FINANCIAL STRATEGY AS SUPPORT DETERMINANT FOR THE AVOIDANCE AND RESOLUTION OF DISTRESS IN THE NIGERIAN BANKING INDUSTRY
                                                   ABSTRACT
The banking sector is the bedrock of the Nigerian economy, and this industry is known to have contributed in no small measure to the development of the economy. This industry is the enabling hub of national and global payment systems, which  facilitates trade transactions within and amongst numerous national, regional and international economic units and by so doing; it enhances commerce, industry and exchange.  In performing these various functions in the enabling environment provided by the government through various fiscal, and monetary policies and reforms, this industry has been experiencing a phenomenal distress whereby the banking institutions could not meet their financial obligations to their customers and stakeholders,  which led to the liquidation of many banking institutions, lost of deposits by depositors, lost of   investments by many investors and the crisis of confidence by the general public. Various researchers and bodies including the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC) have done some works to solve this problem. The Central Bank of Nigeria (CBN) has introduced various reforms, yet this problem persists. The objective of this work is to evaluate financial strategy as determinant for sustainable performance growth and an antidote to distress in the Nigerian banking industry.  The research method is empirical, and descriptive with the use of primary and secondary data from 1998-2007. Primary data were obtained from a sampled population through the use of a corporate questionnaire, and for the secondary, macro data were obtained from Central Bank and Nigerian Stock Exchange.  Multivariate Analysis of variance method (MANOVA) was applied in analyzing the primary data. The results revealed the homogeneity, co linearity, and strong interrelationship between the dependent variables and the independent variables to solve distress in the three types of banks analyzed. With the results obtained, all the five null hypotheses were nullified.  Multiple regression analysis was used to analyze the secondary data in conjunction with change in growth model. The results from the two statistical methods revealed a co-movement and correlation between Gross Domestic Product and Bank performance indices in the banking industry. A change in bank performance will have the same directional change in Gross Domestic Product as other sectors of the economy are also affected. The Bank performance indices are strong predictors of Gross Domestic Product. The work recommended a transformational financial strategy model in the work for implementation in the banking industry so that distress can be avoided and totally resolved. The model contains the following indices: sound corporate governance, good investment policy, effective capital budgeting, corporate planning, effective tax planning, effective budgetary control and economic profit of investment. An implementation of the model will give birth to sustainable performance growth which contains the following growth variables: adequate capital, quality earning assets, stable profitability, sustainable liquidity, enhanced dividend paid, and equitable tax liability. Other recommendations are: effective risk assets management, sound training of credit analyst, quality supervision from the industry regulators, and independence of EFCC for effectiveness. However, all stakeholders must be committed to the model and other recommendations.
                                                             TABLE OF CONTENTS

