An efficient and effective financial system is a necessary condition for the effective functioning of a nation's economy. The issue of bank distress has been a reoccurring ill in the Nigerian banking system for some time now. This research work ‘The Impact of Bank Distress on the Nigerian Banking Habit’ has the objective to examine the impact bank distress has on the Nigerian banking habit as well as customers perception towards bank distress. The methodology employed in this research is the primary data, which was obtained through the use of questionnaires and using the Statistical Packages for Social Sciences (SPSS,) ANOVA method was used to analyse the data and test the hypotheses, and the secondary data which was obtained from the CBN Annual Reports. After testing the hypotheses, it was asserted that distress in the Nigerian banking sector has impacted negatively on the Nigerian banking habit, non-performing risk assets contributed to the distress in the Nigerian banking industry and some political and institutional factors are responsible for the bank distress in the Nigerian banking industry. The recommendation made from this project is that Nigerian banks should endeavour to present or publish a true and fair view of their annual financial statement and audit report as this would go a long way in restoring the confidence of the Nigerian banking public and that regulatory bodies should be more diligent in their assignments to prevent decadence in the banking sector. project topics   final year project topics and research materials 



1.1       Background of the Study

1.2       Statement of Research Problem

1.3       Objectives of the Study

1.4       Research Questions

1.5       Research Hypothesis

1.6       Scope of the Study

1.7       Significance of the Study

1.8       Research Methodology

1.9       Definition of Terms


2.1       Introduction

2.2       Brief History of Banks in the ‘80s and ‘90s

2.3       Major Players in the Banking Financial Sector

2.3.1    Banks

2.3.2    Central Bank of Nigeria

2.3.3    Other Regulatory Bodies

2.3.4    Investors

2.3.5    General Public

2.4       Banking Today (Pre-consolidation Era)

2.5       Banking Crises in Nigeria

2.6       Concept of Bank Distress

2.7       Overview of Bank Distress

2.7.1    Symptoms of Bank Distress

2.7.2    Causes of Bank Distress

2.8       Effect of Bank Distress in Nigeria

2.9       Effect of Bank Distress on the Nigerian Banking Habit

2.10     Bank Audit

2.11     Bank Regulatory Agencies

2.11.1 Central Bank of Nigeria (CBN)

2.11.2. Nigerian Deposit Insurance Corporation (NDIC)

2.11.3 Securities and Exchange Commission (SEC)

2.11.4 Economic and Financial Crimes Commission (EFCC)

2.11.5 National Drug and Law Enforcement Agency (NDLEA)

2.11.6 Debt Management Office (DMO)

2.12     Banking Today (Post-consolidation Era)

2.13     Central Bank of Nigeria (CBN) Prudential Guidelines

2.13.1 Regulatory Issues

2.13.2 International Financial Reporting Standard (IFRS)

2.13.3  Asset Management Company of Nigeria (AMCON)


3.1       Introduction

3.2       Research Hypothesis

3.3       Research Design

3.4       Population

3.5       Sample Size and Sampling Technique

3.6       Data Collection Method

3.6.1    Sources of Data

3.6.2    Instrument of Data Collection

3.6.3    Questionnaire Design and Assumptions

3.7       Method of Data Analysis

3.8       Validity and Reliability of Instrument


4.1       Introduction

4.2       Presentation of Primary Data Collected

4.3       Analysis of Questionnaire Data

4.4       Hypothesis Testing

4.5       Reliability Statistics

4.4       Analysis of Secondary Data Collected


5.1       Summary of Findings

5.1.1    Theoretical Findings

5.1.2    Empirical Findings

5.4       Recommendations

5.5       Conclusion




Table 4.1: Sex                                                                                                                                50

Table 4.2: Marital status                                                                                                                50

Table4.3: Age                                                                                                                                 51

Table 4.4: Educational qualification                                                                                     51

Table 4.5: Occupation                                                                                                                    52

Table 4.6: Working Experience                                                                                                     52

Table 4.7: I am aware of the term bank distress?                                                                     53

