This work “Evaluating the impact of Bank Distress on the profit growth of commercial banks” has the objective of showing the effect of distress on the profit growth of commercial banks. The causes of bank distress in Nigeria and the possible prevention strategies or failure resolution options of bank distress. The review of related literature was done to give an in depth knowledge of the topic to the researchers. Both primary and secondary sources of data were used by the researchers.

Simple statistical tools like T-test, least square (B) and tables were used to analyse the data collected. The following findings were made; Banks made lower profit during distress period and higher profit during distress period and higher profit after distress period. Meanwhile, banks generally made lower profit during distress period. We recommended that the supervisory arsenals to ensure minimum distress with little or no effect when it occurs.


Title page ii

Approval page iii

Dedication iv

Acknowledgement v

Abstract vi

Table of Content vii


1.0 Introduction 1

1. Background of the study 1

2. Statement of the problem 5

3. Purpose/Objectives of the study 5

4. Research Questions 6

5. Research Hypothesis 6

6. Significance of the Study 7

7. Scope, Limitations and Delimitations 7

8. Definitions of Terms 8


2.0 Review of Related Literature 10

1. Definition of Distress in Banking Industry 10

2. Symptoms of Distressed Banks in Nigeria 14

3. Causes of Banking Distress 16

1. Capital Inadequacy 18

2. Inept Management 19

3. Ownership Structure/Political 

Interference in Management of Banks 20

4. Distress Management and Failure Resolution Option 21

5. The Role of Banks in an Economic System 30

Reference 33


3.0 Research Design and Methodology 35

1. Research Design 35

2. Area of Study 36

3. Population 36

4. Sample and Sampling Techniques 37

5. Instruments of Data Collection 37

6. Methods of Data Presentation 38

7. Methods of Data Analysis 38

Reference 40


4.0 Data Presentation and Analysis 41

1. Graphical Illustration of Banks Profit 43


5.0 Findings, Recommendation and Conclusion 54

1. Findings 54


3. Conclusion 58

Bibliography 59



The topic “Evaluating the Impact of Bank Distress on the profit Growth of Commercial Bank, (A case study of selected Commercial banks)

The Topic “Evaluating the impact of Bank Distress on the Profit Growth of Commercial Banks” is posed to appraise the effect of distress on the profit growth of commercial  banks. It measures the way in which distress affects the profit of commercial banks negatively or otherwise.

For effective execution of this work a ten year profit trend of some selected banks will be evaluated. This ten year profit will cover the period of distress and after distress for a proper appraisal of the work.

Meanwhile the profit of these banks will be collected using a primary data source (Annual Report) and secondary sources of information and there primary data will be analysed using the most appropriate statistical tools for an accurate result.

However, there will also be a formulation of hypothesis which is based on the known negative implication of distress. Though, this hypothesis and also there will be a formulation of research questions which will be sample in relative to the objective of the work for the best result.

After all, an inference will be drawn based on the outcome of our statistical test. Based on the results obtained in our tests there will be a recommendation thereof.

The distress in a bank made the banks to have lower profit during distress period and higher profit after distress permit, meanwhile, generally, banks made lower profit during distress period, due to the insufficient cover of losses from the profit generate internally was unable to generate internally positive capital.

The bank or some banks also experience illiquidity or insolvency, this is resulting in a situation whereby the banks could no longer met its liabilities and all there brings about illiquid. These is also insolvent in the bank when the value of its realizable assets is less than the total value of its liabilities.

Furthermore, the inability of a financial institutions to bridge its primary obligation of creating credit and loss of liquidity or the liability of the bank to turn assets into cash to meet any abnormal demand for cash by their customers.


          In any modern economy, the efficient production and exchange of goods and services require money and bank is the instrument for affecting it. The last few years have been both traumatic and revolutionary for the banking industry. The industry produced the largest number of technically insolvent and under-capitalized banks. The magnitude of distress in the nation’s banking industry reached an unprecedented level making it an issue of concern to the government, the regulatory authority, the bankers, and the general public.

          The Nigeria banking scene was characterized by changes designed to promote banking in the country. The changes may be categorized into phases, but due to the nature of our work we will consider two phases: namely, the era of lais sez-fair banking (1894-1952), the era of limited banking regulator (1952-1958). During the first phase, the banking industry was monopolized by foreign banks, principally the African banking corporation which was the precursor of the (BBWA) British Bank for West African the present First Bank of Nigeria the Barclays bank DCO (Dominion Colonial and Overseas) the present-day Union banks, and the British an French Bank, the for-runner of the present United Bank for Africa. Although discrimination against Nigerians by these banks led to the establishment of some indigenous banks which unfortunately offers litter or no competition to the foreign banks essentially because of their weak capital base or poor managerial capacity. Consequently, all but three of the indigenous banks failed. The survived includes the National Bank of Nigeria established in 1933, the Agbomagbe Bank (now Wema Bank) established in 1945, and the Africa Continental Bank in 1947.

