EVALUATING THE IMPACT OF BANK DISTRESS ON THE PROFIT GROWTH OF EXISTING COMMERCIAL BANKS.
(A CASE STUDY OF SELECTED COMMERCIAL BANKS)

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ABSTRACT

This work “Evaluating the impact of Bank Distress on the profit growth of commercial banks” has the objective of showing the effect of distress on the profit growth of commercial banks. The causes of bank distress in Nigeria and the possible prevention strategies or failure resolution options of bank distress. The review of related literature was done to give an in depth knowledge of the topic to the researchers. Both primary and secondary sources of data were used by the researchers.
Simple statistical tools like T-test, least square (B) and tables were used to analyse the data collected. The following findings were made; Banks made lower profit during distress period and higher profit during distress period and higher profit after distress period. Meanwhile, banks generally made lower profit during distress period. We recommended that the supervisory arsenals to ensure minimum distress with little or no effect when it occurs.

TABLE OF CONTENT
CHAPTER ONE
1.0 Introduction 1
1.1 Background of the study 1
1.2 Statement of the problem 5
1.3 Purpose/Objectives of the study 5
1.4 Research Questions 6
1.5 Research Hypothesis 6
1.6 Significance of the Study 7
1.7 Scope, Limitations and Delimitations 7
1.8 Definitions of Terms 8

CHAPTER TWO
2.0 Review of Related Literature 10
2.1 Definition of Distress in Banking Industry 10
2.2 Symptoms of Distressed Banks in Nigeria 14
2.3 Causes of Banking Distress 16
2.3.1 Capital Inadequacy 18
2.3.2 Inept Management 19
2.3.3 Ownership Structure/Political
Interference in Management of Banks 20
2.4 Distress Management and Failure Resolution Option 21
2.5 The Role of Banks in an Economic System 30
Reference 33
CHAPTER THREE
3.0 Research Design and Methodology 35
3.1 Research Design 35
3.2 Area of Study 36
3.3 Population 36
3.4 Sample and Sampling Techniques 37
3.5 Instruments of Data Collection 37
3.6 Methods of Data Presentation 38
3.7 Methods of Data Analysis 38
Reference 40
CHAPTER FOUR
4.0 Data Presentation and Analysis 41
4.1 Graphical Illustration of Banks Profit 43
CHAPTER FIVE
5.0 Findings, Recommendation and Conclusion 54
5.1 Findings 54
5.2 Recommendation 56
5.3 Conclusion 58
Bibliography 59
Appendix 61
PROPOSAL
The topic “Evaluating the Impact of Bank Distress on the profit Growth of Commercial Bank, (A case study of selected Commercial banks)
The Topic “Evaluating the impact of Bank Distress on the Profit Growth of Commercial Banks” is posed to appraise the effect of distress on the profit growth of commercial banks. It measures the way in which distress affects the profit of commercial banks negatively or otherwise.
For effective execution of this work a ten year profit trend of some selected banks will be evaluated. This ten year profit will cover the period of distress and after distress for a proper appraisal of the work.
Meanwhile the profit of these banks will be collected using a primary data source (Annual Report) and secondary sources of information and there primary data will be analysed using the most appropriate statistical tools for an accurate result.
However, there will also be a formulation of hypothesis which is based on the known negative implication of distress. Though, this hypothesis and also there will be a formulation of research questions which will be sample in relative to the objective of the work for the best result.
After all, an inference will be drawn based on the outcome of our statistical test. Based on the results obtained in our tests there will be a recommendation thereof.
The distress in a bank made the banks to have lower profit during distress period and higher profit after distress permit, meanwhile, generally, banks made lower profit during distress period, due to the insufficient cover of losses from the profit generate internally was unable to generate internally positive capital.
The bank or some banks also experience illiquidity or insolvency, this is resulting in a situation whereby the banks could no longer met its liabilities and all there brings about illiquid. These is also insolvent in the bank when the value of its realizable assets is less than the total value of its liabilities.
Furthermore, the inability of a financial institutions to bridge its primary obligation of creating credit and loss of liquidity or the liability of the bank to turn assets into cash to meet any abnormal demand for cash by their customers.

