A Critical Review of Distress Syndrome in Nigerian Banks with a View to Preventing Recurrence

56 Pages Posted: 21 Nov 2009

Date Written: November 18, 2009

Abstract

The problem of distress or outright bank failure has always featured in the Nigerian banking industry. However, never in history has the degree and scope of the distress been as high as witnessed in the mid 90’s.The present global financial crisis seems to be an off-shoot of what happened in the 90's. In fact, during this period, the number of distressed banks and severity of the problem increased rapidly. The reason for this upward trend is not far fetched. Whereas the distress problem assumed epidemic proportions, its treatment has been rather piecemeal and ad hoc in nature. The confidence reposed on the regulatory agencies by the banking public is now very shaky. Some are beginning to wonder if the regulators should not be regulated. Some others are doubting the effectiveness of the CAMEL rating system and a lot more.

It is observed that adequate efforts have not been made to conduct empirical test of the factors responsible for the distress rather, various factors are always blamed without subjecting them to any empirical verification.

The urge to remedy the limitations posed by such subjective conclusions inspired this study. The study inter alia, identified some major causes of the current distress in Nigerian banks; appraised the extent of the bank distress in our economy; reviewed previous resolution strategies to determine why they failed to achieve the desired objectives.

Following from the above, the study offered various strategies to arrest the situation and avoid future occurrence.

Finally, the study recommended immediate adoption of the newly proposed CAMEL rating system by members that participated in the CBN/NDIC collaborative study. Also favoured by the study is the adoption of long-term distress resolution strategies as against the present ad hoc measures.These measures should entrench risk management and corporate governance.

Keywords: distress, banks, Nigeria, CAMEL, risk management, corporate governance

Suggested Citation

Offor, Emeka, A Critical Review of Distress Syndrome in Nigerian Banks with a View to Preventing Recurrence (November 18, 2009). Available at SSRN: https://ssrn.com/abstract=1508335 or http://dx.doi.org/10.2139/ssrn.1508335

Emeka Offor (Contact Author)

ACTAG ( email )

P.O. Box 72740
Victoria Island
Lagos, 101241
Nigeria

HOME PAGE: http://www.actag.com.ng

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