ABSTRACT
Based on the presentation and analysis of data on the topic CRITICAL ANALYSIS OF CAUSES AND PROBLEMS OF FINANCIAL DISTRESS IN NIGERIA BANKING SECTOR” the following are the major findings.
Inefficient management has contributed significantly to the financial distress in Nigeria banking sector. This was approved statistically with the chi-square test techniques.
It was also discovered that fraudulent practices are a big causes of financial distress in Nigeria banking sector.
Based on the presentation of data and chi-square techniques conducted the researcher was right. Furthermore, it was observed that financial distress in Nigerian banking sector has an adverse effect on the economy of Nigeria as a whole.
Finally, it was equally observed that loan mistnaches contributed to the financial distress in Nigeria banking sector.
TABLE OF CONTENT
Title page
Approval page
Dedication page
Acknowledgement
Abstract
Table of content
List of tables
List of figures
CHAPTER ONE
1.0 INTRODUCTION
CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE
2.1 Historical background of First Bank Plc
2.2 An overview of capital base
2.3 Under capitalization and its effects on the banking sector.
2.4 Multiplication of Banks
2.5 Inefficient management
2.6 Fraudulent practices
2.7 Loan mismatches
2.8 Effect on financial distress in Nigeria banking sector of the economy.
CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 Sources of data
Primary data
Secondary data
3.2 Sample used
3.3 Method of investigation.
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
4.1 Data presentation and analysis
4.2 Test of Hypothesis
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATION
5.1 Findings
5.2 Conclusion
5.3 Recommendation
Bibliography
Appendix
Questionnaire
CHAPTER ONE
INTRODUCTION
The importance of capital as a necessity though not sufficient condition for economic growth is recognized in development economy where it is believed that the position of adequate financial resources is a pre-requisite for industrial transformation.
Experiences in some countries notably Japan, India and Germany have shown that banks if sufficiently in their respective countries could serve as an engine of growth to greatly assist the promotion of rapid economic transformation of any nation. Banks all over the world occupy a strategic and lending position in financial sector. Many Nigerians see banks as places nobody can mess up. Hence, their accepting institutions as the safety place for depositing their money. It is equally because of the confidence they have in the industry as a whole that over the years, many of them imbedded this habit of savings, which in turn is very necessary of positive economic development of the nation.
Ekechi (1995) said that confidence is a pre-requisite for economic recovery and sustained growth, but confidence is not a gift. It must be earned through the adjustment effort or rather confidence is rented because it is never yours and because it can be taken away anytime. The adjustable effort has to go on each and everyday”.
One legacy the structural adjustment programme (SAP) left on its trials is the increase in the number of banks in the country before the introduction of SAP in 1986. The number rose to about 127 as at August 1995. This phenomenal growth of banks was initially hailed as a healthy development in the economy because it was to spread the resources in the economy.
Because of the importance of banks monetary authorities pay great attention to the banking industry. In this process, they are sometimes faced with the problems of how best to handle financial distress in Nigeria banking sector. Financial distress in Nigerian banking sector date back to 1930 when the industrial and commercial bank, (ICB) failed one year after its established.
As Hornby defined distress as “great pains, discomfort of sorrow caused by wants of money or other necessary things.
John Ebhodaghe in explaining financial distress “two major problems are usually of serious concern. These are liquidity and insolvency”. He went further to explain liquidity as the inability of banks to meet its inabilities as they mature for payment while insolvent when the value of its realizable asset is less than the total value of liabilities.
The reasons for early distress of banks are summarized in the following features, which characterized the banks since during the period.
Recently, it was realized that the development of statistical based, early warning system for problem banks identification would greatly assist regulators on classifying banks into sound and unsound categories. Worthy of notes is Decree No. 26 of August 1992 that prescribed the following for banks to be adjusted healthy.
Any bank, which did not satisfy any or all the listed factors, is adjudged unhealthy. It must be expressed here that there exist a thin dividing line between a distressed and unhealthy banks. This is because a bank, which is unhealthy in the short-run, may become distress in the long run. At the core of distressed bank, are twos basic problems compared to liquidity the later could not be neglected because it is an ominous sign of insolvency.
Therefore, in assessing the financial condition of a bank, it is customary to use the CAMEL framework. Also ownership structure and types of banks are important factors on explaining the financial condition of a bank. The recent NDIC report revealed that ownership structure was used to explain the degree of financial distress seven out of eight banks, that were financially distressed were either owned or controlled by the state government.
Another indicator of a distressed bank used in most countries of the world is classified assets that exceeds 100 percent of shareholders fund. Following from above, it is therefore reasonable to conclude that a distressed bank is one tht is technically insolvent the financial distress is caused by a number of factors including macro-economic conditions, the inhibitive policy of government capital adequacy, wide spread incidence of frauds, non-performing loans, unbraided risk by banks and so on. The effect of financial distress in Nigerian banking sector is a distressed economy. The causes and problems and the ways out of this financial distress will be discussed in details in this work.
1.2 STATEMENT OF PROBLEM
Financial distress in Nigerian banking sector dates back to colonial era. One of the early Nigerian indigenous banks, the industrial and commercial banks, the industrial and commercial banks (ICB) failed in the early 1930’s and between 1992 – 1994, the central bank of Nigeria (CBN) and Nigerian Deposit Insurance Corporation (NDIC) were face with the problems on how best to prevent the financial distress in the banking sector. Within this period, more than thirty banks had been adjudged financially distressed.
The question remains what are the causes of these financial distresses in the banking sector? According to Charles worth, research arises when there is problem to solve, peculiarities or puzzle about a phenomena or the question to attaching meaning to identify and examine the causes and problems of financial distress in Nigerian banking sector.
1.3 OBJECTIVES OF THE STUDY
in writing this project, the researcher had certain objectives in mind. In line wit this following are the objectives of this write up.
1.4 SIGNIFICANCE OF THE STUDY
This study will be immense benefits to the Nigerian banking sector. This will enable them to know the causes of financial distress in Nigerian banking sector, and based on the recommendation of this study, they will know how to prevent financial distress.
Government will also benefit. As the operators of the economy, they will know the causes and effects of financial distress in the economy. Likewise, the depositors and potential investors will also benefits. There is a need for a development conscious country like Nigeria, to evaluate the performance of her financial sectors so as not to jeopardize her development efforts. It is helped that these findings will add to existing literature on causes and problems of financial distress in Nigerian banking sector.
1.5 STATEMENT OF HYPOTHESIS
To come out with a reliable result, the following hypothesis were formulated and tested statistically.
1. Ho: Low capital base has not contributed to the financial distress in Nigerian banking sector.
Hi: Low capital base has contributed to the financial distress in Nigerian banking sector.
2. Ho: Inefficient management has not contributed to the financial distress in Nigerian banking sector.
Hi: Inefficient management has contributed to the financial distress in Ni
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