CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the light of the vital role which banks should play in developing the rational economy in their capacity as vectors of fund for savings investment and employment opportunities. It will be expedient to point out that Nigerian banking system in all its advancement has not succeeded yet in effectively achieving this mission The reason is not just one of the facts that some banks have failed but there are other problems associated with them that the researcher seeks to address these problems include: – The loss of public confidence in the banking industry due to the crisis in the sector (Ekezie 1994). – The short comings of the regulatory supervisory authorities in banding the crisis (Eh bokphA 1993) – How the ownership structure of distressed bank contributed to their predicament (Ojir 1998). There are numerous problems that have arisen and which constitute crisis in the banking industry and this work will attempt to solve them.
1.2 REASON FOR THE STUDY
Crisis in banking industry is a serious problem which like a public dropped into a pool of a pool of water aects every aspect of the economy.
1. It has led to deposite ran: This affects adversely the liquidity and earning capacity of the banks and consequently resulting to decline in availability of inventible funds in the economy.
2. It has led to increase in rates as depositors ask of higher rates to return for perceived higher changes of bank failure and consequence risk of financial loss.
3. crises in the banking industry has led to unemployment which leads to fall in aggregate demand and consequently a reduction in the production level.
4. Banks are central to an efficient and effective payments system in any country with bank failure the payments system would become precarious, as link between the real and financial sector including international settlements, would be greatly impaired this would inhibit the intermediation role of bank and the development of the country (Ojir 1998). This research work will help the management of banks to manage effectively and efficient.
1.3 SIGNIFICANT OF THE STUDY
The researcher hopes to achieve a great thing at the end of the study. This project will help many that are interested in the banking it will also help them to do the causes of crisis, how it can be immense benefit to the following people.
1. Scholar in the field of banking and finance: It will enlighten the students and afford them the opportunity of appreciating the contribution to wards their study.
2. Bank: It is of great benefit to banks when they notice fraud or poor loan management which leads to distress, they will try to prevent it to avoid liquidation.
3. Future Researchers: It will serve as a companion to future researchers who are interested on cause of distress economic implications and possible remedies.
4. Investor: It will help them to know that distress exist in banks by so doing they will be careful not to invest in banks were there is problem of distress.
5. Officials of regulatory agencies: It will help the officials of regulatory agencies to know how to prevent distress from happening. It will also help to enlighten to public on how distress has cause a lot of problem in our economy.
1.4 DEFINITION OF TERMS
1. Crisis: Moment of great danger faced by banks.
2. Distressed bank: A bank managerial operational and financial weakness.
3. Management efficiency: Measure of management qualification, competence and achievement.
4. Bank: This is a place in which money is kept and paid out on demand where related activity go on.
5. Regulatory/supervisory Authorities: This is the Central Bank of Nigeria (CBN) and nation deposit insurance cooperation (NDIC).
6. Operators: The management and staff of a bank including the shareholders.