DISTRESS IN THE FINANCIAL INDUSTRY: CASES, APPLICATION AND POSSIBLE SOLUTION

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND TO THE STUDY

The research work is about the financial distress in the banking industries, causes, implications, and possible solutions. Bank distress occurs when a bank or some bank in the system experience liquidity or insolvency resulting in a situation were depositors fear the loss of their deposits and a consequent breakdown of contractual obligation. While a bank is said to be liquid when it cannot met up with its liability as when they are matured for payment. It is said be insolvent when the value of its realizable asset is less than the total value of its liabilities (“ a case of negative network “). The cold lead to an overall ruin as the depositor’s loss their confidence in the system and avoid capital loss.

In a different human perspective, bank distress means a different thing. To some people, bank distress exists only when the bank in question ceases to operate even if it has not been officially liquidated. In a wilder contend, a bank is said to officially distress if it has failed in archiving and of the objective for which it was established. The objective of this project among others is to access financial distress in the banking industry, with a view to identify their forms, cause and implication and the possible solution to them.

There is distress in the entire environment in the industry, law enforcement, education, communication, transport and other services, perhaps the most dangerous and most pronounce today is the distress in the banking industry, a people and confidence based industry which is expected to be a catalyst not a detonator of economic advancement. It is of a great importance to raise the standard of banking industry in Nigeria to realize that financial distress in the banking industry drive instability in the country. The critical importance of the bank in the economic growth and development explained why each economy takes serious view of their financial distresses.

Any worthwhile economy seeks measures to prevent such distress failure in their economy. In any economy, banking is a critical bridge between deficit and surplus, between dreams and commerce, between theories and industrialization. Recorded evidence show greater number of distressed banks in Nigeria. How long shall we suffer from the woeful distress? Is there any possible solution to the problem?

1.2  STATEMENT OF PROBLEMS

There is problem of financial distress in most banking industry leading to non-availability of cask to meet the day-to-day withdrawal by customers. According to Osuala, (2017), “ The Statement Of A Research Problem”serve to elaborate upon the information in the title of the study” this study is concern with the investigation into the financial distress of the banking industry in Nigeria. Factor often mention for woeful collapse of the banking industry ranges from the external and internal environmental factors in which the bank operates its business. Some of these factors are as follows;

1. Political instability that cause low investment where production is slowed down.

2. Lack of monitoring expertise.