BANK FRAUD AND PROFITABILITY OF DEPOSIT MONEY 1990-2023

TOPIC: BANK FRAUD AND PROFITABILITY OF DEPOSIT MONEY 1990-2023

TOPIC IS SUITABLE FOR: 
1. Department of Banking and Finance

2. Department of Accounting

3. Department of Economics

4. Department of Business Administration

This research material contains:

1-Chapter One to Five

2-Recent References/citations

3-Tables/Charts/Graphs in Chapter Four

4-Accurate Data Analysis

5-Table of Contents

6-Raw Dataset

ABSTRACT
This study investigated the impact of bank fraud on the profitability of deposit money banks in Nigeria over the period 1990 to 2023. Specifically, the study examined how insider fraud, loan fraud, and cyber fraud affect the profitability of 15 banks in Nigeria. The research adopted an ex-post facto research design. Secondary data served as the primary source of information, obtained from audited financial statements and annual reports of the sampled banks. Additional data were sourced from regulatory bodies such as the Central Bank of Nigeria (CBN), the Nigeria Deposit Insurance Corporation (NDIC), and publicly available fraud reports from the Nigerian Stock Exchange (NSE). Key findings indicate that fraud significantly affects the profitability of deposit money banks, with insider fraud and loan fraud having the most pronounced effects. Conversely, the study revealed that cyber fraud, while prevalent, does not exhibit a significant direct impact on profitability, indicating that banks have implemented effective countermeasures to mitigate losses. Therefore, the study recommends that banks should strengthen their internal control frameworks to prevent insider fraud by enhancing employee monitoring systems, conducting regular audits, and establishing a culture of ethical banking practices.

CHAPTER ONE
INTRODUCTION (Preview)
1.1 Background to the Study
Fraud is a widespread socio-economic problem impacting both public and private sectors in developed and developing countries. Abiola, as referenced in Gbegi and Adebisi (2022), defined fraud as profoundly entrenched and progressively normalized in Nigeria, permeating all tiers of governance—from senior leadership to local officials. The incidence of fraud and corruption in Nigeria is concerning, affecting all sectors of the economy. In Transparency International's Corruption Perception Index for 2014, Nigeria was positioned 136th among 174 countries, achieving a score of 27 percent. This result indicates negligible advancement in the fight against corruption, as the nation recorded comparable low ratings of 25 and 27 percent in 2013 and 2012, respectively. Nigeria was classified as the third most corrupt nation in West Africa, following Guinea and Guinea Bissau (Ejike, 2022).

The banking industry, specifically, seems to be a primary target for fraudulent activity in Nigeria. This vulnerability is likely associated with the sector's substantial cash transactions and the prominence of money as the principal medium of exchange, rendering it particularly attractive to fraudsters. The banking sector is essential for economic development, as it mobilizes capital, facilitates investment, and supports financial intermediation. The significance of the banking sector in any nation stems from its role in mobilizing finances from surplus to deficit units, providing an efficient payment system, and facilitating the implementation of monetary policy. In intermediation, banks consolidate savings from surplus units of the economy and transfer this capital to deficit units, notably private sector enterprises, to augment their production capacity.

The integrity and viability of Nigerian banks' good operations have deteriorated because of ongoing fraud and accounting scandals. Fraud is the deliberate deception or trickery used to gain an unfair advantage dishonestly. Mboto, Akeh, Nkamare & John (2022) mentioned that banks are an intentional misstatement of facts (falsification or fabrication) with the intention to benefit or conceal shoddy deals such that reliance on the information may be misleading, resulting eventually in loss to users. Andi (2012) opines that bank fraud is not an accounting problem or an internal control problem; it is a human problem. Not even the strongest system of controls can eliminate all risk of organizations being defrauded by employees who are sufficiently motivated to find loopholes, ways to override controls, or opportunities for collusions. In as much as most accountants are familiar with methods for identifying manipulated accounting data, effective fighting of fraud involves going further and understanding the human elements involved.

