design and Implementation for Novice Researchers. [pdf] Available at: [Accessed 27 December 2012]. Boeree, C. G., 2012. Qualitative Methods. [online] Available at: [Accessed 27 December 2012]. Central Bank of Nigeria, No Date. About CBN. [online] Available at: [Accessed 18 December 2012]. Chen, K. and Pan, C., 2012. 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