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)
ABSTRACT
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.
OBJECTIVES
            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.
METHODOLOGY
            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.
FINDINGS
            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.
CONCLUSION
            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
CHAPTER ONE:
Introduction                                                                                       
1.1              Background of the Study                                          
1.2              Statement of the Problem                                          
1.3              Objective of the Study                                              
1.4              Research Questions                                        
1.5              Research Hypothesis                                      
1.6              Scope and Limitation                                                 
1.7              Significance of the Study                                          
1.8              Definition of Terms                                                   
References                                                                 
CHAPTER TWO
2.0       Review of Related Literature                                    
2.1              Definitions                                                                             
2.2              Causes of Bank Distress                                            
2.3              Techniques for Identifying    
Potentially Distress Banks                             
2.4              Common Features Used in Identifying
Potentially Distressed Banks                         
2.5              Common Features Used in Identifying
Technically Insolvent or Distressed Banks                
2.6              Control of Bank Distressed in Nigeria                                  
References                                                                             
CHAPTER THREE
3.0       Research Design and Methodology                           
3.1              Research Design                                                                    
3.2              Area of Study                                                            
3.3              Population                                                                  
3.4              Sample and Sampling Techniques                 
3.5              Instruments of Data Collection                                             
3.6              Methods of Data Presentation                                               
3.7              Methods of Data Analysis                             
References                                         
CHAPTER FOUR
4.1              Data Presentation and Analysis                                 
4.2              Test of Hypothesis                                         
CHAPTER FIVE:
Findings, Summary, Recommendations and Conclusion      
5.1              Findings and Summary                                                          
5.2              Recommendation                                                                   
5.3              Conclusion                                                                             
References                                                                             
Bibliography                                                  
CHAPTER ONE
 INTRODUCTION
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.
            Base on this rating, the banks that are classified unsound has the following characteristics:-
(1)               Compute sweeping away of shareholders funds are due to operating loss of its assets.
(2)               High ratio of non-performing loans, relative to total loans.
(3)               Weak internal control system.
(4)               Poor management information system
(5)               Liquidity-where they could no longer meet customers demand for cash.
(6)               Very low or negative net income as a result of poor asset and liability management.
Based on the above characteristics it was possible for the Central Bank of Nigeria (CBN) to take over the board and management of five distressed banks in 1993.  These banks were adjudged distressed because of the alarming deterioration in their financial condition and the inability to recapitalize them as called for by the monetary authorities.
These take over came as a surprise and an Interim Management Board (IMB) was constituted to handle the affairs of these distressed banks until they revived. The (IMB) was charged with responsibility of seeing to early survival of the distressed banks through ensuring compliance of the bank with the regulations to ensure safe and sound banking practices. This also had the power and duty to recovering loans.
1.3       OBJECTIVES OF THE STUDY
            The objectives of this research work is;
(1)               To examine the distress in the banking industry.
(2)               To determine the causes of the bank distress
(3)               To determine the remedies to the distress in the banking industry.
(4)               Banking industries attempts at evolving possible strategies for it eradication.
1.4       RESEARCH QUESTIONS
            For the purpose of this study, the following research question are posed and answered to them will provide a guide to the research investigation.
(1)               Why is there distress in the banking industry
(2)               What are the causes of bank distress?
(3)               How does it affect the banking industry?
(4)               What are the remedies for bank distress?
1.5       RESEARCH HYPOTHESIS
            The research work is based on the hypothesis that;
Ho:      Banks are not the engine for growth and development in modern economy
Hi:       Banks are the engine for growth and development in modern economy
 Ho:      Distress in banks has no serious consequences for the banking industry.
H1:      Distress in banks has serious consequences for the banking industry.
Ho:      Control of bank distress is not a compulsory task and should not be undertaken by the bank management.
H1:      Control of bank distress is not a compulsory task and should be undertaken by the bank management.
1.7       SIGNIFICANCE OF THE STUDY   
            Banking being the “engine” for growth and development in any economy has made this study significance. This has necessitated the need and urgency of controlling distressed in banks to avoid economic collapse.
            This research becomes more significance because of the increasing determination in the financial conditions of banks in Nigeria today due to the menace of distress and the possible economic chaos if uncontrolled.  The facts given in this research work will be of immense help to economic planners, investors in banking industry industrialists that need banks for growth and development.
1.8       DEFINITION OF TERMS
LIQUIDITY RATIO: This is the ratio of liquid assets to current liabilities. In short it is the ability of a bank to sue its liquid assets to meet its current obligations for licenced banks in Nigeria, the required liquidity ration is 30%.
 FRAUD AND FORGERIES:  According to Longman dictionary of contemporary English, fraud is defined as a deceitful behaviour for the purpose of gain.
INSOLVENT: This means that the value of a bank realizable asset is less it total liability.