Financial Crisis in the Nigerian Banking Sector: Role, Effects and Solutions : Current School News

Financial Crisis in the Nigerian Banking Sector: Role, Effects and Solutions

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Financial Crisis in the Nigerian Banking Sector: Role, Effects and Solutions.

ABSTRACT  

This is a research project carried out to identify and determine the role, effects and solutions of financial crisis in the Nigerian banking industry, a study of selected banks (First Bank of Nigeria Plc, and Intercontinental Bank Plc). A sample size of 200 respondents. All randomly selected from the staff and management (both senior and junior) and customers of First Bank Nigeria Plc and Intercontinental Bank Plc were used in this study. Both primary and secondary data were collected and analyzed using percentages and chi-square test.

The researcher, based on the data collected and analyzed, found that poor liquidity is a salient factor affecting the viability of Nigerian Banks; incompetent and inefficient management gives rise to poor performance of banks in Nigeria: Diversion of credit by clients of commercial banks does not necessarily contribute to bank distress; and undercapitalization of commercial Banks does not only militate against the development of Nigerian banking sector. Finally, the findings were summarized, conclusions reached and recommendations made. 

INTRODUCTION 

The first phase of the Bank consolidation initiated by Central Bank of Nigeria in 2005 was in order to provide a strong and reliable banking sector that would guarantee the safety of depositors’ money. The consolidated Banks were expected to play a very active role in the economic growth and development of Nigeria. The consolidation exercise was remarkable as some of the banks merged while others went for outright takeover of the assets and liabilities of the weak banks.

Within the short period of consolidation, there were positive changes in the entire system, as interest and lending rates became stabilized and some of the consolidated banks became partners and correspondent Banks to some Foreign Banks. Before the consolidation exercise started in 2005, the Nigerian Banking Industry witnessed a lot of stress, uncertainty and anxiety. This eroded the confidence of the general public which used to be a great asset of banking sector in the past.

In addition, investors and depositors’ funds were not guaranteed, hereby making most of the Banks to come under stress due to capital inadequacy. These problems greatly. impaired the quality of Banks assets as non-performing assets became bearable and became huge burden on most of the Banks. The financial intermediation role of the Banks became heavily impaired while the micro economic activities seriously slowed down. 

BIBLIOGRAPHY

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CSN Team.

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