According to Okoye & Gbegi (2023), bank fraud includes account opening, money transfer fraud, money laundering, computer fraud, loan fraud, and related activities. Bank fraud denotes deliberate deception or misrepresentation aimed at obtaining unauthorized financial advantages. In Nigerian deposit money banks, fraud occurs in multiple forms, including insider misconduct, cybercrimes, check fraud, loan fraud, and ATM-related fraud. The increasing complexity of fraudulent activity has been driven by technology progress, regulatory gaps, and the involvement of certain bank workers.

From 1990 to 2023, the Nigerian banking sector had several prominent fraud incidents, many of which exposed systemic weaknesses and insufficient internal controls. A significant instance is the failure of banks in the 1990s attributable to fraudulent activities. The Banks and Other Financial Institutions Act (BOFIA) of 1991, particularly Section 15, was established to mitigate fraudulent activities and improve the international competitiveness of Nigerian banks. Olofin and Afangideh (2023) assert that corporate misconduct and inadequate corporate governance were major factors in the banking crises of that era, resulting in the closure of numerous banks and a decline in public trust in the financial system. Likewise, the emergence of computerized banking in the 2000s, while transforming financial services, gave rise to novel fraud tactics, including phishing, hacking, and identity theft. The Nigeria Deposit Insurance Corporation (NDIC) 2007 annual report indicates a substantial rise in cases of attempted fraud and forgeries in insured banks relative to 2006. The research disclosed 1,553 documented incidents in 2007, involving over ₦10 billion, in contrast to 1,193 cases in 2006, totaling ₦4.83 billion. These figures emphasize the widespread occurrence of fraud, illustrating its effect on financial resources and the advantages it provides to offenders to the detriment of others.

In 2022, the Central Bank of Nigeria (CBN) announced fraud losses over 20 billion Naira, highlighting the ongoing menace of fraudsters. In July 2004, the Central Bank of Nigeria (CBN) implemented new banking regulations designed to consolidate and restructure the sector via mergers and acquisitions. Moreover, Mbamalu (2023) asserts that bank fraud primarily derives from the experiences of banking personnel, and given that deposit money banks (DMBs) are crucial in directing savings towards productive enterprises, promoting economic development, and maintaining monetary stability, Adeyemo (2022) asserted that if this fraudulent activity is not curtailed, it could deplete our resources, as foreign investors may deem it unwise to conduct transactions through our banks.

1.2 Statement of the Problem

In recent years, the banking sector in Nigeria has grappled with increasing incidents of fraud, which pose significant risks to financial stability and economic growth. Deposit Money Banks (DMBs), which play a pivotal role in mobilizing savings and financing productive investments, have been particularly affected. Fraudulent activities, including cybercrime, insider abuse, and forgery, have led to financial losses and a decline in customer trust (Okeke, 2020). Oseni (2020) asserts that the persistent thefts in the financial sector are escalating to a degree where numerous stakeholders in the industry are losing their trust and confidence in the industry. Despite advancements in technology and regulatory efforts to curb fraud, the problem persists, with Nigerian banks recording substantial financial losses annually.

Conversely, Adeyemo (2023) argued that while technological tools have been introduced to mitigate fraud, they are often exploited by perpetrators, raising concerns about their effectiveness. Existing studies, such as those by Olaniyi (2022), have focused on fraud in international banking operations, leaving a gap in understanding the unique challenges faced by Nigerian DMBs. Moreover, research by Abdullahi (2020) explored the role of organizational culture and internal controls in curbing fraudulent practices in deposit money banks without looking at how it impacts their profitability, which has hindered the development of targeted strategies to address fraud comprehensively. This study seeks to bridge this gap by investigating the prevalence, impact, and regulatory responses to fraud in Nigerian Deposit Money Banks.

1.3. Objective of the study

The objective of this study is focused on bank fraud and profitability of deposit money banks (1990-2023). Specifically, the study seeks to:

i. To examine the impact of insider fraud on the profitability of deposit money banks from 1990 to 2023.

ii. To examine the impact of loan fraud on the profitability of deposit money banks from 1990 to 2023.

iii. To examine the impact of cyber fraud on the profitability of deposit money banks from 1990 to 2023.

