Financial Distress In Banking Industries Causes And Implication

INTRODUCTION
In Nigeria today there is distress in almost the entire environment in industry law enforcement transport communication financial institutions and the host of others.
In other words bank being a people and confidence based industry has being the most pronounced industry that is in distress not only that bank is a place where valuable are kept for safe custody but it is a critical bridge between deficit and surplus between dreams and commerce between theories and industrialization in any economy. It is a cornerstone industry of a nation.
The word distress mean different things to different people but generally it is said to be a state of unhealthy condition.
Bank is said to be distress/failure when it cannot be able to meet with its objective or its obligations due to first and foremost to its customers shareholders and the community where it was established. There are factors that are responsible for the high level rate of banking failure/distress in banking mismanagement insider abuse fraudulent activities of staff capital inadequacy poor asset quality economic factors and others. It is those problems that is of major concern of this project.

1.1 BACKGROUND OF THE STUDY
Having introduced the issue of distress and failure in companies in Nigeria, it is also necessary to treat the issue of distress and failure in Nigerian banks although banks by statutory legislation are companies yet they are in many ways different four other companies. For one thing they are service companies they are more regulated and monitored than other companies or services institutions or sectors.
By the provision of the Nigerians law, banks and other financial institutions decree No 25 of 1991 section 20 a bank is not to keep fixed assets except as may be required for the normal running of its business. A bank is not to hold much interest (equity) in any other business except in banking business.
A bank is required to have a cash reserve of 80% and a liquidity ratio of 30% . the liquidity that 60 banks were adjusted distressed in 1995. there are also many other distressed bank after that

1.2 STATEMENT OF PROBLEM
According to Osuala 1987 “the statement of a research problem serves to elaborate upon the information in the title of the study” this study is concerned with an investigation into the causes and implication of financial distress in banking industry in Nigeria.
Factors that contributes to the woeful collapse’s of banking industry ranges form the external and internal environment factors in which banks operate its business some of these factors are as follows.
i. Regulatory constraints that contributed seriously in sanitizing the banking system.
ii. Economic downturn which deprived the bank of its vibrancy as economic activities because of fast depreciating exchange rate
iii. Political instability that causes law investment while production is slow down.
iv. Lack of mentoring experience on the part of the management board
v. Lack of managerial experience this is one of the internal factors that leads to banking failure distress.

1.3 PURPOSE OF THE STUDY
This simply means that aim/objectives of the researcher in understanding the study. It is an overview of the study itself and relates very much to its problem and implication.
To this and the objective of this research includes the following.
1. To assess the extent regulatory constraints has contributed in sanitizing the banking system.
2. To valuable how economic down turn deprives the bank fo its vibrancy in economic activities.
3. To Ascertain the much on how the political instability can lead to low investment.
4. To discuss as far as possible how lack of monitoring experience could lead to financial distress and collapse of bank in Nigeria.
5. To discuses on how lack of managerial experience can lead to distress in banking industry.

