Introduction
1.1 Background of Study
According to Onoh (2002:10-13), the establishment of modern banking in Nigeria dates back to the colonial era when the African Banking Corporation was formed in 1892 to distribute currency notes of the Bank of England for the British treasury. Subsequent developments were encouraged by colonial entrepreneurs who needed banking institutions to back up the colonial trade. In the bid to address the credit needs of indigenous enterprises, Nigerians later ventured into the banking business, initially through private individuals and later through deliberate government policy.
The assets and liabilities of the bank’s balance sheet are nothing but future cash inflows or outflows. With a view to measure the liquidity and interest rate risk, banks use of maturity ladder and then calculate cumulative surplus or deficit of funds in different time slots on the basis of statutory reserve cycle, which are termed as time buckets. As a measure of liquidity management, banks are required to monitor their cumulative mismatches across all time buckets in their statement of structural liquidity by establishing internal prudential limits with the approval of the board/management committee. The banking sector is part of Nigerian Financial System, and financial system refers to the totality of the regulatory and participating institutions, including financial markets and instruments involved in the process of financial intermediation. The major objectives of investing in the banking sector are to provide financial services to the economy and earn compensatory returns on capital employed. The banking industry is the enabling hub of national and global payments system by facilitating trade transactions within and amongst numerous national, regional and international economic units and by so doing, it enhances commerce ,industry and exchange.
Central Bank of Nigeria (CBN) and Nigerian Deposit Insurance Corporation (NDIC) (1995) collaborative study reveals that several other foreign and a host of indigenous banks were established. The establishment of indigenous banks was initially propelled largely by nationalistic consciousness rather than the existence of relevant resources, including basic skilled manpower for running such institutions. Consequently most of the early indigenous banks collapsed in rapid succession the same way they were established. Banks that failed during this period were largely those with problems of inadequate capital, fraudulent practices and bad management.
According to Olalusi (1992:13-59), discriminatory lending practices by expatriate banks spurred indigenous entrepreneurs into banking. It was the imperative of economic nationalism and economic development which were primarily responsible for government interest in banking. As the country prepared for political independence in 1960,efforts to establish banks were intensified by some nationalist who rightly recognized the pivotal role banks play in economic emancipation and development. This also accounted for the takeover of the surviving indigenous banks by the regional governments; particularly after 1954. The banks were expected to accelerate the economic and social development of the regions by bringing banking services to the doorsteps of the people in the regions. It was unfortunate that the establishment of the government owned banks which started out as a blessing to indigenous banking became its bane.
Thus the banking Act 1952 was put in place as premier legislation on banking business in Nigeria. The major characteristic of the colonial era was the unregulated banking practice, which led to the phenomenal distress and liquidation of banks.Onoh (2002:15-30) in his study gave the following reasons for the collapse of the pioneer indigenous banks:
- Absence of regulatory authorities and lender of last resort. The West African Currency Board (WACB) established in 1912 was not endowed with regulatory and supervisory powers.
- Undercapitalization and over branching.
- They carried disproportional overhead bills, which generated debt equity ratios inconsistent with the level considered appropriate for sound banking operations.
- Poor management and fraud. They practiced lending without scrutinizing the credit worthiness of borrowers. Advances were made to finance activities, which yielded no returns; fraud was rampant because there was no supervisory authority to detect frauds.
- Poor customer patronage. Colonial government patronage could not be attracted by indigenous banks because expatriate firms patronized only the expatriate banks to the neglect of indigenous banks.
- There was poor liquidity because there was no authority to establish and enforce a minimum liquidity ratio for the banks. There was no definition of what should constitute the liquid assets of banks until the Banking Act of 1962 when this was stated and approved.
- There was poor quality manpower which made balance sheet analysis impossible by indigenous banks. There was no statistical analysis of the trends of deposits, bad and doubtful debts and their implications to the banks operations. There was no good management of assets and liabilities of the banks.
AllBankingSolutions.com (2000) defines assets and liabilities management as a comprehensive dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management structure of balance sheet (liabilities and assets) in such a way that the net earnings from interest are maximized within the overall risk-preference of the institutions. The Asset and Liabilities functions extend to liquid risk management, management of market risk, trading risk management, funding and capital planning and growth projection.
According to CBN (2004:1), following the deregulation of the Nigerian financial sector in 1986 during the era of structural adjustment programme (SAP), the banking industry witnessed remarkable growth, both in the number of deposit money banks and other types of financial institutions. However, in the early 1990s, Nigerian banking institutions faced many challenges, including increased competition and harsh economic conditions. Against this background, the incidence of financial sector distress induced by undercapitalization, liquidity crisis and high degree of non-performing loans characterized the banking industry in Nigeria. Some of the banks were faced with the threat of liquidation, while some were resuscitated as a result of the timely intervention of the regulatory authorities. As a way of minimizing the distress in the banking system, the Central Bank of Nigeria in 1990 introduced the prudential guidelines on early recognition of loan losses and requires banks to make adequate provisions for bad and doubtful debts, a factor which was responsible for the insolvency of some banks. The Central Bank of Nigeria explained that based on bank examination reports, the supervisory authorities drew the attention of the Boards and Management of distressed banks to a number of shortcomings such as poor credit policy, large portfolio of non-performing assets, weak internal controls and insider abuses. All the recommendations made to salvage the banks were unheeded. In order to sanitize the banking system and install market discipline, the licenses of some banks were revoked in the system in 1992, 1994, 1998 and 2005 because of distress as they could not continue in operation.
