DISTRESS IN BANKING, CAUSES, EFFECTS AND SOLUTIONS
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TITLE PAGE
DISTRESS IN BANKING, CAUSES, EFFECTS AND SOLUTIONS.
BY
---
EE/H2013/01430
DEPARTMENT OF ----
SCHOOL OF ---
INSTITUTE OF ---
DECEMBER,2018
APPROVAL PAGE
This is to certify that the research work, "distress in banking, causes, effects and solutions" by ---, Reg. No. EE/H2007/01430 submitted in partial fulfillment of the requirement award of a Higher National Diploma on --- has been approved.
By
--- . ---
Supervisor Head of Department.
Signature………………. Signature……………….
……………………………….
---
External Invigilator
DEDICATION
This project is dedicated to Almighty God for his protection, kindness, strength over my life throughout the period and also to my --- for his financial support and moral care towards me.Also to my mentor --- for her academic advice she often gives to me. May Almighty God shield them from the peril of this world and bless their entire endeavour Amen.
ACKNOWLEDGEMENT
The successful completion of this project work could not have been a reality without the encouragement of my --- and other people. My immensely appreciation goes to my humble and able supervisor mr. --- for his kindness in supervising this project.
My warmest gratitude goes to my parents for their moral, spiritual and financial support throughout my study in this institution.
My appreciation goes to some of my lecturers among whom are Mr. ---, and Dr. ---. I also recognize the support of some of the staff of --- among whom are: The General Manager, Deputy General manager, the internal Auditor Mr. --- and the ---. Finally, my appreciation goes to my elder sister ---, my lovely friends mercy ---, ---, --- and many others who were quite helpful.
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The main write up of this project is to identify the causes, effects and solutions to the problem of distress in banking sector of Nigeria economy.
The chapter one deals with the introduction which talks about how bank failure that is inability of a bank to meet its obligations to its customers, owners and the economy occasioned by fault or weakness in its operation which had rendered it insolvent and bankrupt. The objectives of the study, the scope of the study, statement of the problem and limitation of the study are included.
Chapter two is the Literature Review which deals with the Nature and implications of a bank classification as “DISTRESSED”. How the deregulation process has tremendously increased the tempo of activities of the banking sub- sector. The major Risk Areas in Banking and Bank Rehabilitation Efforts; the general administration of the affairs and business of the corporation and the conceptual issues in Distress Management.
Chapter three deals with the causes of bank failure, the effects of Bank failure and the solutions to distress in Banking. Chapter four talks about the roles of NDIC on the Promulgation and Review of Banking Decree and Guidelines, in the National Economic, Financial and Monetary Management and other roles in Extra Ministerial Committees.
Chapter five is the summary and conclusion, Recommendation followed by Bibliography.
TABLE OF CONTENTS
TITLE PAGE
CERTIFICATION
DEDICATION
TABLE OF CONTENT
CHAPTER ONE
- INTRODUCTION
1.1 AIMS AND OBJECTIVES OF STUDY
1.2 RELEVANCE OF THE STUDY
1.3 SCOPE AND LIMITATION OF THE STUDY
1.4 SIGNIFICANCE OF THE STUDY
1.5 STATEMENT OF THE HYPOTHESIS
1.6 RESEARCH METHODOLOGY
1.7 ORGANIZATIONAL AND PLAN OF STUDY
1.8 DEFINITION OF TERMS
CHAPTER TWO
- LITERATURE REVIEW
2.1 AGNES SCHOOL OF THOUGHT (1990)
2.2 IKE ADINDE SCHOOL OF THOUGHT (1995)
2.3 EBOHODAGHENE SCHOOL OF THOUGHT (1994)
2.4 OJO SCHOOL OF THOUGHT (1995)
2.5 BENJI SCHOOL OF THOUGHT (1994)
2.6 REFERENCES
CHAPTER THREE
- GENERAL INTRODUCTION
3.1 HISTORICAL BACKGROUND OF CASE STUDY
3.2 SOURCES OF DATA COLLECTION
3.3 CAUSES OF BANK FAILURE OF DISTRESS
3.4 EFFECT OF DISTRESS IN BANK/SOLUTION
3.5 RESEARCH INSTRUMENT
3.6 SUBJECT SAMPLE
3.7 FIELD WORK
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTION
4.2 DATA ANALYSIS AND PRESENTATION
4.3 TESTING OF HYPOTHESIS (EVALUATION OF RESULT)
CHAPTER FIVE
5.1 SUMMARY OF FINDINGS
5.2 CONCLUSION
5.3 RECOMMENDATION
5.4 REFERENCES
QUESTIONNAIRE
CHAPTER ONE
1.0 INTRODUCTION
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:
- to meet their capital requirement
- to have weak deposit
- are affiliated by miss-management.
specifically, the objective of the study is to
- to know the extent to which distressed in bank has affect the economy.
- To examine the causes of banks failure
- To identify the problem associated with bank failure.
1.2 REVELEVANCE 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.
1.3 SCOPE AND LIMITATION OF THE STUDY
The scope of this research work is distress in Nigeria banking industries while emphasis is laid on the causes, effects and solution. However Afribank plc, Ilorin branch, which has been a victim of distress banks in Nigeria was choosen as a case study to generalize for this research work.
Meanwhile, the following are the limitation factors envisaged in the course of study:
1. Inadequate time to thoroughly carryout study
- Inadequate information for personal reason from the manager in such cases the data made available to us in what we made us of.
3. The assumption that the respondents interview express in truth objectivity.
1.4 HYPOTHESIS
i. That the mismanagement is the major cause of distress of bank.
ii. That inflationary pressure high and unstable exchange rate, frequent change in monetary policy, non compliance to banking regulations.
- Is mismanagement the major causes of banks going distress in Nigeria?
- Can distress be attribute of other causes apart from mismanagement such as fraud?
- Does inability of banks to adapt to technological change such as computer installation causes distress?
- Does planning, which is a pre-determined objectives if not done by banks going distress?
- In every many instance, the adjusted capital of most distress bank is negative to the extent that eve fixed asset could be seen to have been financed from depositors funds, can these lead to distress in banks?
- Does the ability of banks having clear investment or credit policy lead to such banks going distress?
1.5 ORGANIZATION AND PLAN OF THE STUDY
The paper is divided into five chapters, the first chapter deals with introduction and statement of the problems, the aims and objectives of study, and statement of the study, scope and limitation of the study.
Chapter two deals with historical background of banks with emphasis on commercial banks, the Nigeria financial system and its structure causes and effect of bank failure in Nigeria.
Chapter three deals with research approach, sources design a methodology, such as research approach, source of data, research instrument and method of investigation.
Chapter four deals with summary of result and decision on result findings.
Chapter five deals with the suggestion and recommendation on better banking transaction including the role of central bank of Nigeria and Nigeria deposit insurance corporation.
1.6 DEFINITION OF TERMS
NDIC: Nigeria Deposit Insurance Corporation Independent body acts as additional regulatory authority, in the supervision of banks to ensuring bank solvency decree 22 of 1988 establishes it.
DEPOSIT: deposit in these content means monies lodge by the general public with an insured bank or financial institution whether or not its keeping is for the purpose and earning or dividend, whether or not such money are payable upon demand, upon a given period of notice or upon a fixed date.
LIQUIDITY: an asset is said to be liquid if it can easily be converted into cash within a short period of time and without appreciate loss of value. The liquid assets is bank notes and coin (i.e. cash) however, it is barren because it is not capable of yielding any income unless it is invested.
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