1.4 SCOPE OF THE STUDY
The scope of the study ie the research work is concerned with an investigation into causes and effect of bank distress in Nigeria Plc Enugu.
HISTORICAL BACKGROUND OF FIRST BANK PLC
First bank of Nigeria Plc for a century has distinguished itself as a feed banking institution and a major contributor to the economic advancement and development of Nigeria.
The First Bank Plc was founded in 1894 by a shipping mognole from Liverpool Sir Alfred Jones. The bank commenced as a small operation in the office of Elder Dempster and company in Lagos
It was incorporated as a limited liability company on March 1894 with head office in Liverpool . it started business under the corporate name of bank of British West African (BBWA) with a paid up capital of 12,000 (twelve thousand pounds sterling) after absorbing its predecessor the Africa banking corporation which was established curlier in 1892. the bank was to establish in the banking industry signaled preeminent position in west Africa. In the early years of operations the bank recorded an impressive growth and worked closely with colonial government in performing the traditional functions of a central bank such as issue of spode in west Africa sub-region.
A branch was opened in Accra Gold coast (now Ghana) in 1896 and another in free town Sierra alone in 1898. the second branch of the bank in Nigeria was in the old calabar in 1900 and two year later services were extended to Northern parts of Nigeria. The bank maintains the largest branch network in the industry. This bank has a net work of 315 branches spread throughout the federation including on in the city of London. The bank also has diversified into a wide range of banking activities and services. These include corporate and retail banking registraship trusteeship and insurance brokerage.
To reposition and to take advantage of opportunities in the changing environment the bank embarked on several restructuring initiation in 1957 it changed its name form bank of British for west African to bank west Africa. In 1969 the bank was incorporated locally as the standard bank of Nigeria limited in line with the company decree of 1968. in 1979 and 1991, the name of the bank was changed to first bank of Nigeria limited and first bank of Nigeria Plc respectively .
OWNERSHIP/ CAPITAL FORMATION
First bank of Nigeria is a public liability company. The shares of the bank are duly owned by Nigeria citizens and associations. The manager of staff pension fund holds up to 5% of the issue share capital of the bank. It has two hundred and nine thousand nine hundred and thirty three shareholder (209,933) the initial capital was twelve thousand pounds sterling (7) 12,000 the banks share capital grew to six hundred and fifty thousand three hundred and thirty five billion naira (N650,385) the banks total asset based was one hundred and eighty thousand five hundred and fifty three billion naira (180,553) while its deposit base stood at one hundred and twenty seven thousand two hundred and thirty billion naira ( 127,230) its market capitalization told at eighteen thousand one hundred and Ninety billion naira (18,190) ie thirteen naira ninety-nine kobo (13.99) per share its capital adequacy is 18.8% the bank has its headquarter located at Samuel Ashaba House 35 Marina PMB 5216 Lagos. This bank ahs three hundred and eighteen (318) braches. It has a staff strength of six thousand one hundred and eighty two (6.182) throughout the country. At Enugu office the staff strength is put together as four hundred and eight-eight (488) comprising of 26 management staff 336 senior staff and 126 junior staff.

1.5 RESEARCH QUESTION
The following question has been selected as a guide to the researcher in the research work.
i. What has been the major factors that are responsible for the bank polarization in Nigeria
ii. To what extent has such polarization contributed to distress in banking industry.
iii. What other factors can be attributed as root cause of distress in bank in Nigeria.
iv. What role has the directors of such bank played in the distressing their banks?
v. What are the caliber of people that should be appointed as directors in the management of banking industry.
vi. What are the role of government in such ugly situation in Nigerian banks?
vii. What measures should be taken to avoid total collapse of the banking industry.

1.6 SIGNIFICANT OF THE STUDY
Bank failure and bank distress has been a topical issue in Nigeria over since the collapse of the national bank of Nigeria in the early 1990s and has remained unresolved till the inception of manger in all the banks throughout Nigeria. ever before them the yearly increase in the number of fallen unhealthy banks and its concomitant damage to the depositors confidence in the Nigeria banking system coupled with the need to save Nigerian economy from total collapse give a reasonable justification for this study.
In other words the significant of this study refers to the important or usefulness of the research to the individuals shareholder management potential investors suppliers and the government. More so it provides knowledge and information that will bring about a better understanding of the topic under review.
Further when completed the research findings and recommendation will form a bases to be relied upon by the following groups of people in particular. Researchers bankers. The banking public government and the monetary authorities students and the general public.

1.7 DEFINITION OF TERMS
1. Distress: A state of unhealthy situation or inability to meet up with a set up goals
2. Political instability: Having a political changes at all times or not having a steady political environment or a sudden change
3. Liquidation: Permanent cassation of business as a result of insolvency/ financial distress/failure
4. Internal environment: Factors primarily with the banks immediate environment which the bank can exact influence of them
5. Financial intermediaries: A means of financial communication between the bank and the public
6. Management incompetent: General lack or deliberate suppression of managerial skill or know hoe various branches of enterprises skills
7. Illiquid: Total lack of liquid fund or near cash in the management of any organization set up.
8. Fraud: All deceitful act dishonest the aim of which is to define a person or corporation of property or any belonging without the knowledge or consent of the owner .