According to Eghodaghe (1993) and cited by CBN and NDIC(1995) ,a financial institution in distress is usually one where the evaluation depicts poor condition in all or most of the five performance failures stated thus;
- Gross undercapitalization in relation to level of operation.
- High level of classified loans and advances
- Illiquidity reflected in the inability to meet customer’s cash withdrawals.
- Low earnings resulting from huge operational losses and
- Weak management as reflected by poor credit quality, inadequate internal controls, high rate of frauds and forgeries, and labour turnover.
1.2 Statement of the Problem
The quest to embark on this research work by the researcher is anchored on a number of factor which in its entirety, represent a black spot in the Nigeria Banking Industry, of particular note is the re-occurring cases of bank distress premeditating the adoption of bridge banking solution. The statement of problem therefore becomes the following:
- Rising case of bank distress in the country: Saduiki (20 12) placed the Nigeria in the Banking industry as ojne with the highest case of bank distress in sub- Saharan Africa. A total of five (5) era of distress have been witnessed with each involving massive losses of jobs, erosion following such distress. This therefore increases the fall for a distress resolution which would stand the test of time. Accordingly, the research shall examine bridge banking system in Nigeria banking industry with a view to indentify us impact in the resolution of bank distress in Nigeria, banking industry distress have been witnessed with each involving massive losses of jobs, erosion of deposition fund general economic stock following such distress. This therefore increases the fall for a distress resolution which would stand the test of time
- The low level of confidence in the Nigeria banking industry: Adems (2012) stated that there is a significantly low level of trust, confidence reposed by bank customer and shareholder in the management of Nigeria Banking. The implication of this is that customers and investor (shareholder) do not want to commit significant portion of their funds to bank. It is therefore important that for the banking industry to progress, an adequate system of distress resolution be put in place to ensure increase customer and investors patronage.
- Under development of the Nigeria Banking sector: Cases of mismanagement of -banks funds, non- performing loans/ bad debt e.t.c have made the level of development of the Nigeria banking industry to be slow Ajibade (2012) observed that the industry actual growth rate is less than 5th This is in comparison with suddenly increase of bank capital from 2 billion to 25 billion to this end a system that will guarantee steady development of the industry (even in the event bank distress should be encouraged)
1.3 Objectives of the Study
The researcher objective is categorized under two main focuses the main objective is an assessment of the Nigeria banking industry Herein Bridge banking focus on temporary bank set up by the government to acquire and control the set up by the government to acquire and control the asset ownership and liabilities of a failed developed researchable objectives which include:
- To measure the role of bridge banking system in the resolution of bank distress in Nigeria.
- To ascertain the extent to which bridge banking system would help restore investors and depositors confidence in the Nigeria banking industry.
- To establish whether the adoption of bridge banking system would help to develop the banking industry in Nigeria.
1.4 Research Questions
Asika (2002) defined research question as a researcher hope the study would give answer to specially the following are the question of this study
- Can bridge banking system ensure resolution of bank distress in Nigeria?
- Would bridge banking system to restore the depositor or investors confidence in the banking system Nigeria?
- Would bridge banking system help to develop the Nigeria banking system?
The above question shall guide the researcher in not only the choice of data but also the instrument for data collection and analysis.
1.5 Statement of Hypothesis
- H0: Bridge banking system cannot ensure the resolution of bank distress in Nigeria
- H1: Bridge banking system can ensure the resolution of bank distress in Nigeria
- H0: Depositors and investors confidence cannot be restored in the Nigeria, banking industry through bridge banking system.
- H1: Depositors and investors confidence can be restored in the Nigeria banking industry through bridged banking system
- H0: Bridge banking system would not help to develop the Nigeria banking industry
- H1: Bridge banking system would help to develop the Nigeria banking industry.
1.6 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this institution to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
1.7 Definition of Technical Terms
Banking: Banking is an industry that handles cash, credit, and other financial transactions.
Distress: Distress is the seizure and detention of the goods of another as pledge or to obtain satisfaction of a claim by sales of goods seized.
Resolution: Resolution is the act of solving a problem or finding a way to improve a difficult situation. It is also a decision to do or not to do something.
Bridge: A bridge is a structure built to span a physical obstacle, such as a body of water, valley, or road without closing the way underneath.
Impact: Impact is the action of one coming forcibly into contact with another.
Sector: A sector is an area of land, sea, or organization that has been divided from other areas. It is also an area or portion that is district from others.
