DISTRESS IN BANKING, CAUSES, EFFECTS AND SOLUTIONS

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.