A STUDY OF THE EFFECTS OF FINANCIAL DISTRESS ON NIGERIAN COMMERCIAL BANKS

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A STUDY OF THE EFFECTS OF FINANCIAL DISTRESS ON NIGERIAN COMMERCIAL BANKS

This study looked at the “A study of the impact of Financial distress on the Commercial Bank of Nigeria.” It looked into the causes and symptoms of bank distress in the Nigerian economy.

These issues that impede smooth banking in commercial banks are expected to be evaluated in order to ensure a secure and sound banking system.

As the researchers collected data for this investigation in rural places where banking is available, they reviewed a large amount of related literature. The impact of bank crisis on the economy, on the other hand, included a loss of public trust in commercial banks.

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

A bank is an institution whose primary function is to accumulate temporarily idle money from the general public for the purpose of advancing to others for expenditures.

A bank, according to John Paget, is “a corporation or person(s) who accepts money on current account, pays cheques on such account on demand, and collects cheques on behalf of customers.”

A bank, according to Oxford’s advanced learners dictionary, is an institution or location that provides a financial service or a location where something is stored ready for use.

Modern banking in Nigeria dates back to the colonial era, when the African Banking Corporation was created in 1892 to distribute currency notes issued by the Bank of England for the British Treasury.

Subsequent developments were aided by colonial trade. Nigerians later entered the banking business to meet the credit demands of indigenous entrepreneurs, first via private individual initiatives and then through deliberate government policy.

The problem of financial distress, including outright bank failure, has been noted in Nigeria since 1930, when the First Bank failure was reported. Indeed, over 21 banks failed between 1930 and 1958, when the Central Bank of Nigeria was created.

However, the degree of intensity and scope of the distress has never been as severe as it has been since June 1989, when the government directive to withdraw deposits of government and other public sector institutions from banks and deposit them with the CBN exposed the weak financial condition of most financial institutions, and the severity of the problem has gradually increased.

The distressed state has been linked to a variety of factors, some of which are listed in the literature review.

When distress entered the picture, tears of losing funds to banks had a detrimental impact on the commercial bank.

1.2 STATEMENT OF THE PROBLEM

With the spread of distress in finance companies, community banks, and primary mortgage institutions, a total of 24 banks were distressed in 1993, compared to 31 in 1992. 31 finance houses were classified distressed,

while 118 were in default of matured obligations, and 456 complaints were lodged against 156 finance companies for non-resumption of mortared funds. However, the total assets on liabilities of 395 financial firms reached at N13.38 billion in 1993, up from N2.44 billion the previous year (1992).

The following factors were blamed for the situation:

1. Prevailing economic recession, policy-induced stock weak and detonating asset quality as a result of a significant portfolio of non-performing credit, non-maintenance of assets and liabilities.

2. Poor management focusing on sharp practise and a lack of experience, which is the most important concern related with commercial bank difficulties.

3. Ineffective, inefficient, and bad financial sector performance in the task of promoting and supporting economic development in commercial banks.

The above-mentioned problem piqued the researchers’ curiosity, prompting them to conduct investigation.

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