This work “Evaluating the
impact of Bank Distress on the profit growth of Deposit Money Banks. The causes
of bank distress in Nigeria and the possible prevention strategies or failure
resolution options of bank distress. The review of related literature was done to
give an in depth knowledge of the topic to the researchers. Both primary and
secondary sources of data were used by the researchers. Simple
statistical tools like T-test, least square (B) and tables were used to analyze
the data collected. The following findings were made; Banks made lower profit
during distress period and higher profit during distress period and higher
profit after distress period. Meanwhile, banks generally made lower profit
during distress period. 1 recommended that the supervisory arsenals to ensure
minimum distress with little or no effect when it occurs.
TABLE OF CONTENT
Background of the
Statement of the
Purpose/Objectives of the
Significance of the
Scope, Limitations and
CHAPTER 2: REVIEW OF RELATED
Definition of Distress in
Symptoms of Distressed Banks in
Causes of Banking
Management of Banks
Distress Management and Failure
The Role of Banks in an
CHAPTER 3: RESEARCH DESIGN AND
Sample and Sampling
Instruments of Data
Methods of Data
Methods of Data
CHAPTER 4: DATA PRESENTATION AND
Graphical Illustration of Banks
CHAPTER 5: FINDINGS, RECOMMENDATION AND CONCLUSION
Background of the Study
In any modern economy, the efficient production and exchange of goods and
services requires money and bank is the instrument for affecting it. The last
few years have been both traumatic and revolutionary for the banking industry.
The industry produced the largest number of technically insolvent and under
capitalized banks. The magnitude of distress in the nation’s banking industry
reached on unprecedented level making it an issue of concern to the government,
the regulatory authority, the bankers and the general public.
The Nigeria banking scene was characterized by changes designed to promote
banking in the country. The changes may be categorized into phases, but due to
the nature of our work we will consider two phases: namely, the era of
laissez-fair banking (1894-1952), the era of limited banking regulator (1952-1958).
During the first phase, banking industry was monopolized by foreign banks,
principally the African banking corporation which was the precursor of the
(BBWA) British Bank for West African the present First Bank of Nigeria the
Barclays bank DCO (Dominion Colonial and Overseas) the present day Union banks,
and the British an French Bank, the for-runner of the present United Bank for
Africa. Although discrimination against Nigerians by these banks led to the
establishment of some indigenous banks which unfortunately offers litter or no
competition to the foreign banks essentially because of their weak capital base
or poor managerial capacity. Consequently, all but three of the indigenous
banks failed. The survived includes the National Bank of Nigeria established in
1933, the Agbomagbe Bank (now Wema Bank) established 1945 and the Africa
Continental Bank 1947.
A commission of inquiry headed by G.D. patron set up in 1948 to investigate the
business of banking in Nigeria. Their report led to the enactment of the first
banking legislation in Nigeria, the banking ordinance of 1952. The 1952
ordinance laid down the standard and procedure for the conduct of banking
business by prescribing the mandatory minimum capital requirement for banks
both expatiates and indigenous banks at the tune of ∑100,000 and ∑12,500
respectively and it also introduced regulations to check bank failure. However,
the entire indigenous bank established in the country during this period also
all failed. The bank failures of this era were attributed largely to the
monopolistic structure of the banking industry, which allowed the foreign banks
to enjoy exclusive patronage from British firms. The indigenous banks that
survived was able to make it because of the support they got from their state
The distress phenomenon in Nigeria banking industry is of recent origin. The
manifestation became discernable with some policy shocks starting in 1988 with
the Central Bank of Nigeria (CBN) directive to banks that naira backing for
foreign exchange application be lodged with CBN. Thus was followed in 1989 by
another directive requiring public sector deposits to be transferred to CBN.
These two directives exposed the precious liquidity position of some banks and
the distress they have subterraneous harbored. What was thought to be a
temporary liquidity problem for few banks soon caught up with a lot more
It is important to stress in
this work that banking system was already in distress by the time NDIC was established.
By them, about 7 (seven) banks were known to be technically insolvent. The
government at that time, did not embark upon a clearing exercise that would
have removed from the system that distressed institutions because it was feared
that such an action would lead to loss of public confidence and flight of
foreign capital more so there was no deposit insurance institution to
expeditiously manage such bank closures. The NDIC was nevertheless required to
insure all banks. That means that the corporation has been involved in managing
distressed banks even before it could settle down and minister enough resources
for this important task.
The intermediating role of
banks and their relevance both in the transmission of monetary policies and in
the payment system underscore their importance as well as the problem that bank
distress at the prevailing dimension in our economy could precipitate. Arising
from their intermediation banks generate financial resources ad put these at
the disposal of deficit economic growth in the form of increased employment of
otherwise idle resources and this in turn leads to increase output.
Therefore, an industry wide insolvency of banks, such as the one experienced in
Nigeria, should be expected to retard the economy’s rate of capital formation,
reduce its level of employment and output, and ultimately the pace of economic
Statement of the Problem
A serious problem posed by widespred distress among banks is the threat to
banking habit and the development of an efficient payment mechanism. The loss
of confidence, the after math of the distress that hit the banking sector
forced several business to take ferver risks by taking back their fund to well
established safe havens dominated by older generation banks.
This research wok is therefore concerned with “Evaluating the impact of bank
distress on the profit growth existing of commercial banks. Using ( A vase
study of selected Commercial banks).
Purpose of the Study
The main purpose/objective of this study is to have an overview of the effect
of bank distress on the profit growth of commercial banks. Investigate into the
reasons for bank failure in Nigeria.
Other objectives include:
To evaluate the causes of bank distress in Nigeria. To find out the impact.
To find out the possible prevention strategies or failure resolution options of
Significance of the Study
This research project will be of importance of the following persons –
New generation banks, which may wish to know the implication of banks distress
in the banking industry and how to restore the confidence of the customers and
uphold efficient payment mechanism.
Nigeria deposit Insurance Corporation: The work could be of immense help to
NDIC in the area of distress management and prevention strategies. And also in
the area of failure resolution option in banking industry.
Students who may wish to know the extent of distress in the banking industry
and the trend of distress as it affect the modern banking will also benefit
from this work.
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).
What are the causes of bank distress?
What is the impact of bank distress?
What is the profit growth rate of existing commercial bank during distress.
What are the effects of bank distress?
What are the possible solution options to this phenomenon in the banking scene?
Distress has no effect on the average profit of commercial
Distress has effect on the average profit of commercial
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
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