Chapter one:   Introduction
1.1 Background to the Study                                                                              
1.2 Statement of the problem                                                                             
1.3 Objectives of the study                                                                                 
1.4 Research Questions                                                                                      
1.5 Statement of Hypotheses                                                                              
1.6 Scope of Study                                                                                               
1.7 Significance of Study                                                                                   
1.8 Preview of Research Methodology                                                              
1.9 Operational Definition of Terms                                                                    
Chapter Two
Literature Review
2.1 Introduction                                                                                                   
2.2 The Evolution of Banking in Nigeria                                                             
2.2.1The Colonial Era (1892-1957)                                                                       
2.2.2The Independence Era (1957-1970)                             
2.2.3The Indigenous Era (1970-1985)                                  
2.2.4 The Privatization and Commercialization Era (1986-1992)                         
2.2.5Bank Rehabilitation and Restructuring Era (1992-date)                                 
2.2.6The Nature of Bank Reforms in Nigeria                         
2.3 Review of Literature relating to Financial Strategy and Sustainable
       Performance Growth                                                                                        
2.3.1 Competing for the future                                                                                
2.3.2 Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance
         Corporation (NDIC) definition of distress and analytical framework           
2.3.3 Strategic Planning and Sustainable Performance Growth                              
2.3.4 Financial Strategy in the Banking Industry                                                    
2.4 Review of Literature relating to Strategic Planning and Bank Performance for Sustainability and Growth in Nigerian Banking Industry      
2.4.1 Strategic planning: Financial performance relations in Banks: A causal    examination                                                           
2.4.2 Corporate Governance and Sustainable Performance Growth   Cases of Poor Corporate Governance in Banks
           1. The Rumbles in Spring Bank                                                                                                               
           2. Development in Wema Bank Plc                          
           3. CBN Replaces Five Bank MDs, Directors                                              
2.4.3 Budgetary Control and Performance Evaluation                                           
2.4.4 Capital Budgeting and Sustainable Performance Growth                            
2.4.5 Tax Planning and liquidity                                                                            
2.4.6 Leadership and Sustainable Performance Growth                                        
2.5 Review of Literature relating to Investment Policies and  Management of Assets and Liabilities in Nigeria Banking Industry                
2.5.1 A case study of distress banks in Nigeria by Central Bank of Nigeria         
2.5.2 Banking crisis: causes, early warning signals and resolutions                      
2.5.3 The causes of financial distress in local banks in Africa  and Prudential policy                                                                                           
2.5.4 Incentives and Resolution of Bank Distress                                                 
2.6 Review of Literature relating to Bank Performance and Gross Domestic  Product to Determine their Co-movement                                                        
2. 6.1 Economic Profit and Performance Measurement in the Banking Industry
2.6.2 Banking practice and the Nigerian economy                 
2.6.3 Micro and Macro Determinant of bank fragility in North Cyprus Economy                                                                                                       
2.7 Justification of study                                                              
2.8 Theoretical Framework                                                                                    
2.9.Framework Proposal:Causal Link between Model and Research Work         
  Chapter Three   
 Research Methodology                                                                                                
3.1 Introduction                                                                                                     
3.2 Study Area                                                                                                        
3.3 Research Design                                                                                               
3.4 Population, Sample Representatives and Sampling Techniques                       
3.5 Performance Indices                                                                                          
3.6   Restatement of Hypotheses                                                                                    
3.7 Data Collection Techniques                                                                               
3.8 Reliability and Validity Test                                                                            
3.9 Data Administration                                                                                          
3.10 Method of Data Analysis                                                                                
3.11 Expected Results                                                                                             
3.13 Chapterization                                                                                                   
Chapter Four
Analysis and Interpretation of Data
4.1 Introduction                                                                                                      
4.2.Response to Questionnaire                                                                                 
4.3 Frequency Analysis of response to Questionnaire items                                  
4.3.1 Section1 Relationship between Financial strategy and Sustainable Performance                                                                                                     
4.3.2 Section2 Relationship between Strategic Planning and Performance For Sustainability of Growth of Business                         
4.3.3 Section 3Assessment of Investment Policy for Better Management of  Assets and Liabilities in banks                                     
4.3.4 Section 4Evaluation of Relationship between Bank Performance and Gross  Domestic Product (GDP)                                              
4:4 Descriptive Analysis of response to Questionnaire items                                   
4.4.1Evaluation of the relationship between Financial Strategy and Sustainable  Performance Growth                                                  
4.4.2 Evaluation of the relationship between Strategic Planning and Performance For Sustainability of Business Growth  
4.4.3 Assessment of the relationship Investment Policy and Management of Assets  and Liabilities for Sustainable Performance Growth in the Banking Industry
4.4.4 Evaluating the relationship between Bank Performance and GDP                  
4.5.0 Statistical Testing Model                                                                                   
4.5.1 Testing of Hypothesis       1                                                                              
4.5.2 Testing of Hypothesis       2                                                                               
4.5.3 Testing of Hypothesis       3                                                                              
4.5.4 Testing of Hypothesis       4                                                                               
4.5.5 Testing of Hypothesis       5                                                                              
4.6   Analysis of Secondary Data                                                                               
4.6.1 Multiple Regression                                                                                           
4.6.2 Analysis and Comparison of Growth Change in GDP and Bank

         Performance Indices                                                                                          
Chapter Five
Summary of Findings, Conclusion and Recommendations                                                 
 5.1 Research Findings: Empirical Findings                                                              
5.2 Conclusion                                                                                                           
5.3 Recommendations                                                                                              
5.4 Suggestions for Further Studies                                                                         
5.5 Contribution to knowledge                                                                                  
              References                                                                                                                                                            
                                                             CHAPTER ONE

