BANK DISTRESS: A CRITICAL REVIEW OF THE COURSES AND POSSIBLE CONTROL IN THE NIGERIAN BANKING INDUSTRY
(A CASE STUDY OF N.D.I.C ENUGU)
Bank distress in Nigeria has reached a crisis point that it has become a key issue for discussion of all within and outside the banking industry.
It is undoubtedly one of the biggest and most serious issues facing our society today.
In 1993, it was discovered and reported that out of 116 (one hundred and sixteen) banks in Nigeria 57 (fifty seven) of them were distressed on average of 48%. This has affected the depositions, the industry, that is the banking industry, government and staff of the affected banks adversely.
The researcher understand that the distress in the Nigerian banking industry and the increasing wave of financial malpractice in banks if not arrested will lead to the collapse of the Nigerian economy. In this regard, an attempt have been made to identify the possible pills for the total eradication of at least control of these distress in order to reduced the negative impact on the economy.
The method of investigation used by the researcher is based on the analyses the experience of the Nigeria regulatory authorities that is the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) and success so far achieved like questionnaire and interviews.
No study known to the researcher has been conducted which directly focuses on control of banks distress in Nigeria. Probably that is because it is a new phenomena in the Nigeria banking industry.
However, banks found and other financial malpractices have become so pervasive that both the government supervisory authorities and the law enforcement agencies have galvanized efforts to forestall the menace.
The feelings generally expressed have been for decisive steps to be taken to salvage the banking industry. Bank distress has to be reduced to the bearest minimum for a healthy economy to thrive in Nigeria.
These steps are discussed in this research work.
TABLE OF CONTENTS
Title page ii
Table of contents x
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Objective of the Study 5
1.4 Research Questions 6
1.5 Research Hypothesis 6
1.6 Scope and Limitation 7
1.7 Significance of the Study 8
1.8 Definition of Terms 9
2.0 Review of Related Literature 11
2.1 Definitions 12
2.2 Causes of Bank Distress 12
2.3 Techniques for Identifying
Potentially Distress Banks 20
2.4 Common Features Used in Identifying
Potentially Distressed Banks 21
2.5 Common Features Used in Identifying
Technically Insolvent or Distressed Banks 28
2.6 Control of Bank Distressed in Nigeria 29
3.0 Research Design and Methodology 42
3.1 Research Design 42
3.2 Area of Study 43
3.3 Population 43
3.4 Sample and Sampling Techniques 43
3.5 Instruments of Data Collection 45
3.6 Methods of Data Presentation 45
3.7 Methods of Data Analysis 47
4.1 Data Presentation and Analysis 49
4.2 Test of Hypothesis 59
Findings, Summary, Recommendations and Conclusion 64
5.1 Findings and Summary 64
5.2 Recommendation 66
5.3 Conclusion 69
1.1 BACKGROUND OF THE STUDY
In the past financial report of commercial and merchant bank showed that they usually carried out excess liquidity. But by the end of 1993, the huge excess liquidity disappeared. The minimum required liquidity ratio was 30%s Nwaigwe K. O. (1995).
In later years, the ratio deteriorated, it was claimed that the issuance of stabilization securities contributed to the above.
Also another development which the researcher was informed about is the fact that a good number of issued bank were grossly under capitalized. To worsen the case, non-performing loan and advances eroded the inadequate capital base since the banks were compelled to make adequate provision for the non-performing credit.
The indemnity also experienced poor management which eventually opened the floodgate for distress to surface in the system. Poor management of the assets and liabilities of the bank was one of the major causes of the distress in banking industry today. The jungle politics also helped to deteriorate the economy because survey shows a consistent down-turn and the effect the banking industry adversely.
Also, given excessive risk taking by some banks management in a competitive environment and the prevalence of frauds and forgeries in the system, the evil seed for bank distress was sown awaiting germination and harvesting.
However, in 1998, the federal government of Nigeria (FGN) as if in anticipation of the above ugly development had created a Deposit Insurance Scheme managed by Nigeria Deposit Insurance Corporation was created by Sec. 39 and 40 of Dec. 22 of 1998 to restore confidence and security of the public in the banking system to control and manage the distress banks thereby ensure a safe and sound banking system in Nigeria.
It was against background that the researcher resolved to carryout an appraisal of attempting the proffer workable solutions to the problems of the distress.
1.2 STATEMENT OF THE PROBLEM
A distress bank is one whose performance has persistently not confirmed favourably with established parameter for gauging the financial conditions of banks and also when the bank becomes illiquid or insolvent Nwaigwe K. O. (1995).
Insolvent means when the bank can not meet its current obligation as at when due. On the other hand, a bank is confided insolvent when the total value of its realization assets is less than the banks total liabilities. And also it has a negative net worth.
However, the rate of distress varies from one bank to another and that is based on the degree of insolvency and liquidity. At this juncture, it is important to note that the regulatory authority (NDIC) use the composite rating “CAMEL” parameters to assess the performance and financial position of banks.