Financial Sector Distress

Posted by on 6/6/2005 10:47:05 AM |

Financial Sector Distress

The Nigerian financial sector recorded severe incidences of distress during the period from the late 1980s to the mid 1990s. Internal factors (weak management; inadequate capital; fraudulent and corrupt practices; poor asset and liability manage ment) and external factors (macroeconomic insta bility, inadequate legal framework and political inter ference and instability) were responsible for the dis tress. Between 1989 and 1996, the number of banks classified as distressed increased from 8 to 52, declining thereafter to 47 in 1997 following the lifting of holding actions on some of the distressed banks. The management of distress in the banking sector rests on the CBN and the NDIC established by Decree No. 22 of 1988 to provide deposit insur ance and related services for banks.

As at the end of January 1998, licences of about 31 banks had been revoked. Varying degrees of distress existed among other financial institutions such as primary mortgage institutions, community banks, finance houses and insurance companies. Consequently, the licences of 353 dis tressed community banks and 97 Primary Mortgage Institutions (PMIs) were revoked in 1997. However, following measures adopted by the Federal Government, the CBN, the NDIC and NAICOM the problem of distress has been seriously curtailed; sanity and confidence have gradually returned to the financial sector.




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