Abstract
PurposeThe unhealthy drive for deposit in the banking sector has pushed many banks into unethical practices, thereby resulting in high-level corruption cases in the banking sector. The purpose of this study is to investigate the short- and long-run linkages between bank net interest income and deposit liabilities interacted with corruption, to establish the influence of corruption in deposit mobilisation drive of banks in Nigeria. Also, the study analysed the causal relationship between selected bank variables and fraud.Design/methodology/approachThe study used quarterly data on selected variables from 1Q 1993 to 4Q 2017 sourced from Nigerian Deposit Insurance Corporation (NDIC) annual reports and Central Bank of Nigeria (CBN) Statistical Bulletin of various issues. Deposit Money Bank various deposit liabilities are interacted with a corruption index and used as the independent variables, while bank earnings serve as the dependent variable. Error Correction Model (ECM) and Engel Granger approach to co-integration technique were used to analyse the data.FindingsThe findings reveal that various bank deposit liabilities interacted with corruption index has a negative effect on bank profitability in the long run, though only corrupt fixed deposit is statistically significant at the 5 per cent significance level. Bank total asset, total loan and advances and fraud have a significant effect on bank profitability at 1 and 10 per cent significance level. The findings also reveal that banks profit from corrupt fixed deposit and demand deposit in the short run.Social implicationsTextOriginality/valueThe literature is awash with bank lending corruption and various institutional factors such as competition among banks, credit bureau and information sharing about borrowers, bank supervisory policies, loan loss provisioning, bank ownership structure and regulatory environment and anti-corruption measures. The aspect of deposit mobilisation and corruption has not been well researched in literature; this study, therefore, fills the gap in the literature by examining the extent deposit money banks contributed to corruption in Nigeria through their cutthroat deposit mobilisation drive.
Highlights
Transparency international in 2018 reported that the global average score for corruption is barely 43 per cent, indicating endemic corruption in most countries in the world resulting in a vicious circle of poverty, unequal distribution of wealth and power and denial of fundamental human right
World Bank, in 2017, reported that businesses and individuals pay a significant amount as bribe each year estimated to about 2 per cent of total world gross domestic product (GDP) and ten times the value of Oversea Development Assistance (ODA)
Some of the bank’s actions range from noncompliance with Know-Your-Customer (KYC) principles, doctoring/non-disclosure of correct position of customer’s statement of account, lowing secrecy surrounding private banking, ignoring suspected money laundering and refusal to check and monitor politically exposed person account. Such unethical practices undermine the economic development of a country, and almost all Nigerian banks are involved
Summary
Transparency international in 2018 reported that the global average score for corruption is barely 43 per cent, indicating endemic corruption in most countries in the world resulting in a vicious circle of poverty, unequal distribution of wealth and power and denial of fundamental human right. Theoretical framework The theoretical framework for this paper is based on the financial intermediation theory and production theory, which appropriately explain the input and output services provided by banks The former posits that banks transform deposit portfolio into a loan (credit) portfolio (Baltensperger, 1980; Dewatripont and Tirole, 1994; Osuagwu and Nwokoma, 2017). Some of the bank’s actions range from noncompliance with Know-Your-Customer (KYC) principles, doctoring/non-disclosure of correct position of customer’s statement of account, lowing secrecy surrounding private banking, ignoring suspected money laundering and refusal to check and monitor politically exposed person account Such unethical practices undermine the economic development of a country, and almost all Nigerian banks are involved.
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