DISTRESS IN BANKING SECTOR HOW TO AVERT FUTURE OCCURRENCE

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CHAPTER ONE

INTRODUCTION

1.4   BACKGROUND OF THE STUDY

Banks are regarded as an indispensable element in the development and growth of any economy. The success  or otherwise of the banking sector is a parameter on which economic activities are measured. It is against this background that it is stated that a healthy banking system is a sign of good health of the entire economy. Distress has far reaching consequences on the economy of the country some of the implications are discussed here under:

The situation lead to deposit run this is the withdrawal of deposit by customers from the distress banks. It affects adversely the liquidity and earning capacity of the banks and consequently resulting to decline in availability of ingestible funds in the economy

Secondly, bank distress lead to increase in interest rates as depositors ask for higher rates of return for perceived higher chances of bank failure and consequent risk of financial loss.

Bank distress cause unemployment through retrenchment of workers in the distressed banks. This has adverse consequences of the retrench staff. It leads to fall in aggregate demand and consequently a reduction in the product win level.

Bank distress in the long run may degenerate into bank failure and loss of depositor funds. The maximum amount refundable to each account holder under the NDIC cover for failed banks is #50.000.00 irrespective of the value of deposit. Further, it leads to decline in foreign investment in the country. Due to fear of uncertain investment climate come foreign investors may prefer to close their account with the distressed banks and transfer their funds to other countries with more stable investment atmosphere.  

1.2  STATEMENT OF THE PROBLEM

The Nigeria banking industry, the issue of financial misappropriation and management is no more stories but some thing that is condemned by the society.

Stress in the financial sector mainly banking has led to a great loss and economic degeneration due to lack of proper guideline and set standard in the industry (Ebihodaghe (2014) to this effect, the economy has suffered drastically in the recent time, this problem has cause and created so many hardship to the bank and their shareholders, Bellow (2013) most of the distressed bank in Nigeria suffered from fraud, lack of organization and managerial powers and proficiency. This also contributed significantly to the liquidation of some banks. The big question is how fine will our banking industry grow with the rate of the phenomenon” distress?

The problem of this study now centers on, how to prevent distress in Nigeria banking industry so that the economy can grow and develop  

1.3   RATIONALE OF THE STUDY

Talking about the reason of the study it has to do with bank operation and the failure distress of the sector and also it will be necessary find out the causes of bank failure and suggesting ways of averting future occurrence with acceptable and efficient strategies.                                                         

1.4   SIGNIFICANCE OF THE STUDY

Significance of the study is to tell how benefit it is go to be. Those who will benefit from this study include

Bank:It will help the banks to operate with profitability; credibility and playing the role of banking intermediation effectively and efficiently.

Industry:However it help the industries in putting them operation whether daily or number distribution of events in the institution (bank) and how to prevent them future occurrence  

1.5  DEFINITION OF TERMS

In this study, the definition of terms could go through the topic to how the meaning of the topic of the project “ distress in the banking sector how to avert future occurrence, audit, prevent, banks, distress, economy, guideline, liquidity, portfolio, practice, commercial banks, community banks, merchant bank and deregulation.                                                     

Audit:Official check and analysis of account by an expert

Prevent:A measure aimed to prevent or turn away a consequence of an activity

Banks: Is an institution where keeping of money and leading on issue of credit and loans is obtained

Distress: An array activity, action or event that brings great sorrow or pain

Economy: Community system of using its resource to produce wealth, state of a country prosperity

Guideline: A set of advice to follow low down procedure of rules                               

Liquidity:The measure or mean of being to change asset into cash (liquid cash)

Portfolio:This can be defined in financial as collection of share distribution in term of loan and advance, on sectorally even

Practice: This is putting operation whether daily or routine distribution of event in the instruction (banks)

Merchant bank: Are financial institution, established by law to provide and to engage in wholesale banking, medium and long term financing equipment and long term financing equipment leasing debt. Factoring: investment management etc.

Community banks:  This is self sustaining financial institution owned and managed by a community or group of communities for the purpose of providing credit deposit and other financial services

Commercial bank: Is institution who collect or institution establish by law to perform some function which include deposit, acceptance, agency service, bailment, funding, transfer and executorships function.     

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