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TITLE PAGE                                                                 II

APPROVAL PAGE                                                       III

DEDICATION                                                               IV

ACKNOWLEDGEMENT                                              V

TABLE OF CONTENTS                                      VI




1.1     BACKGROUND OF THE STUDY                       1




2.0     REVIEW OF RELATED LITERATURE              17













BIBLIOGRAPHY                                       33


Bank distress in Nigeria has reached a crisis point that it has become a key issue for discussion of all within and outside the banking industry.

It is undoubtedly one of the biggest and most serious issues facing our society today. In 1993, it was discovered and reported that out of 116 (one hundred and sixteen) banks in Nigeria 57 (fifty seven) of them were distressed on average of 48%. This has affected the depositions, the industry, that is the banking industry, government and staff of the affected banks adversely. The researcher understand that the distress in the Nigerian banking industry and the increasing wave of financial malpractice in banks if not arrested will lead to the collapse of the Nigerian economy.  In this regard, an attempt have been made to identify the possible pills for the total eradication of at least control of these distress in order to reduced the negative impact on the economy. The method of investigation used by the researcher is based on the analyses the experience of the Nigeria regulatory authorities that is the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) and success so far achieved like questionnaire and interviews. No study known to the researcher has been conducted which directly focuses on control of banks distress in Nigeria. Probably that is because it is a new phenomena in the Nigeria banking industry. However, banks found and other financial malpractices have become so pervasive that both the government supervisory authorities and the law enforcement agencies have galvanized efforts to forestall the menace.The feelings generally expressed have been for decisive steps to be taken to salvage the banking industry.  Bank distress has to be reduced to the bearest minimum for a healthy economy to thrive in Nigeria.




As part of the reform measures taken to strengthen the supervisory framework for the banking sector, the Nigeria deposit Insurance corporation (NDIC) was established by decree N.22 of 1988. This reinforcement became imperative given the up surge in the member of licensed bank following the adoption in addition to this, there  was also the long term need to create and sustain an enabling environment that will engender sate and sound banking practices by protecting the banking system against destruction runs, protecting bank deposit (especially those of small savers) and ensuring fair play amongst the competing banks. These cardinal consider actions were rein formed by the lesson of history of bank features in Nigeria, the experience of other countries where deposit insurance scheme are being operated and there alive of the prevailing distressed financial condition of the bank in particular and other financial intermediaries in the financial sector in general.

A collaborative study of distress in the Nigeria financial sector was conducted by the corporation and the Central Bank of Nigeria (CBN) and its finding corroborated the earlier held view that distress among the Nigeria Banks was precipitated by a complex set of interrelated problems that had for long afflicted the industry. These include poor management, capital inadequacy, poor lending etc.

Ever since its establishment the Nigerian Deposit Insurance Corporation (NDIC) has consistent with its mandate as provided in NDIC decree. Continued to ensure safe and sound banking system. The sanitization of the banking sector has remained the primary focus of the corporation’s activities through the adoption of appropriate failure resolution options and effective implement action of various laws. Promulgate by the government to stem the hide of distress in the system. This understandably, was because might from its inception the corporation has had to contend with insuring insolvent banks.

The corporations effort and out standing challenges in this regard are reviewed in this term paper and organized as follows after this introduction. Chapter 1, 1.1 talks about background of the study, 1.2statement of the problem, 1.3 purpose/objective of the study,1.4 significance of the stubby.1.5 limitation of the study. Chapter2 presents the review of related literature. Chapter 3, 3.0 Research design and methodology 3.1 sources of data (secondary sources only, 3.2 location of data, 3.3 method  of data collection (literature work only) Chapter 4, 4.0 findings.

Conclusively, there are chapter  5, which is the last chapter of the term paper. It talks summary while 5.1 is the recommendations and lastly 5.2 which presents conclusion before the bibliography.



The Federal Military Government Decree No. 22 the 15th June 1988. “There is hereby established a body to be known as the Nigeria Deposit Insurance Corporation (hereinafter in this Decree referred to as “the corporation”).  This corporation is out to insure bank deposits thereby helping to promote safe and sound banking system in Nigeria, protect depositors interest and further inculcate banking habit amongst Nigerians.