INTRODUCTION
     BACKGROUND TO THE STUDY
In the ordinary parlance, the word distress connotes unhealthy situation or state of inability or weakness which prevents the achievement of a set goals and aspirations. A financial institution will be described as unhealthy; when it exhibits severe financial, operational and managerial weaknesses where sustainability and stability are missing in business. A business is any activity that seeks to make profit by providing goods and services to the society by using inputs from the environment and transform them into outputs that add meaning to human existence. A business can be one’s regular employment, profession, occupation and can be an organization established through the pooling together of resources by various investors with the aim of providing products or services to the economy, contribute to the development of the economy and earn returns on their investments. Nigerian businesses can be classified into three major segments viz: Private enterprises, Private limited Liability Companies   and publicly quoted companies. The banking sector belongs to the private limited liability companies and the publicly quoted companies. While some banking institutions are privately owned by investors, some are publicly quoted on the Nigerian Stock Exchange. The banking sector is part of Nigerian financial system, and financial system refers to the totality of the regulatory and participating institutions, including financial markets and instruments, involved in the process of financial intermediation. The major objectives of investing in the banking sector are to provide financial services to the economy and earn compensatory returns on capital employed.
 The Bills of Exchange Acts Cap 21, Laws of the Federation of Nigeria 1958 states that a ‘banker’ includes a body of persons whether incorporated or not who carry on the business of banking. By S.2 Coins Act Cap 34, laws of the Federation of Nigeria, 1958, bank and banker mean any persons, partnerships or company carrying on the business of bankers and also any saving bank established under the Saving Bank Ordinance, and also any banking company incorporated under any ordinance heretofore or hereafter passed relating to such incorporation. S.21 (1) Nigerian Evidence Act, Cap.62, laws of Federation of Nigeria, 1958, also provides in like manner. (Olulana, 1999:16). The Banks and other Financial Institutions Act No 25 of 1991 defines bank as one licensed under the Act and banking business as the business of receiving deposits on current, saving or other similar account, and paying or collecting cheques-S.62 BOFIA. The industry is the enabling hub of national and global payments system by   facilitating trade transactions within and amongst numerous national, regional and international economic units and by so doing; it enhances commerce, industry and exchange. The banking industry in Nigeria is the bedrock of the economy.
 According to Onoh (2002:10-13),the establishment of modern banking in Nigeria dates back to the colonial era when the African Banking Corporation was formed in 1892 to distribute currency notes of the Bank of England for the British treasury. Subsequent developments were encouraged by colonial entrepreneurs who needed banking institutions to back up the colonial trade. In the bid to address the credit needs of indigenous entrepreneurs, Nigerians later ventured into the banking business, initially through private individuals and later through deliberate government policy. According to CBN and NDIC (1995:1), the problem of distress in the financial sector, including bank failure, has been observed in Nigeria as far back as 1930 when the first bank failure was reported. Between 1930 and 1958 when Central Bank of Nigeria CBN was established, about 22 banks were liquidated (appendix 1). In 1992, 3banks were liquidated while in 1994, 4banks were liquidated. The degree of intensity and scope of the distress has never been as serious as has been observed since June,1989 when the Government directive to withdraw deposits of government and other public sector institutions from banks to the CBN exposed the weak financial condition of most financial institutions. This led to the increase in the number of distressed institutions and the severity of the problem has been on the increase. The intensity of the problem led to the liquidation of 26banks in 1998(appendix 2).
 According to CBN (2004:1), following the deregulation of the Nigerian financial sector in 1986 during era of structural adjustment programme (SAP), the banking industry witnessed remarkable growth, both in the number of deposit money banks and other types of financial institutions. However, in the early 1990s, Nigerian banking institutions faced many challenges, including increased competition and harsh economic conditions. Against this background, the incidence of financial sector distress induced by undercapitalization, liquidity crisis and high degree of non-performing loans characterized the banking industry in Nigeria. Some of the banks were faced with the threat of liquidation, while some were resuscitated as a result of the timely intervention of the regulatory authorities.  
Several measures have been taken by the supervisory agencies to tackle the problem of distress in the financial system most especially the banking industry to stem the deterioration in the financial conditions of ailing banks with the ultimate aim of restoring confidence in the financial system. These varied from financial assistance, imposition of holding actions and supervisory intervention to the outright liquidation of some distressed banks. As a way of minimizing the distress in the banking system, the Central Bank in 1990 introduced the Prudential Guidelines on early recognition of loan losses and required banks to make adequate provisions for bad and doubtful debts, a factor which was responsible for the insolvency of some banks.
 The Central Bank of Nigeria explained that based on bank examination reports, the supervisory authorities drew the attention of the Boards and Managements of distressed banks to a number of shortcomings such as poor credit policy, large portfolio of non-performing assets, weak internal controls, insider abuses. All the recommendations were unheeded. The regulatory authorities had to impose holding actions on such banks, the implementation of which was time bound.  The CBN in collaboration with the NDIC granted liquidity support to illiquid banks to assist them meet their obligations as and when due. This helped to achieve some measure of success and restore public confidence. Technical assistance was provided by the supervisory agencies in form of advisory services and secondment of staff when the need arose. Owing to limited success in the application of Holding Actions, the CBN assumed control and management of some distressed banks with the intention to acquire, restructure and subsequently sell them to the public. In order to sanitize the banking system and install market discipline, the licences of some banks were revoked in the system in 1992, 1994, 1998 and 2005.  
According to Eghodaghe (1993) and cited by CBN/NDIC (1995), a financial institution in distress is usually one where the evaluation depicts poor condition in all or most of the five performance factors as follows:
