ASSESSING THE CAUSES AND EFFECTS OF DISTRESS IN BANKING AND APPROPRIATE SOLUTIONS
|BANKING AND FINANCE
No of pages
|MS Word & PDF
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Finance distress in Nigeria is a problem that has recently assumed intractable dimension.
The situation is such that the regulatory authorities appear to be fighting a loosing battle in their bid to sanitize the system.
The phenomenal growth of banks following the introduction of the structural adjustment programme created a false impression that banking in all corner’s business.
Hence, all type of investors who have surplus to throw about the besieged the banking sector.
No-only did incompetent and inexperienced hands assumed very senior positions ins some bank-people with not very clean credential also joined the band wagon.
The entry of these categories of operations prepared ground for this virus intention of financial distress and the challenge currently facing the monetary authorities is how to curtail this virus so that it does not spread to other banks.
Besides, the general macro economic instability resulting in unpredictable.
A bank classification is distress as based on the bank examination rating system with acronym “CAMEL” that is capital adequacy asset quality, management competence, earning strength and liquidity sufficiency.
A bank is performance is rated from “I” to “5” in any of these are.
‘I’ for best performance it is the aggregate or composite rating of performance in the above mentioned areas that qualities a bank to be branded “healthy” or “sick”.
Banking business is unique in that, it depends mostly on public confidence and once confidences ended in some bank, it may spread to entire system and that is dangerous not only to the banking system, but also to the entire economy.
Hence, capital adequacy, which is one of the indication of the extent of solvency of the public confidence in the banking system.
The phenomenal growth and expansion in the activities of bank and other financial institution result success and failure of banks and other financial institution results in success and failure of banks and other financial institution.
Deregulation also lead to privatization, commercialization, of some government owned banks, which exercise, led to board room charges which is some cases adversely affected the performance of affected banks.
This process increased tremendously the temp of activities in the banking sector particularly in terms of numbers of banks (commercial and merchant) and profit margins just as banks increased their branches and deliver greater profit, provision for bad and doubtful dent and actual bad debts were increasing.
But one serious mistake, which the government made, was failure to take appropriate cession in time.
1.1 AIMS AND OBJECTIVES OF THE STUDY
The focus of study will be examine the nature of failure of banks specially and the implication to the bank industry and economy, failure in this context means financial distress which the central bank of Nigeria defines as institutions which among other thing fails:
a. to meet their capital requirement
b. to have weak deposit
c. are affiliated by miss-management.
specifically, the objective of the study is to
a. to know the extent to which distressed in bank has affect the economy.
b. To examine the causes of banks failure
c. To identify the problem associated with bank failure.
1.2 RELEVANCE OF THE STUDY
Since inception, banks are known to be financial intermediaries, collecting, saving for people who have more money than the immediate require and lending such money to people who require money than they immediately degenerate thus, match in saving requirement of depositions with the investment requirement of borrowers.
Bank failure is one of the greatest obstacle facing economic development in Nigeria, the topic also appeal to virtually every member of the society because we all have one thing or the other to do with banks.
Even in remote communities where banking habit was poorly developed the exercise of changing bank miles in 1984 forced people to travel scores of miles to change their money and also made them release that the hard banks around.
An effect of that exercise was the good call for extension of banks breach to their area.
Thus, this study is very relevant in view of the important role of financial institution are expected to play in the successful implementation of government program and in realization of the macro economic objective of the nation.