Examination Of The Techniques Of Managing Financial Distress In The Nigeria Banking Industry
The researcher examines the technique of managing financial distress in the Nigerian banking industry. The researchers purpose of study among other.
- To examine bank recapitalisation as a technique of managing distress in the banking industry.
- To examine debt recovery and cost reductive as a technique of managing distress in the banking industry.
- To examine bank acquisition and merger as technique of managing distress in the Nigeria banking industry.
The researcher collected the necessary data through structural questionnaire and oral interview. In analyzing the data collected, the researcher made use of textual and tabular presentation.
In both case chi-square and simple percentage where the major tools used for data ananlysis.
The findings revealed among other things.
- That bank needs to be recapitulated.
- That two or more distressed banks need to merge to from a new, strong and healthy one.
- That banks need to recover their debts to ensure their continuing existence.
A strong bank should take over a small and weak bank to enhance its survival and performance. It was also discovered that excessive operational cost is one of the factors that led to bank distress.
This research work is a study of an examination of techniques of managing financial distress in the Nigerian banking industry. This research work will indicate the statement of problem work the techniques of managing financial distress in the Nigeria banking industry, it also reflect the purpose of the study, as the writer will present the primary study and secondary.
The project as well dealt with the review of existing literature on the topic of study, from textbook, internet, journals, newspapers etc, which the writer studied, so as to provide current views on the topic.
This work will also revealed the research methodology the writer employed in collecting his primary and secondary data and ananlising them horizontally and vertically, which emcounpasses the data collecting techniques used.
In conclusion, the findings discoveries recommendation and conclusion were explained by the author. The author record was also documented.
1.1 Background of Study
The issue of financial distress in the Nigerian banking industry has became the ‘Conequences of bnak failures, the problem has became a major source of concern to the government, the regulatons of financial institutions and to the general public. The experience of Nigerians during the first era of bank failures in Nigerian between 1953 to 1959 was such that generated understandable apprehension among the banking public. Unfortunately, the problem has reducing up till now in the Nigerian financial system. Also distress in Nigerian banking system is a phenomenon that must be tackle with every amount of Vigour in order to minimize its occurrence in the economy.
Although, Nigerian thought this was a good own for the economy, it soon downed on them that the perceived boom was a mirage and gross mismanagement. The increasing number of distress in the nations banking industry has impacted negatively on the economy by slowing down the tempo of business activities. The courage also effects some government and some healthly banks which have cost some of the confidence which they had enjoyed before the issue of banking distress become pronounced.
1.2 Statement Of Problems
Financial distress in the Nigeria banking industry will therefore occure when a fairly reasonable proportion of banks in the system are unable to meet their obligations to their customer as well as their owners and the economy as a result of weakness in their financial, operational and managerial condition which have rendered them either insolvent. Also is a situation in which a sizable proportion of financial institutions have liabilities exceeding the market value of their assets.
A financial institution is said to be in distress where evaluation by the supervising authorities depicts the institution as deficient in the following criteria.
- Weak Management, reflected in the poor credit quality, inadequate internal controls. High rate of frauds.
- High level of classified loans and advances
- Gross under Capitalization relation to the level of operation.
- Illiquidity, reflected in the inability to meet customers cash withdrawals.
1.3 Objective of the Study
In view of the above problems of distress in the banking industry, this study in word term aims at examining the techniques of managing distress in the banking industry.
This objecture in specific terms could be states this.
- To examine debt recovery and cost reduction as a techniques of managing financial distress in the banking industry.
- To also examines bank recapitalization as a techniques of managing financial distress in the banking industry. To examine bank acqusition and merger as technique of managing distress in the banking industry.
- Also to make recommendation on haw to mange financial distress in the banking industry.
- To also examine bank Recapitalization as a technique s of managing financial distress in the banking industry.
- To make recommendation on how to mange financial distress in the banking industry.
1.4 Research Question
The aim of this study is to examine the techniques of managing financial distress in the Nigerian banking industry. The researcher demand it necessary to formulate the following question.
- Are Debt Recovery and cost Reduction a good techniques of managing financial distress in the banking industry
- Is bank Recapitalisation a good techniques of managing financial distress in the banking industry?
- Are Bank Acquisition and merger a good techniques of managing financial distress in the banking industry?
1.5 Research Hypothesis
This study is to examine the techniques of managing financial distress in the Nigerian banking industry.
Considering the nature of the subject matter, the researcher made it necessary to formulate the following hypothesis.
- Ho: Debt Recovery and cost Reduction are not a good techniques of Managing financial distress in the banking industry.
Hi: Debit recovery and cost reduction are a good techniques of Managing financial distress in the banking industry.
- Hi: Banking Recapitalization is a good techniques of managing Financial distress in the banking industry.
- Ho: Bank Acquisition and merger are not a good techniques of Managing financial distress in the banking industry.
Hi: Bank Acquisition and merger are not good techniques of Managing financial distress in the banking industry.