(a) Gross undercapitalization in relation to level of operation;
(b) High level of classified loans and advances;
(c) Illiquidity reflected in the inability to meet customers’ cash withdrawals;
(d) Low earnings resulting from huge operational losses, and
(e) Weak management as reflected by poor credit quality, inadequate internal controls, high rate of frauds and forgeries, labour turn-over, etc.
Based on the extent and depth of the problem, it is evident that Nigeria has been experiencing generalized type of distress. The generalized type of distress exists when its occurrence is spreading so fast and cut across all the sub-sectors of the industry but its depth, in terms of the ratio of total deposits of distressed institutions to total deposits of the industry; the ratio of total assets of distressed institutions to total assets of the industry; and the ratio of total branches of distressed institutions to total institutional branches of the industry; among others, has not adversely affected the confidence of the public in the financial system. This situation arose because of the highhandedness of the Board of Directors and Management of the various institutions. The Managing Directors and Chief Executive Officers of these banks had influencing and controlling power over operational issues which have breached the tenets of corporate governance. The four pillars of corporate governance of Accountability, Fairness, Transparency and Independence have been thrown into the dustbin. Non-compliance with monetary  and fiscal policies and regulatory authorities principles and regulations have resulted into abuse of power, lack of initiative to put in place good credit policies that will aid assets and liabilities management. Fraud and malpractices and poor lending habit have been introduced into the system despite all the efforts of the regulatory authorities to sanitize the system.   Despite the growth in business and volume of assets of these institutions, rather than performance growth sustainability, what is prevailing is performance deterioration and financial distress. The performance growth indices could not be sustained. The banking institutions failed to design on their own strategies that will bring sustainability   and stability into the system like developing strategies that critically measure and analyze performance indices of capital, assets quality,profitability,liquidity,didvidend paid and tax paid. In 2005 December, when the Central Bank of Nigeria concluded the consolidation exercise in the industry for a new reform and transformation, only the following banks had the financial capacity to meet the minimum capital base of   N25billion: First Bank Plc, Union Bank Plc, Zenith Bank Plc, Oceanic Bank Plc and Citibank Ltd. Others went into mergers and Acquisition options which eventually produced 25megabanks in the industry.  Fourteen (14) banks whose balance sheet did not possess any value for merger or acquisition were liquidated (appendix 3).
 According to Masi, (1981) cited in Agene, (1995: 56) “On the day of independence the financial system was underdeveloped and most of the complex ramifications which are integral to it today were not there. The Central Bank was only established two years before independence and up to that date, there was little or no regulation of the banking industry. Fiscal policy in colonial Nigeria was frankly rudimentary as most of the banks were foreign-owned and foreign managed, and their orientation was essentially foreign.  He further explained that the two decades preceding the country’s independence were therefore, a period of tremendous growth and development in this crucial sector of Nigeria economy. The Nigeria banking system may therefore be conceived as a network of monetary financial institutions which act together as a repository for the community’s wealth; the interbank financial markets i.e. foreign exchange and money markets, which provide a web of debt instruments; and the framework of laws and regulations which control the flow of money and credit in time and space.
The failure of various reforms introduced in the past to resolve distress in the banking industry, makes it imperatives for a survey to be carried out to get a strategy that will be supportive or for avoidance and resolution of distress even in the face of financial reforms. For the sustainability of performance, avoidance and resolution of distress in the present Federal Government Economic Reforms where consolidation has taken place in the banking industry, this research work was chosen to assess this problem of financial distress that has posed a big challenge with a view to getting a permanent solution. It is high time we moved from generalized distress to stability and sustainability and avoid systemic distress which is imminent with the sack of eight (8) Managing Directors and Chief Executive Officers of the following banks in 2009: Intercontinental Bank Plc, Oceanic Bank Plc, Afribank Plc, Finbank Plc, Union Bank Plc, Bank PHB, Spring Bank Plc and Equatorial Bank Ltd. They were sacked for the manifestation of distress syndromes in their banks with erosion of their capital base, threats to depositors’ funds, high figures of non-performing loans and advances in relation to total loans and advances in the banks and clear manifestation of poor corporate governance. The Central Bank of Nigeria had to inject N620billion as bail-out capital pending recapitalization.  According to Balino (1991) as cited in CBN/NDIC (1995:32) systemic distress is when its prevalence and the contagious effects become endemic and pose some threats to the stability of the entire system, with its attendant negative effects on the nation’s payment system, saving mobilization, financial intermediation process and depositors confidence, and under this situation, the ratios of the relevant variables should have risen to a level that public confidence in the system would be completely eroded.
1:2    STATEMENT OF THE PROBLEM
 According to Hamel and Prahalad, (1994:5-8) the painful upheavals in so many companies in recent years reflect the failure of one-time industry leaders to keep up with the accelerating pace of industrial change.
From the evolution of the banking industry, the industry gained astronomical growth in the number of commercial and merchant banks from 11 in 1960 to 120 with a total of 2,107 branches at the end of 1992 and above 2,500 in 2005. This phenomenal growth and expansion in the activities of banks resulted in successes and failure of banks. Despite the robust growth in financial institutions and assets and profitability, some problems remained while new ones developed, the most prominent being the financial institution distress.The banking institutions could no longer meet their financial obligations to their customers and various stakeholders. It is evident that distressed banks were liquidated, depositors lost their deposits, investors lost their various investments, stakeholders lost their holdings and other sectors of the economy were adversely affected economically. Between 1990 and 2005, the financial distress was of greater intensity, both in scope and depth. During this period, confidence in the banking sector waned as the table 1 below shows the data of liquidated financial institutions during the period:

