By Agboeze, Clifford C.
Interest in this study arose because (.I tlin-: widespread concern in t1i1: Country today wt r
tlie growing incidence of distress in banks a:!d .he need to urgc~illy evolve an enduring panacea
to check the spread of the disease.
The consensus among financial/eco~~ol:.ic pundits is that if not cl-ecked, the distress
problem would lead to complete erosion of wnfidence in the bankillg sy5rl:m with delererioi s
spill-over effects on the already traumatized Nigerian economy.
Bank distress however, is not peculiar o Nigeria. h4ost Countries oft it: World, inclucing
the developed ones like IJSA, IJK etc, have, ai one titlie or the olller expt:i iellced one fornl of
banking distress or the otlier. I~ldeecl, one can i~rgue that a ccrtai~i degree ol distress is wcessar y
in order to maintain sanity and srability in thc Banking systetn.
'The problem therefore, IS not distress par se, but (he seenlingly unco~itrollable spread of
tlie virus in Nigeria.
Consequently, the issue iiwestigated is ilie nature alitl intensity of banking distres!; in
Nigeria, its implication for the banking inu~rst y and the ecoiiolny and the various teclinirlu~s
adopted by the regulatory authorities to grypl~ with the proble~n.
To carry out this, a number of tools wer employed. First, a I0 yex trend analysis wzs
conducted of aggregate banks performance ~!JII; the assessmew parameters of CAMEL - (lapitid
Adequacy, Asset quality, Management efficic ncy, Ear~iings allti l.iquidit> . This covered I he
period tiom 1985 to 1994.
From this, it was observed tliiit IIK tli~!r.:ss shock I'irst hi1 ~lic indus~r y between 1989 ad
1990 which was the period following the withdrawal of treasury funds from banks by
Government. This was followed by a period ~1' rccovery until I093 tvllen lllc currellt wavt: (lt
distress seemed to permeate [lie entire iutlusrr!~ I'abric.
Again, out of the 27 officially declared distressed Banks, a total of 10 made up of 6
Commercial and 4 Merchant Banks were selected for further investigation along the wne
CAMEL indicators. Coincidentally, all the 6 Commercial banks are those with Governrnt,r~t
interests while the Merchant Banks are privately owned.
The causes of Bank distress were traced to 6 main issues namely, Inadequate regulatc~ry
framework; Deterioration in assert quality and earning; Poor Management; Fraudulent cond 1c.t
of Managers and owners; Under Capitalization, and Adverse Economic Condirions.
Finally, recommendations were made on how to effectively monitor banks in order to
preventlcontrol the incidence of banking distress. These were based on interviews conducted
with officials of the concerned banks, the regulatory agencies and other economic commentawl s
and the experience of other Countries.
It is believed that if these recommendations are adopted. the incidwce of bank distress
will be drastically reduced and this will i11 turn instil sanity and stability in the Banking industry with obvious salutary effect on the Nigerian economy.