Management Crisis Of The Banking Industry

INTRODUCTION
The first banking activity in Nigeria was carried out by African Banking corporation in 1892. this was followed by the first bank in 1884 incorporated as Bank of British west African (BBWA). According to porter (1980). After the establishment of first Bank, Union Bank came on stream in 1917 as Barclays Bank.
The first indigenous Bank, according to Ndukwe (1994) was established in 1929 and that was the emergence of DISTESS in the Nigerian Banking sector. This period also stressed rapid growth in number of Banks in Nigeria.
Between 1951 and 1952, Ndukwe (1994) asserted that a total of 16 banks were established.
Onyima (1994) also observed that the increases was effectively matched by high rate of failure such that by 1954, 21 out of 25 banks had failed.
The salient causes for this failure are;
1. The Dominimcation of the market by foreign firms.
2. Lack of experienced personal and prudent managers.
3. Under capitalization and poor loan profile.
The 1952 Banking ordinance was the only cause attributed to the government and it was this ordinance that brought about this failures in banks. The reason being that most indigenous banks could not meet the demand of this ordinance and they had no other option than to close down.
However, since 17th of March, 1959, when central Bank ordinance and independence in 1959, government had through direct support mechanism, ensured that the banking public was no longer exposed to th hazards of bank failures.
The introduction of structural adjustment programme (SAP) in 1986 and the friancial system in 1987 Ebhodaghe (1903) noted that since that time, there has been a phenomenal increase in the number and type of financial institutions leading to staff competition in the industry. This growth of Banks gave this impression that banking is an all was business as all types of investors with fund to throw about established and inconpetant and inenperienced hands assumed serior positions, people without very clean ordential joined as one.
According to the Banker (1994), these entrants prepared the ground for this virus infections known as ‘DISTRESS” which the monetary authorities are correctly battling to ensure it does not spread to other Banks.
Onyima (1994) admitted that the now beed financial after the deregulation took advantage of the premises rules incept regulators, firstling depositors and in utter disregard of the elementary test of solvency and going concern concert.
He further said that government economic policy shifled emphasis from direct support of banks to perent failure to one of protecting the deposits of customers, especially the small scale depositors. It is in support of this that the “National Deposit Insurance Corporation” (NDIC) was established under decree no 22 of 1988. one can reasonably assure that government knew that most banks or some Banks will collapse as a result of (SAP) and the deregulation of the financial system and that is why it creasted (NDIC) National Deposit Insurance Corporation.
In addition to the development noticed since 1986, the Banker (1994) adds that the general macro economic instability resulting in apredicatable monetary policy environment has equally played a magnificent role in bringing about distress in Banks also that the incessant mopping up of excess liquidity through the assurance of stabilization securities has creased liquidity crisis in the system and has adversary affected some banks.

1.1 BACKGROUND TO THE STUDY
The laminating effect of the events aforementioned is the birth of distress in the banking sector which according to Ebhodagher (1993) surfaced in 1980 after the withdrawal of beasury fund from banks. From then, one can deduce that the causes of distress or the factors that gave rise to distress in the banking sector is sponsored partly by the regulation / supervisory authorities and the operators of these banks, sometimes the depositors or the debtors of such banks, are blamed. It could be as a result of this observation that Ebhodaghe (1993) said that the incident of banks distress is not peenliar to Nigeria. It occurs in various Economics of the world. In support of this Onyima (1994) observed that there has been.
1. The American / European experience during the 1990’s.
2. The late 1980’s American experience in the saving and loans scaudal which was described as the biggest financial mess in the history of united state of America.
3. the Nigeria experience of the 1950’s, if the American and Europeans should be at one or the other, victims of banking distress them Nigeria’s case should not be seen as a stronger or exceptional case.
However, the Banker 1994 admitted that historically, we can ensure that phase as another in the enduring growth of the banking sub-sector that will definitely come to pass. Thus the uproar and various scape-goatism being generated by the palaver should not arise.
Ebhodaghe (1993) observed that the rise in the number of distressed Banks has increased public awareness of trouble in the Banking system and has heightened general interest in instructions that are experiencing difficulties. He frowned at a situation where people rush to a Bank to with draw their money once such a bank is identified as DISTRESS.
This, Ekezie (1994) observed has the effect to exacerbating the banks deteriorating position and militates against the authorities efforts aimed at reviving such banks. This illustrates how distress leads to loss of public confidence in the banking sector.
At this junction, it is pertinent to define what a DISTRESSED BANK is as Ekezie (1994) observed that most Nigeria do not know what is means for a bank to be distressed. “He says that distressed bank is a sick and or liquidating bank or with a precarious financial position overtime”. The supervisory / Regulatory Monetary authorities usually define a distressed bank as one which has a severe financial operational and managerial weakness.
It seems that authorities are fighting a losing battle in remining the distressed banks. For instance in 1991, 8 cergho) banks were identified as distressed and five (5) were taken over in 1993 and these are African continental Bank (ACB), Pan African Bank (PAB), New Nigeria Bank (NNB) and Mercantile Bank. Earher, the National bank of Nigeria was taken over in 1992 as those taken over in 1993. Between Januarys to September 1994, four (4) banks were liquidated. They are financial Merchant Bank, capital Merchant Bank, Alpha Merchant Bank and United Commercial Bank.
The problem of distressed Banks in Nigeria is obvious by an intractable are but not insurmountable. If the various parties involved, operators, depositors and regulators should became aware of their roles in solving this problem, distress in banks will become a thing of the past in a couple of year to come.
This research work seeks to bring to light the various roles of the parties involved so as to solve this problem.