CHAPTER ONE

INTRODUCTION
BACKGROUND OF THE STUDY
In any modern economy, the efficient production and exchange of goods and services requires money and bank is the instrument for affecting it. The last few years have been both traumatic and revolutionary for the banking industry. The industry produced the largest number of technically insolvent and under capitalized banks. The magnitude of distress in the nation’s banking industry reached on unprecedented level making it an issue of concern to the government, the regulatory authority, the bankers and the general public.
The Nigeria banking scene was characterized by changes designed to promote banking in the country. The changes may be categorized into phases, but due to the nature of our work we will consider two phases: namely, the era of laissez-fair banking (1894-1952), the era of limited banking regulator (1952-1958). During the first phase, banking industry was monopolized by foreign banks, principally the African banking corporation which was the precursor of the (BBWA) British Bank for West African the present First Bank of Nigeria the Barclays bank DCO (Dominion Colonial and Overseas) the present day Union banks, and the British an French Bank, the for-runner of the present United Bank for Africa. Although discrimination against Nigerians by these banks led to the establishment of some indigenous banks which unfortunately offers litter or no competition to the foreign banks essentially because of their weak capital base or poor managerial capacity. Consequently, all but three of the indigenous banks failed. The survived includes the National Bank of Nigeria established in 1933, the Agbomagbe Bank (now Wema Bank) established 1945 and the Africa Continental Bank 1947.
A commission of inquiry headed by G.D. patron set up in 1948 to investigate the business of banking in Nigeria. Their report led to the enactment of the first banking legislation in Nigeria, the banking ordinance of 1952. The 1952 ordinance laid down the standard and procedure for the conduct of banking business by prescribing the mandatory minimum capital requirement for banks both expatiates and indigenous banks at the tune of ∑100,000 and ∑12,500 respectively and it also introduced regulations to check bank failure. However, all the indigenous bank established in the country during this period also all failed. The bank failures of this era were attributed largely to the monopolistic structure of the banking industry, which allowed the foreign banks to enjoy exclusive patronage from British firms. The indigenous banks that survived was able to make it because of the support they got from their state government.
The distress phenomenon in Nigeria banking industry is of recent origin. The manifestation became discernable with some policy shocks starting in 1988 with the Central Bank of Nigeria (CBN) directive to banks that naira backing for foreign exchange application be lodged with CBN. Thus was followed in 1989 by another directive requiring public sector deposits to be transferred to CBN. These two directives exposed the precious liquidity position of some banks and the distress they have subterraneous harbored. What was thought to be a temporary liquidity problem for few banks soon caught up with a lot more banks.
It is important to stress in this work that banking system was already in distress by the time NDIC was established. By them, about 7 (seven) banks were known to be technically insolvent. The government at that time, did not embark upon a clearing exercise that would have removed from the system that distressed institutions because it was feared that such an action would lead to loss of public confidence and flight of foreign capital more so there was no deposit insurance institution to expeditiously manage such bank closures. The NDIC was nevertheless required to insure all banks. That means that the corporation has been involved in managing distressed banks even before it could settle down and minister enough resources for this important task.
The intermediating role of banks and their relevance both in the transmission of monetary policies and in the payment system underscore their importance as well as the problem that bank distress at the prevailing dimension in our economy could precipitate. Arising from their intermediation banks generate financial resources ad put these at the disposal of deficit economic growth in the form of increased employment of otherwise idle resources and this in turn leads to increase output. Therefore, an industry wide insolvency of banks, such as the one experienced in Nigeria, should be expected to retard the economy’s rate of capital formation, reduce its level of employment and output, and ultimately the pace of economic growth.
1.2 STATEMENT OF THE PROBLEM
A serious problem posed by widespred distress among banks is the threat to banking habit and the development of an efficient payment mechanism. The loss of confidence, the after math of the distress that hit the banking sector forced several business to take ferver risks by taking back their fund to well established safe havens dominated by older generation banks.