NDIC in an autonomous supervisory body with powers among others, to examine the books and affairs of insured banks and other deposit taking financial institutions operating n Nigeria, to insure their total deposit liabilities with NDIC with the exception of insider deposits, ie deposits belonging to the Board members and staff of the insured bank, deposits used as collateral and such other deposits Borad of NDIC may exempt from time to time.

Deposit insurance is financial guarantee instituted as a measure of safety for the banking system to protect depositors.  Deposit insurance promotes the stability of the banking system.  It assures the saver that his funds are safe, and that the failure of one bank does not mean that all banks are in danger of failing.  The authorized capital of the corporation is N1000M (One thousand million Naira) out of which N50m (fifty million naira) has already been called and paid up by the federal government of Nigeria to establish the Nigeria Deposit Insurance Corporation (NDIC).



In light of the vital role which the Nigeria Deposit Insurance Corporation (NDIC) play in developing the national economy in their capacity as vector of revamping distress banks, investment and employment opportunities it will be expedient to point out that the Nigeria Deposit Insurance Corporation (NDIC) in all its advancement and sophistication has not succeeded yet in effectively achieving this mission.  The reason is not just one of the fact some banks have failed, but that same.

Factors have continued to mediate against the successful performance of the Nigeria Deposit Insurance Corporation.  The problem of economic under-development in Nigeria can arguably traced to the fact that NDIC have not been as efficient as they ought to be.  But then a number of factors have been responsible for the conditions in which NDIC have found themselves today.

The causes of inefficient of the Nigeria deposit insurance corporation (NDIC) are:

Incompetent management (both shareholders and Management Executive), capital inadequacy, poor internal control, poor asset quality competition and such factors as economic environment, socio-political environment.



It must at outset be acknowledge that the sanitation of the banking system has been collaboratively carried out by a lost of regulatory authorities namely CBN< NDIC and the Federal Ministry of finance, among others.  However, distress resolution which is the care of the revamping exercise i.e. legally a primary responsibility of the NDIC going by the amendments to its decree.  The corporation has therefore taken a number of initiatives in this regard leading to the evolution of a co-ordinated approach for distress resolution.

In this term paper of the role of NDIC in the revamping efforts, it is noteworthy to distinguish between some normal or ordinary supervisory actions of the corporation that however, impact on the sanitization effort and those more or less one of actions taken to sanitize the system.  The first set of actions refers to the normal onsite examination and off-set supervisory activities of the corporation.  These actions provide the diagnosis for updating the trend in distress as well as indicating the next possible line of actions in the sanitization drive.  However, these normal supervisory activities will not be elaborated upon here to minimize digression from the focus of the presentation.

The second set of actions conceptualize and implemented to senitize the banking system are expectedly corrective as well as preventive of further deterioration in the financial condition of the distressed banks.  These measures include moral suasion imposition of holding actions, financial assistance.  These are explained briefly.



As a first step in distress management, the CBN and the NDIC would hold regular discussions and consultations with the owners and management of the affected banks with a view to making them embrace healthy practices that would enhances their performance as well as take prompt and decisive actions to revitalize their banks.  Although this approach had helped in making the owners and management of most problem banks to focus greater attention on certain areas of operational problems, not much had been achieved in addressing the fundamental problems of under capitalization and debt recovery.



Banks that were identified to be distressed after a special examination, were placed under a close supervision and restrictions though the imposition of holding actions.  The aims of the holding action were to allow the troubled banks to under take self salvaging action and to arrest further deterioration in their financial condition.  This approach was anchored on the belief that given determined management and boards, the declining fortunes of the problem banks guide be reversed.  Holding actions imposed on distressed banks required than to do the following:


  1. Stop further advertisement for deposits without prior consent of the CBN.
  2. Not grant further loans and advances until the regulatory authorities were satisfied with the banks liquidity position.
  • Take necessary steps to ensure adequate internal control measures to safeguard its books, record and assets.
  1. Inject further capital funds
  2. Engage in aggressive debt recovery derive
  3. Embark upon possible rationalization of staff and branches as a measure of cost reduction.