1.2 STATEMENT OF PROBLEM
Banks are very important in the life of a nation. According to Umoh (1994), the banking system plays the roles of the engine of growth for the economy and this is supported by Bello (1993), who said that banks are the “heart of the economy”. Thus, any problem in the banking industry of great concern to all as observed in (NDIC) Nigeria Deposit / Insurance corporation (1991). Annual report and statement of account.
The banking public are concerned because their deposit is at state and authorities are concerned about the stability, safety and soundness of the banking system and its overall effect on the economy as a whole Ekerie (1994) noted.
It is against this background that the researcher seeks inter-alia to address these problems.
– The loss of public confidence in the banking sector due to the distress or crisis in the sector.
– The short comings of the regulator / supervisory authorities in handling the crisis.
– The authorities wrong director of effect as shown in decree 18 of 1994. they being ubable to prevent distress in healthy banks.
– How the authorities, depositors and operators contributed to the problem.
– Why the holding cution has been unsuccessful.
– How the system is going to be senitized and various parties to be involved.
– How the ownership structure of distressed banks contributed to their predicament.
There are numerous problems that have been arisen as a result of the crisis in the banking sector and this work will accept to solve or provide solution to this problem.

1.3 PURPOSE OF STUDY
Distress in banking system is a serious problem which affect every aspect of the economy.
The purpose of this study is to;
1. Identify the origin of distress in Nigeria Banks
2. Identify the immediate and possible causes of distress in Nigeria banks.
3. Highlight the role each participant i.e operators, depositors and regulators played in bringing out distress in banks.
4. Recommend solutions to the problem
5. Proffer prophylactic measure to forestall future occurrence.

1.4 SCOPE OF THE STUDY
Distress came into existence in 1989 after the withdrawal of beasury funds from banks. Since then more banks have joined the bandwagon of distressed banks. The study there fore, is focused on five (5) banks. Indicated as distress in NDIC 1991 annual report.
Special attention will be paid to the case of National Bank of Nigeria. Although source of these banks has regained their license of operation from the central bank of Nigeria (CBN) like the African continental bank. New Nigeria Bank etc. but according to the information written in the NDIC annual report 1991. these banks still appear as distressed bank. So the information written in this paper is based from 1991 to the end of NDIC annual report to enable the researcher get enough information about the fact.
In 1994, four (4) banks named Alpha merchant bank, capital merchant bank etc, lad their license withdrawn by CBN between January to September 1994.
The study will in effect deal with all banks in Nigeria that are distressed but the special focus an the five(5) in NDIC 1991 to date annual report. This is to enable the researcher obtain accurate facts and present a realistic work inter-alia. These banks are ram African Bank (PAD), New Nigeria Bank (NNB), co-operative and commerce Bank (CCB) and Mercantile Bank. All these banks have so far been taken over by the central bank of Nigeria (CBN) as at May 1993, but as the researcher said earlier, that some of them has been given back their license of operation like the ACB, NNB etc.

1.5 OPERATIONAL DEFINITION OF TERMS:
1. Distress bank: A bank that has had a precious financial position overtime. A bank with managerial operational and financial weaknesses.
2. Holding action: This recapitalizations, intarsia fiction of debt recovery, freeze an new loan, perfection of collateral securities. Improvement of internal control arrangement and rationalization of staff.
3. Regulatory / supervisory authorities: This is the central bank of Nigeria (CBN) and National deposit insurane corporation (NDIC).
4. Operators: The management and staff of a bank including the shareholders.
5. Insolvency: The inability of a bank to need obligation as they fall due.
6. Insiders: The management and staff of a bank including shareholders.
7. Liquidity: Ease at which an asset can be turned into cash for payment.
8. asset adequacy: Quality, the value of a banks net asset and its security and its adequacy in meeting the banks need for survival and progress.
9. management efficiency: measure of management qualification, competence and achievement.
10. capital adequacy. A measure of funds promided by the shareholder of the bank and its ability to meet the banks capital requirement.
11. earnrings: the additional wealth ereated by a bank mrnally refered to as net income.
12. Public confidence: this is when the public in general could no longer must the bank.
13. Stabilization securities: These are securities issued by the central bank when there is too much money in circulation and repurchased by CBN when there is no enough money in circulation.

1.6 HYPOTHESIS
In order to consolidate views as regards the layes and possible solution to the problem of distress in the banking sectors, the researcher deeded to test for four (4) hypothesis to be specific the hypothesis are:
HO: The management of the distressed banks should get a large proportion of the blame for the problem.
HI: The supervisory / Regulatory authorities also contributed to the dilemma of the distressed banks.
H2: The masses should not be exonerated as far as distress in banks is concerned.
H3: Holding actions are unnecessary rather distressed banks should be liquidated once identified.

1.7 SIGNIFICANCE OF THE STUDY
The importance of the study is to know the following:
1. What is distress in Banking industry?
In this case according to Webster’s dictionary (1991) define distress as acute financial hardship” applying the term to banking industry , a distressed bank is one that has acute financial problem or hardship; a bank that has lots of bad debt; a bark applied by frauds, ferbam and embalmment on the part of its staff and owners a bank.
2. The Euidence of Distress:
Distress in banking is evident from the rising incidence of loan defaults in the industry. The incrusting liquidity of banks, the persisted erosion of the asset and capital base of banks as well as the drastic decline in bank earnings and profit margins. (According to Prot .F.O. Okafor 1991)
3. To identify the causes of distress in Banking industry. It is also important to identify the major causes of distress in banking industry such as poor management; disregard for excisions banking policies, fraud and forgery, banks boards and owners.
4. To know the preventive measures, such as
a. Banks should be made to build up and maintain reserves to prop up their capital base.
b. To have minimum share capital
c. To have prudential guideline to control credit facilities.
d. To have routine recitation and checks by central bank of Nigeria and NDIC to ascertain the financial and own of banks as well as the compliance with operating regulates.