EVALUATING THE IMPACT OF BANK DISTURBANCE ON THE GROWTH OF DEPOSIT MONEY BANKS’ PROFITS
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EVALUATING THE IMPACT OF BANK DISTURBANCE ON THE GROWTH OF DEPOSIT MONEY BANKS’ PROFITS
EVALUATING THE IMPACT OF BANK DISTRESS ON DEPOSIT MONEY BANKS’ PROFIT GROWTH
This paper is titled “Evaluating the Impact of Bank Distress on Deposit Money Bank Profit Growth.” The reasons of bank distress in Nigeria,
as well as potential prevention tactics or bank failure resolution solutions. A review of related literature was conducted to provide the researchers with in-depth information of the topic. The researchers used both primary and secondary data sources.
The data was analysed using simple statistical tools such as the T-test, least square (B), and tables. Banks made lower profits during the distress period, higher profits during the distress period, and higher profits after the distress period, according to the data. Meanwhile, banks generally generated fewer profits throughout the period of hardship. 1 suggested that supervisory arsenals be designed to assure minimal distress with little or no consequence when it occurred.
INTRODUCTION TO CHAPTER ONE
Background of The Study
Money is required for the efficient production and exchange of goods and services in any contemporary economy, and the bank is the vehicle for affecting it. For the financial business, the last few years have been both terrible and transformative. The banking industry generated the most technically insolvent and undercapitalized banks.
The amount of distress in the country’s banking system reached an unprecedented level, causing worry among the government, regulatory authorities, bankers, and the general public.
Changes aimed at promoting banking in Nigeria characterised the Nigerian banking scene. The changes can be classified into phases, but due to the nature of our work, we will focus on two: the laissez-faire banking era (1894-1952) and the restricted banking regulator era (1952-1958).
During the first phase, foreign banks dominated the banking industry, primarily the African Banking Corporation, forerunner of the (BBWA) British Bank for West Africa, the current First Bank of Nigeria, the Barclays bank DCO (Dominion Colonial and Overseas), the current Union banks, and the British and French Bank, forerunner of the current United Bank for Africa.
Although discrimination against Nigerians by these banks resulted in the development of several indigenous banks, these indigenous banks sadly offer little or no competition to the foreign banks, owing to their low capital base or insufficient management capacity. As a result, all but three indigenous banks failed.
The National Bank of Nigeria, founded in 1933, the Agbomagbe Bank (now Wema Bank), founded in 1945, and the Africa Continental Bank, founded in 1947, are among several that have lasted.
In 1948, a panel of investigation headed by G.D. patron was established to investigate the banking business in Nigeria. Their findings resulted in the adoption of Nigeria’s first financial legislation, the financial Ordinance of 1952.
The 1952 ordinance established the standard and procedure for the conduct of banking business by establishing a mandatory minimum capital requirement for banks, both foreign and domestic, of $100,000 and $12,500, respectively, and it also established regulations to prevent bank failure. However, every indigenous bank formed in the country during this time period failed.
The bank failures of this century were largely ascribed to the banking industry’s monopolistic structure, which allowed foreign banks to enjoy exclusive patronage from British enterprises. The indigenous banks that survived were able to do so because to the backing they received from their state government.
The distress situation in Nigeria’s banking industry is very new. The manifestation became visible after a series of policy shocks, beginning in 1988 with a requirement from the Central Bank of Nigeria (CBN) to banks that naira backing for foreign exchange applications be registered with the CBN.
This was followed in 1989 by another regulation demanding the transfer of public sector deposits to the CBN. These two mandates exposed some banks’ precious liquidity position and the distress they have been harbouring underground. What was supposed to be a transient liquidity problem for a few banks quickly engulfed many more.
It is critical to emphasise in this work that the banking sector was already in trouble when the NDIC was founded. According to them, around 7 (seven) banks were technically insolvent. The government did not undertake a clearing exercise that would have removed distressed institutions from the system at the time because it was feared that such an action would lead to a loss of public confidence and a flight of foreign capital,
and there was no deposit insurance institution to expeditiously manage such bank closures. Nonetheless, the NDIC was compelled to insure all banks. That is, the organisation was involved in managing distressed banks before it could settle down and devote sufficient resources to this vital role.
Banks’ intermediation role and relevance in both the transmission of monetary policy and the payment system highlight their importance as well as the difficulty that bank distress at the current level in our economy could cause.
Banks generate financial resources and put them at the disposal of deficit economic growth in the form of higher employment of otherwise idle resources, which leads to increased output.
As a result, an industry-wide bank insolvency, such as that seen in Nigeria, could be expected to slow the economy’s rate of capital formation, cut its level of employment and production, and, eventually, slow the pace of economic growth.
Statement of the problem
The danger to banking habits and the establishment of an effective payment mechanism is a severe concern posed by widespread bank distress. The loss of confidence, the aftermath of the banking sector’s difficulties, forced numerous businesses to take greater risks by returning their funds to well-established safe havens dominated by older generation institutions.
This research project is thus concerned with “evaluating the impact of bank distress on existing commercial bank profit growth.” Making use of (a vase study of selected commercial banks).
The Goal of the Research
The primary goal of this research is to provide an overview of the impact of bank crisis on commercial bank profit growth. Investigate the causes of bank collapse in Nigeria.
Other goals are as follows:
1. Determine the root reasons of bank distress in Nigeria. To determine the impact.
2. To learn about probable bank distress prevention techniques or failure resolution possibilities.
The Importance of the Research
The following people will benefit from this research project:
1. New generation banks that want to understand the implications of bank crisis in the banking industry and how to restore consumer confidence while maintaining an efficient payment mechanism.
2. Nigeria Deposit Insurance Corporation: The work could be extremely beneficial to the NDIC in terms of distress management and prevention techniques. Also, in the financial industry, there are options for failure resolution.
3. Students who want to know the level of distress in the banking industry and the pattern of distress as it affects modern banking may profit from this work as well.
Scope of The Study
While the population of study will theoretically be the banking impact distress in Nigeria. The research aims to assess the influence of bank distress on profit growth at Union Bank of Nigeria Plc, First Bank of Nigeria, United Bank for Africa, and Guarantee Trust Bank. It will also examine the trend of these banks’ profits over a ten-year period (1992-2001).
Research Questions
(1) What are the root reasons of bank distress?
(2) What are the consequences of bank distress?
(3) What is the profit growth rate of an existing commercial bank during a period of distress?
(4) What are the consequences of bank distress?
(5) What are the potential solutions to this situation in the banking industry?
Research Hypothesis
H1: Distress has little effect on commercial average profit.
bank
Ho: Distress has an impact on business average profit.
banks.
Definition of Terms
What exactly is Distress? It is characterised as excessive suffering caused by a lack of money or a state of risk, tragedy, and misfortune.
What exactly is an evaluation? This can also be defined as a type of notion or judgement of something, as well as the calculation of anything in numerical value.
What exactly is Impact? This is a strong influence or impression to the bank. It is also a condition in which something will be pressed tightly or firmly together.
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