In addition, each distressed bank on which the holding actions were imposed, was required to furnish the CBN and the NDIC within 30 days of being served the holding actions, details of its strategic plan for the revitalization and effective management of the bank.  Such a term around plan was expected to be creditable and to include proposals for debt recover, rationalization of costs and staff, injection of additional capital, training et cetera.



NDIC in collaboration with the CBN extended accommodation facilities to help ten banks out of their liquidity problems in 1989.  This measure recorded some success as confidence was restored within a reasonable period of time.  In recent years, the corporation was received and appraised application for liquidity support from some banks.  Though few application of these were approved, it was later found that the problem of the bank transcended liquidity to include insolvency, and hence could not be adequately resolved by the mere provision of liquidity support.  The regulatory authorities, therefore, needed to directly intervene by taking over the domically distressed banks.



NDIC has a very important role it is playing with banking sector, NDIC insures Bank deposits thereby helping to promote stability, safely confidence and sound banking system in Nigeria, protect depositors interest and further inculcate healthy banking habits.  Through the instrumentally of special promulgations by government and the collaborative efforts of CBN, the Federal Ministry of finance and the federal ministry of justice, the corporation has been able to recover debts otherwise classified as uncollectible.  As at August 1999, about N7.6 billion has been recovered by distressed banks under the control and management of the regulatory/supervisory authorities, while N35 billion has been recovered from debtors of the 31 banks in liquidation.

In addition, the NDIC has since its establishment, been providing financial information on insured banks to the general public.  Such information has enable the public to know the financial conditions of the Nigeria banking industry.  The dissemination of financial information is done through the corporations publications seminars workshops and symposia.



The sensitive nature of the topic made it very difficult for the researcher to obtain some very vital information from banks a wind who asked that we direct all questions to NDIC executives stationed at their head offices as they were not competent to speak on such matters.  To see their executive necessitated traveling great distance.

This had a telling effect on us financially and talk about the attendant risk involved considering the state of our high ways.

Another constraint was that even the executive of known banks currently under liquidation refuse to admit this and so kept a lot of information from us, that is as regards briefs from CBN and NDIC.

The most telling constraint however was time.  The time on our hands was very limited.  It was not very easy for us to lay our hands on all the secondary data which we required for the study as the NDIC zonal office in Enugu has not got a library and the CBN library was not equiped enough to our taste.



The following definitions are presented to enable the readers and the time used in the write-up.


  1. NDIC: It is a body set up by the federal government of Nigeria to insure bank deposits promote safe and sound banking system and also protect depositors interest.
  2. Bank: It is a financial institution that accept deposits and other valuables for safe keeping.
  3. Deposit Insurance: This is a financial guarantee instituted as a measure of safety for the banking system to protect depositors.
  4. Finance: This term can be viewed from various persp0ective namely:
    1. The layman’s perspective: They sees finance as the volume of money held as cash and cash balances at banks.
    2. The investors perspective: They sees finance as the possession of funds when it is wanted for investment.
  • The academic Perspective: They sees finance as the academic discipline that studies the Science of fund management which includes the institutions that are involved in sourcing fund such as the money market, capital market, foreign exchange market, insurance market and mortgage market institutions.


  1. Ekpenyong, D.B. (1997) “Financial distress in banks, nature                                                  and implication”

The Nigerian Banker.

  1. Ebhodaghe J.U. (1992) “Bank Rehabilitation.

The Nigeria’s Experience NDIC Quarterly Vol. 2. No. 3.

  1. Federal Republic of Nigeria (1988): NDIC Decree   No. 22.
  2. Research Department (1998): “An overview of the role of the                                                 Nigeria deposit insurance corporation                                                  (NDIC) in sanitizing of the banking sector”.                                        NDIC Quarterly Vol. 8. No. ½.
  3. Glessner, Tand I. Mass (1995): “Incentives and resolution of bank                    distress”  The World bank observer.

Vol. 1. No. 1

  1. Ebhodaghe J.U. (1997) “Bank Deposit Scheme”

NDIC Quarterly Vol. 1. No. 1.


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