Table 4.8: I have lost money to a bank or heard of someone who has?                                        53                                                                                                               

Table 4.9: I lost some of my confidence in banks thereafter?                                                       54

Table 4.10: My dealings and activities with banks were affected?                                               54                                                                                    

Table 4.11: I have a bank account?                                                                                       55

Table 4.12: My bank account is mainly for transactionary purpose?                                         55

Table 4.13: My bank account is mainly for safekeeping of my money?                                       56  

Table 4.14: I would rather invest my money than keep it in the bank?                                         56

Table 4.15: If I hear that my bank is distressed, I would attempt to withdraw all my money from the bank immediately?                                                                                                                   57

Table 4.16: Regular payment of claims to insured depositors in the event of bank liquidation would go a long way to restoring public confidence?                                                                   58                          

Table 4.17: Non-performing credit facilities contributed to the bank distress?                          58

Table 4.18: Overdue payment of principal and interest on term loans contributed to the bank distress?                                                                                                                                  59

Table 4.19: Bank distress can be caused by an 'out of order' account in respect to overdraft and cash credit?                                                                                                                      60

Table 4.20: Non-performing assets can affect the operation of the bank?                                 60

Table 4.21: Too many non-performing assets can stretch a firm's reserves and deposits making it face the risk of distress?                                                                                                      61

Table 4.22: All credit facilities offered by the bank should be closely monitored from initiation to finalization to prevent them from becoming 'non-performing'?                                                    61

Table 4.23: Political unrest and turbulence affects the banking industry?                                 62

Table 4.24: Various policies, sanctions and standards put in place by the Central Bank and the Nigerian Deposit and Insurance Corporation in recent times have helped curb certain risks of distress faced by banks?                                                                                                       62

Table 4.25: Testing of Hypothesis 1                                                                                        63

Table 4.26: Testing of Hypothesis 2                                                                                        64

Table 4.27: Testing of Hypothesis 3                                                                                        66

Table 4.28: CBN Annual Report (1)                                                                                              67

Table 4.29: CBN Annual Report (2)                                                                                              68


FIG 4.1: Total Assets of Deposit Money Banks                                                                   68

FIG 4.2: Growth Rate of Total Assets of Deposit Money Banks                                         68

FIG 4.3: Total Deposit Liabilities of Deposit Money Banks                                                70

FIG 4.4: Growth Rate of Total Deposit Liabilities of Deposit Money Banks                      70




The financial system of a country, which the banking industry is part of, refers to the totality of the regulatory and participating institutions as well as depositors and instruments involved in the process of financial intermediation.  An efficient financial system is generally accepted as a necessary condition for an effective functioning of a nation's economy.In addition to the intermediation role, a nation’s financial system links the domestic economy with the rest of the world by providing the means for the settlement of international transactions. It has also been observed that growth in the financial industry, if transmitted well, would result in the growth of the real sector and the opposite is possible if the financial sector is repressed and inefficient (Cameroon, 1972).The opposite in this case is taken to mean decline in the growth of the real sector. 

Recentlyin Nigeria, generalized distress swept the banking sub-sector and systemic distress gripped the finance house sub-sector.By the very nature of banking business, banks are inextricably involved in risk-taking. For instance, banks face the risk of not being able to meet their obligations to depositors to whom they have issued demandable claims. This is called liquidity risk. There is also the likelihood of borrowers failing to repay loans as agreed, that is, risk of default or credit risk. Similarly, there is the possibility that the mechanism, processes and controls employed by banks to carry out its functions fail to achieve desired results that is, operational risk. Also the unpredictable change in the value of foreign currency held by a bank which could result in a gain or loss is known as foreign exchange rate risk. These are just a few of the risks banks face and their complexities could be astounding. 

Improper management of these risks is one sure cause of bank distress but this is bank-specific, that is, endogenous factor. This is in addition to other bank specific factors which also do cause distress. 