1.5 Significance of Study
This research work which deals mainly in examining the techniques of managing financial distress in the Nigeria banking industry will be of much significance to the readers, it will make them to be aware of the unhealthy conditions being experienced in our banking industry as well as being familiar with the various suggested technique which could be applied to reduces the banking industry out of this distress. It should be noted that a country’s wealth development, and advancement it normally judged by the healthness of it’s banking industry. Also this study therefore sets to as certain the technique of managing distress in the Nigerian banking industry.
The study will be of immense benefits to business students, other researchers in the field, financial institutions, and regulatory institutions and will obviously add to the pool of knowledge in the field of banking.
1.6 Scope, Limitation and Delimitations
The scope of this study is limited to the examination of the techniques of managing financial distress in the Nigerian banking industry as the title of this project.
The limitation to the study follows:
- Having initial access to the management staff of various banks.
- Fear of releasing information relating to the repoprts on distress banks examinations.
- Also it was not easy to obtain the right textbook, computer (internet) and periodicals that dealt extensive on the research study.
- Finally, time and financial constraints contributed in a little way in this research work.
1.7 Definition of Terms
The aim here is to explain all the unique term used here, in order to avoide mis-interpretation as follows:
This refers to the process of injecting more funds into a bank in order to make it carry on profitable business.
This refers to bringing to an end the operation of a going concern (bank) by the authorized authority.
Also is refers to ban is inability to meet the needs of its customers in the ordinary course of business.
This can be defined as a conscious and deliberate effort aimed at financial advantage at the detriment of another person who is the rightful owner of the fund.
5) Mergers and Acquisitions:
This means the crises ridden banks can pull their resources together through mergers. Stronger banks could take over or acquire the weaker ones for purpose of strengthening them and saving the entire financial system from collapse.
This refers to the relaxing of the stringent conditions that where lither to prevalent in the registration of banks.
Findings, Conclusion and Recommendation
The findings in this research work are in agreement with the outcome of the tested hypothesis in chapter four in which the calculated value test statistic were carefully compared with the critical value or table value of the test statistic when serves as a critirum value for rejecting or accepting the null hypothesis.
The first null hypothesis tested was to ascertain whether debt recovery and cost reduction will be rejected or accepted as not good technique of managing financial distress in the Nigerian banking industry when subjected to chi-square test, the calculated value showed in table 4.ix (13.880) which the critical value show in figure 4.ix and 3.841. in this case, the null hypothesis is rejected which the alternative hypothesis is accepted. Meaning that debt recovery and cost reduction are not good techniques of managing financial distress in the Nigerian banking industry.
In testing the second null hypothesis which states that bank recapitalisation is a good techniques of managing financial distress in the Nigerian banking industry subjected to chi-square test, the calculated value should in a table 4.x was (9.8) while the critical value figure is 4.10 was 3.841. in the case, the null hypothesis is rejects while the alternation hypothesis is accepted means that bank recapitalisation is a good techniques of managing financial distress in Nigerian banking industry.
The same procedure was also apply in the third hypothesis which states that bank acquisition and merger are not a good technique of managing financial distress in the Nigeria banking industry when subjected to chi-square test the calculated value should shown in the table 4.xi was 6.42 which the critical value shown in figure 4.11 was 3.841. This shows that the critical value is less than calculated value ie 3.842, n 6.42. It the means an outright rejection of the alternative, which means that bank acquisition and merger are good techniques of managing financial distress in the Nigerian banking industry.
Banking is very important and strategic industry. Developments in the banking sub-sector have reaching consequences on other sector of the economy.
The responsibility of operators and regulator of Nigerian banking is to ensure stability and balance growth in the industry. There is a need for decision action to be taken by government to deal with the situation to sustain public confidence in the system. Positive measure to restructure the ailing bank through forced mergers; acquisition and full recapitalisation should be pursued with force. Government cannot afford to shirk its ultimate responsibility to save the banking system from total collapse. It should there fore initial action to set up a financial system that is capable of mobilizing fund to provide lifeline facilities for bank.
From our discussion so far, it will be proper to make some recommendations which could assist in making the ailing bank stronger the first step in the restructuring of distressed banks is to effect a change in its board and management. This is necessary because the quality of board and management is directly linked to a banks performance and financial health. The management of distressed banks are expected to take the following measures.
- Carry out a diagnostic study to determined what caused the problem of the bank and purposed solution that could solve these problem.
- Develop a business strategy and means of pursing banks focus, this will be complemented by restrusting plan to correct deficiencies in the bank.
- The management should embark on aggressing debt recovery. In fact, this should be the watch word of the bank. staff performance should be determined by the results of debt recovery, Debt is a very important element in bank restructuring because it indirectly aids recapitalisation especially where the share holder lack the capital to recapitalisated their bank, since the distress nature of these bank would not allow for successful sourcing of funds in the capital market.
- Management and staff to make sacrifices reducing their remuneration and operating cost.
- Cost reduction should be embarked upon through a review of the existing cost structure so that less essential activities and people are eliminated.
- And finally, management should embark on image building to reverse the distress stignic of the bank create a positive image and build up good will amongst the banking public.
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