          A commission of inquiry headed by G.D. patron set up in 1948 to investigate the business of banking in Nigeria. Their report led to the enactment of the first banking legislation in Nigeria, the banking ordinance of 1952. The 1952 ordinance laid down the standard and procedure for the conduct of banking business by prescribing the mandatory minimum capital requirement for banks both expatriates and indigenous banks at the tune of ∑100,000 and ∑12,500 respectively and it also introduced regulations to check bank failure. However, all the indigenous banks established in the country during this period also failed. The bank failures of this era were attributed largely to the monopolistic structure of the banking industry, which allowed the foreign banks to enjoy exclusive patronage from British firms. The indigenous banks that survived were able to make it because of the support they got from their state government.

          The distress phenomenon in Nigeria's banking industry is of recent origin. The manifestation became discernable with some policy shocks starting in 1988 with the Central Bank of Nigeria (CBN) directive to banks that naira backing for foreign exchange application is lodged with CBN. This was followed in 1989 by another directive requiring public sector deposits to be transferred to CBN. These two directives exposed the precious liquidity position of some banks and the distress they have subterraneous harbored. What was thought to be a temporary liquidity problem for few banks soon caught up with a lot more banks.

It is important to stress in this work that the banking system was already in distress by the time NDIC was established. By them, about 7 (seven) banks were known to be technically insolvent. The government at that time, did not embark upon a clearing exercise that would have removed from the system that distressed institutions because it was feared that such an action would lead to loss of public confidence and flight of foreign capital more so there was no deposit insurance institution to expeditiously manage such bank closures. The NDIC was nevertheless required to ensure all banks. That means that the corporation has been involved in managing distressed banks even before it could settle down and minister enough resources for this important task.

The intermediating role of banks and their relevance both in the transmission of monetary policies and in the payment system underscore their importance as well as the problem that bank distress at the prevailing dimension in our economy could precipitate. Arising from their intermediation banks generate financial resources ad put these at the disposal of deficit economic growth in the form of increased employment of otherwise idle resources and this, in turn, leads to increase output. Therefore, industry-wide insolvency of banks, such as the one experienced in Nigeria, should be expected to retard the economy’s rate of capital formation, reduce its level of employment and output, and ultimately the pace of economic growth. 


          A serious problem posed by widespread distress among banks is the threat to banking habits and the development of an efficient payment mechanism. The loss of confidence, the aftermath of the distress that hit the banking sector forced several businesses to take fewer risks by taking back their fund to well-established safe havens dominated by older generation banks.

          This research work is therefore concerned with “Evaluating the impact of bank distress on the profit growth existing of commercial banks. Using ( A vase study of selected Commercial banks).


          The main purpose/objective of this study is to have an overview of the effect of bank distress on the profit growth of commercial banks. Investigate the reasons for bank failure in Nigeria.

          Other objectives include:

To evaluate the causes of bank distress in Nigeria. To find out the impact. To find out the possible prevention strategies or failure resolution options of bank distress.


(1)             What are the causes of bank distress?

(2)             What is the impact of bank distress?

(3)             What is the profit growth rate of the existing commercial banks during distress.

(4)             What are the effects of bank distress?

(5)             What are the possible solution options to this phenomenon in the banking scene?


H1:    Distress has no effect on the average profit of commercial


Ho:    Distress has an effect on the average profit of commercial



          This research project will be of importance to the following persons –

New generation banks, which may wish to know the implication of banks' distress in the banking industry and how to restore the confidence of the customers and uphold efficient payment mechanisms. Nigeria deposit insurance corporation: The work could be of immense help to NDIC in the area of distress management and prevention strategies. And also in the area of failure resolution options in the banking industry. Students who may wish to know the extent of distress in the banking industry and the trend of distress as it affect the modern banking will also benefit from this work.


          While the banking impact distress in Nigeria will theoretically serve as the population of the study. The project is designed to appraise the impact of bank distress on the profit growth of Union Bank of Nigeria Plc, First Bank of Nigeria, United Bank for Africa, and Guarantee Trust Bank. It will also analyze the trend of these bank's profit within a period of 10 years (1992-2001).


What is Distress? It can be defined as extreme suffering caused by lack of money or a state of danger, calamity, and misfortunate acute poverty.

What is an Evaluation? This can also be defined as a form of idea or judgment of something and also to work out something in numerical value.

What is Impact? This can be defined as a strong effect or impression on the bank. It is also a situation whereby something will be to be press closely or firmly together.


Anyanwokoro M. (2000)        Banking operation, Enugu

Hosanna publications.

Ebhodane (1999)           Causes and Resolution of Distress

in Nigeria Financial Institution, Lagos. Ompress Publication.

Ogundele F. (1999)                  “Roles of Regulatory Authority”,

Lagos, Nigeria Deposit Insurance Corporation (NDIC) Publication.

Anenlimbor, A. E (1999)         “A study of Distress in Nigeria

financial system” Lagos Nigeria Deposit Insurance Corporation publication (NDIC).




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