Besides the fact that individual bank’s incompetence at managing risks is a cause of bank distress, there are also some exogenous factors beyond banks’ control that could precipitate bank distress. The petroleum-rich Nigerian economy, restricted by political instability, corruption, and poor macroeconomic management, has been undergoing substantial economic reform under the current civilian administration. According to the CIA World Factbook (2011), Nigeria's former rulers failed to diversify the economy away from overdependence on the capital-intensive oil sector, which provides 95% of foreign exchange earnings, and about 80% of budgetary revenues. The largely subsistence agricultural sector has not kept up with rapid population growth, and Nigeria, once a large net exporter of food, now must import food. 

Since undergoing severe distress in 2004, Nigeria's banking sector has witnessed significant growth over the last few years as stronger banks entered the financial market after mergers and acquisition. Some of the banks include; First Bank (formed by First Bank of Nigeria PLC, MBC International Bank PLC, FBN (Merchant Bankers) Limited), United Bank of Africa (formed by United Bank for Africa Plc & Standard Trust Bank Plc), Diamond Bank (formed by Diamond Bank Limited & Lion Bank of Nigeria Plc), Access Bank (formed by Access Bank Nigeria Plc, Marina International (Merchant Bankers) & Capital Bank International Ltd), amongst others.Harsh monetary policies implemented by the Central Bank of Nigeria to absorb excess Naira liquidity in the economy has made it more difficult for banks, some of whom engage in currency arbitrage (round-tripping) activities that generally fall outside legal banking mechanisms. 

The first bank failure in Nigeria occurred in 1947. Between the years 1947 and 1952,before the establishment of the Central Bank of Nigeria (CBN) in 1959, 21 banks failed. The Muslim Bank, the Lagos Bank and the Berini Bank failed in the 1960s. Nigeria was spared more bank failures until 1989 when failures became more frequent (Adedeji, 2009).Ebhodaghe (1996), states that the new generation banks are characterized by boardroom quarrels, insider abuses, frauds and forgeries, weak internal control systems as well as occasional contravention of well intended statutory regulations.


For some time now the issue of bank distress has been of great concern to the Nigerian government, monetary and regulatory agencies, bankers and the general public. Recently, a lot of challenges pose as threats to the Nigerian economy from the banking industry which has resulted in the winding up of many banks.  By the winding up of several banks, a lot of people lost their hard earned money which also led to the end of numerous businesses and further leading to loss of people’s investments. Some of these investors have taken it up to sue the businesses in which they invested because at winding up, lot of money buried deep under the business was lost.

In other words, the bank distress has affected everyone in one way or the other no matter how little. This problem is leading the confidence of bank customers down the drain which would eventually be completely eroded. If the challenges are not fully attended to, it would immensely affect the economy. These problems have been brought to the public’s notice and some measures have been taken by the Central bank of Nigeria to curb them.


The objective of this study is to investigate the impact of bank distress on the Nigerian banking habit.

The study shall attempt to:

1. Determine the impact of the bank distress on the Nigerian banking habit.

2. Articulate the extent to which non-performing risk assets of banks contributed to bank distress.

3. Find out if some political and institutional factors were responsible for distress in the banking system.


The following research questions are examined in the course of the study:

1. What is the impact of bank distress on: the banking habit of Nigerians, the bank and economy of the nation as a whole? 

2. To what extent did non-performing risk assets of banks contribute to distress in the banking industry?

3. Were some political and institutional factors responsible for distress in the Nigerian banking system?


The research is carried out to test the following hypothesis:

Hypothesis 1:

Ho: The distress in the Nigerian banking industry does not have any impact on the Nigerian banking habit.

H1: The distress in the Nigerian banking industry has an impact on the Nigerian banking habit.

Hypothesis 2:

Ho: Non-performing risk assets of banks did not contribute to the distress in the Nigerian banking industry.

H1: Non-performing risk assets contributed to the distress in the Nigerian banking industry.

Hypothesis 3:

Ho: Political and institutional factors are not responsible for the bank distress in the Nigerian banking industry.