TABLE 1:1 NUMBER OF LIQUIDATED DISTRSSED BANKS IN NIGERIA

   S/N                            Year                                   Number of Banks

    1                          Pre-Independence                           22

    2                           1992                                                3

    3                           1994                                                4

    4                           1998                                               26

    5                           2005                                               14       

 Source: CBN, 2002, 2006 Annual Reports
According to Ugwu, Olajide, Ebosede, Adekoya, Adepetun, and Oji(2009),the post 2005 consolidation exercise recorded the following problem :
1. The Central Bank of Nigeria sacked the Board and Management of Spring Bank Plc on January 5, 2007   for technical distress and falsified mergers and acquisition reports.  
2. The Central Bank of Nigeria sacked the Managing Director of Wema Bank Plc in March 10, 2008 for technical distress and lack of transparency in reporting
3. In August 14, 2009, the Managing Directors of the following banks were sacked for technical distress, poor corporate governance, destructive investment policies that had eroded the capital base and eating deep into customers deposits, growing poor quality assets that earned no income and breach of budgetary control policies: Intercontinental Bank plc, Afribank plc, Finbank plc, Oceanic bank plc, and Union bank plc.
4. In October 6, 2009, the Managing Directors of the Bank PHB plc, Spring Bank plc and Equatorial Bank plc were sacked in similar manner.  
5. To avoid waning of public confidence and runs in these affected banks and other institutions in the industry, the CBN had to quickly inject N620 billion in all the eight affected banks to keep them running.  
The following are the factors that characterize the problems identified above.
1.Non-compliance with the various monetary and fiscal policies which gave room to abuse of power, manipulations of figures, lack of transparency in their reports to CBN and outright fraud.
2. There were absence of financial strategies in the industry that gave   room for continuous appraisal of performance in order to sustain performance growth.  Sustainable performance growth should meet the needs of the present without compromising the ability of the future generations to meet their own needs. The present growth of business in the industry has not been sustained to be able to prepare them for the future.
3. The following  sustainable performance growth strategies are either not instituted, poorly instituted or not reviewed during implementation thereby producing negative results: corporate governance, investment policy for effective assets and liabilities management, capital budgeting system, corporate planning, tax planning for effective fund management and payment of equitable tax, budgetary control and consideration for economic profit of investment.
4. Absence of responsibility accounting where key performance indices are reviewed and variances analyzed and corrected to ensure better performance and sustainable growth. Such indices are capital, assets, profits, liquidity, dividend paid and tax paid. That was why during consolidation and recapitalization, only five (5) out of eighty nine (89) banks could meet the minimum capital of N25billion. The implication of this is that 84 banks were distressed. The mergers and acquisition