BANKING DISTRESS IN NIGERIA CAUSES AND IMPLICATIONS

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

          The issue of bank distress has been a problem which financial institutions suffer must. The era of all for free banking in Nigeria brought which can be traced as of (1892) when banking started in Nigeria gave room for the establishment of many banks because there was little or no laws guiding banking business.  Because the was no law or supervisions on establishment of banks, many banks were established without adequate capital requirement.

Morestill, the era of Structural Adjustment Programme (SAP) and deregulation brought another face in the banking industry which made many banks to sprang up in Nigeria.  This made many more banks to be established in our country. But, as more laws guiding banking industries were established some of these mushroom banks were affected.  Such laws were regulated by some bodies and each bodies include, BOFIA, CAMA 1990, NDIC etc. Banking and other financial institution Act, Company and Allied matter Act, Nigerian Deposit Insurance Corporation and all these bodies regulating the activity of banking in Nigeria.

However, bank distress became a problem in the country when these regulating bodies started monitoring the activities of these banks.  Infact, so many of them as a result of not meeting the banking CAMEL, they became distress. CAMEL here refers to, capital Adequacy, Assets Quality management competency, Earning Strength and Liquidity sufficiency.

Infact, by 1954, vitually all the indigenous banks that sprary up during the free-for-all banking period got distressed and finally failed.  In this period only three of them, the National Bank of Nigeria, the Agbonmagbe bank (Presently WEMA Bank) and the African continental Bank survived.  Infact they were able to survive because they got assistance from state government.

1.2 Statement of the Problem

 Having seen all the measures adopted by the government to avoid bank distress by establishing regulating bodies and laws to avoid distress.  Many banks still get distress.  The question now is, why do banks still get distress after all these guideline established by these regulatory bodies.

Hence, it is hoped that it will serve as a basis for further academic adventures. The research work is expected to be of immense help to foreign investors in the country. The relief should be stricked to manufacturing companies like those in the pharmacetical food, processing, building materials, banks etc. The banking should be more flexible to allows such expenses as deductible in computing banking profit of such Nigeria.

To the enterprenuers who want to establish bank in stale of their choice, they could be attracted to depressed area if more governors, banking incentives are made available for business established in such areas.

1.3 Purpose of the Study

For the purpose of this research, the researcher has decided to know the following as regards to the topic “The Banking distress in Nigeria, cause and Implications.

Such objectives are:

To investigate what is banking distress

To inquire when it started in Nigeria

To ascertain the causes

To identify the implications in the economy

To proffer the possible solution to the problem

1.4 Significance of the Study

The findings of the research works together with its conclusion and recommendation will be of importance in the following regard to future researchers.

Although, this work represents a significant attempts, it is not exhaustible at the:

TIME FACTORS:

Time is a major constraining factors.  This is obvious, since the researcher work hard to be completed with a specified period time, other academic programme.

LACK OF SOME STATISTICAL DATA:

All this statistical data needed for the study could  not be gotten by the researcher in local government, under study and using other data from other local government are irrelevant.

LACK OF ADEQUATE KNOWLEDGE

Lack of knowledge is another problem the researcher encountered on the course of this study.

goods to another country

1.5 Scope of the Study

While the banking impact distress in Nigeria will theoretically serve as the population of study. The project is designed to appraise the impact of bank distress on the profit growth of Union Bank of Nigeria Plc, First Bank of Nigeria, United Bank for Africa and Guarantee Trust Bank. It will also analyse the trend of these banks profit within a period of 10 years (1992-2001).

1.6 Research Questions

1.       What are the causes of bank distress?

2.       What is the impact of bank distress?

3.       What is the profit growth rate of existing commercial bank during distress.

4.       What are the effects of bank distress?

5.       What are the possible solution options to this phenomenon in the banking scene?

1.7 Research Hypothesis

H1:  Distress has no effect on the average profit of commercial

bank

Ho:  Distress has effect on the average profit of commercial

banks.

1.8 Limitation of the study

The following factors poses to be a limitation during the course of this research

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 Definition of Terms

What is Distress? It can be defined as an extreme suffering caused by lack of money or a state of danger, calamity and misfortunate acute poverty.

What is an Evaluation? This can also be defined as form of idea or judgment of something and also to work out something in numerical value.

What is Impact? This can be define as a strong effect or impression to bank. It is also a situation whereby something will be to be press closely or firmly together.

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