Other parts of chapter one include:
1.4 Research Questions

1.5 Research Hypotheses

1.6 Significance of the Study

1.7 Scope of the study

1.8 Limitations of the Study

1.9 Definition of Terms

CHAPTER TWO
REVIEW OF LITERATURE (Preview)
This chapter critically examines relevant literature that would assist in explaining the research problem and, furthermore, recognizes the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps. This chapter therefore focuses on the evolution of deposit money banks, bank profitability, the concept of fraud, classifications of fraud, the concept of bank fraud, forms and methods of bank fraud, etc. The chapter is sub-grouped into the following major headings:
Conceptual Framework

Theoretical Review

Empirical Studies  

CHAPTER THREE
METHODOLOGY (Preview)
Presented below is a snapshot of key areas of the study methodology, the full and detail chapter three methodology is contained in the instant download document.

Research Design: The study adopted an ex-post facto research design.

Population of the Study: The population of the study comprises all deposit money banks operating in Nigeria between 1990 and 2023.

Sample Size: The study selected 15 deposit money banks based on the availability of comprehensive financial data and fraud-related records.

Research Instrument: The study utilized secondary data obtained from financial statements, annual reports, and fraud-related disclosures of the selected banks.

Data Sources: The data were sourced from the annual financial reports of selected banks, Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), and Nigerian Stock Exchange (NSE).

Methods of Data Analysis: The collected data were analyzed using descriptive statistics, including mean, skewness, kurtosis, maximum, minimum, standard deviation, and the Jarque-Bera test for normality. Correlation analysis, Analysis of Variance (ANOVA), multiple regression analysis, and multicollinearity tests were employed to examine the relationship between bank fraud and the profitability of deposit money banks in Nigeria.
Full outline for chapter three;
3.1 Design

3.2 Population of the Study and Sample Size

3.3 Instrument for Data Collection

3.4 Data Source

3.5 Model Specification

3.6 Method of Data Analysis

3.7 Justification of Methods and Techniques Used

3.8 Summary

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION 
MAJOR FINDINGS (Preview)
The analysis results were presented in tables. Based on the results obtained from the analysis, the following major findings were made:

i. The study found that insider fraud, loan fraud, and cyber fraud are positively correlated with one another, as evidenced by correlation coefficients of 0.72, 0.54, and 0.60, respectively. However, all three types of fraud exhibited weak negative correlations with the profitability of deposit money banks, with insider fraud recording -0.12, loan fraud -0.15, and cyber fraud -0.09. This implies that the different types of fraud are interconnected, while their individual relationships with profitability are weak and may be influenced by other operational and economic factors.

ii. The study found that the different types of bank fraud significantly affect the profitability of deposit money banks in Nigeria, as evidenced by an F-statistic of 4.12 and a p-value of 0.012 (p < 0.05), leading to the rejection of the null hypothesis. This implies that profitability differs significantly across the categories of fraud examined, highlighting the importance of addressing insider fraud, loan fraud, and cyber fraud to improve the financial performance of deposit money banks.

iii. The study found that insider fraud has a significant positive effect on profitability, while loan fraud has a significant negative effect, and cyber fraud has no statistically significant effect on the profitability of deposit money banks in Nigeria. This was confirmed by the regression results, which showed coefficients of 0.45 for insider fraud, -0.31 for loan fraud, and 0.12 for cyber fraud, with p-values of 0.0005, 0.0042, and 0.1925, respectively. The model's R-square value of 0.4872 indicates that the explanatory variables account for approximately 48.72% of the variation in profitability. This implies that insider fraud may be associated with inflated reported earnings, loan fraud reduces profitability through financial losses, and cyber fraud may have a limited direct effect due to existing preventive measures.

CHAPTER FIVE: SUMMARY, CONCLUSION, AND RECOMMENDATIONS
This chapter covers the following outline:

5.1 Summary

5.2 Conclusions

5.3 Recommendations

5.4 Suggestions for Further Research
Reference
Appendix

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