H1: Political and institutional factors are responsible for the bank distress in the Nigerianbanking industry.


In carrying out this research, attention was focused commercial banks and various bank customers in Nigeria. Due to the problem of reliability of information, the research had been limited to staff and customers of commercial banks. The time frame of the study carried out on the Nigeria bank distress is between the years 2001 and 2011 as this period covers era of the bank distress. The research has been restricted to Lagos State geographically.


This research aims at providing relevant information about and solutions to identified problems on bank distress and its impact on the Nigerian banking habit.In the wake of bank failures, the economy suffered severe stress. Many depositors lost their hard-earned money; many suffered starvation because their breadwinners lost their jobs in the processwhile others lost some sort of investment. In a number of cases, depositors who lost their life savings died because of apparent hopelessness.People from different spheres of life have commented on this seemingly topical issue as it touches the very fabric of the national economic life.

All the major factors causing distress namely institutional, economic, and political contributed in varying degrees to the distress, rating institutional factors which include poor management, credit policy, ineffective machinery for debt recovery, insider dealings, abuses, fraud and poor credit administration highest thus, significant to the depositors, government, banks and economy as a whole.The study therefore assesses the distress in the Nigerian banking industry as well as the major causes and its impact on the Nigerian banking habit.


The research methodology employed in sourcing information includes primary and secondary sources of data. The information from the primary source of data is obtained from the distribution of questionnaires. The questionnaire is used as the major instrument of data collection. It contains carefully selected questions which reflects the intensity of the response the respondents. It was administered on the employees and customers of three commercial banks which includebut is not limited to United Bank of Africa (UBA), First Bank and Guarantee Trust Bank (GTB). The method of data analysis adopted for this research is the Statistical Packages for Social Sciences (SPSS) and the type of statistics employed in testing the hypothesis will be a parametric statistic called Analysis of Variance (ANOVA).

The information from the secondary source of data includesrelevant tables from the annual report of the CBN textbooks, internet, newspapers, past projects, abstracts, index, thesis, encyclopedia and journals.


CBN: Central Bank of Nigeria.The Central Bank of Nigeria which was established by the CBN Act of Parliament 1958 and commenced operations on July 1, the apex bank in charge of the overall control and administration of the monetary and financial sector policies of the Federal Government.

NDIC:Nigerian Deposit Insurance Corporation.This is a financial regulatory body established on 15 June 1988 to strengthen the safety net for the newly liberalized banking sector, following the recommendation of former Central Bank of Nigeria governor Ola Vincent.

Bank:A bank is a financial institution which renders services such as acceptance of deposits, granting of loans and advances, underwriting and brokerage, answering status enquiries and provision of foreign exchange services, investment advice, safe custody for valuables, insurance services and equipment leasing amongst others to corporate and personal customers (Omolumo, 2005).

Financial distress:A condition where a company cannot meet or has difficulty paying off its financial obligations to its creditors. The chance of financial distress increases when a firm has high fixed costs, illiquid assets, or revenues that are sensitive to economic downturns. 

Bank distress: Donli (2004) claims that without necessarily implying the degree or nature of the problem, a bank is said to be distressed when it is either illiquid and/or insolvent to the extent that its ability to discharge its obligations as at when due is impaired”.

Illiquidity:Firm without enough cash to meet its currentneeds and obligations. Illiquidity is one of the majorcauses of business failure because a firm can survive without profit for a while but not without cash. Even firmsrich in fixed assets (land, buildings, machinery) become insolvent from want of cash because it takes time to convert these assets into cash, and that too usually at a loss in value. According to Donli (2004) illiquidity is a state of inability to meet payment obligations to customers as at when due while insolvency is a situation in which the value of the firm’s liabilities is in excess of its assets value, that is, negative net worth.

Depositors:A person or company that placesmoney in a bank account. A depositor sometimes is the bank’s customer.

Account holder:Individual or entity which is authorized to performtransactionson behalf of an account, such as a bank account. Authorization is provided through signatures placed on file with the bank or company managing the account.



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