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The role of Nigerian Deposit Insurance Corporation in managing financial  Distress

(A Case Study of a Citizen Bank PLC Enugu )

Nigerian Deposit Insurance scorporation is one of the Regulatory authorities that plays a vital role in our financial institutions. The study will base on the role of “NDIC” Nigeria Deposit Insurance Corporation in managing Financial distress. However, the researcher will be acquainted with related literatures. The population  of the study must comprise the Bank staff and  Bank costomers of Citizen Bank Enugu and  the NDIC  Official in Enugu.

In that case, the sample size will be determined with the Taro Tamanis formular primary and secondary sources of data will be used; coupled with the chi-square to test the formulated hypothesis. Liquidation option as financial distress. Management has implications on confidence of the banking public.

Actually, the financial distress in Nigeria banking system  cannot be controlled single handedly. And this owes to the fact that Economic depression which also affects the level of assets and liabilities of banks cannot be offset only by means of a  deposit insurance corporation.

Indeed,  a good findings will give us a  nice recommendation and  conclusion as the  role of NDIC in Managing financial distress.



Title page                                                                                 ii

Approval page                                                                         iii

Dedication                                                                               iv

Acknowledgment                                                                     v

Proposal                                                                                   vi

Table of content                                                                       viii


Chapter One: Introduction                                                     1

  • background of the study 1
  • Statement of the study 5
  • Objective of the study 7
  • Research question 8
  • Research hypothesis 9
  • Significance of the study 10
  • Scope, limitation and delimitation 11
  • Definition of terms                                                         13

Reference                                                                                 16

Chapter two: review of related literature                      17

2.1     The rule of   N.D.I.C in sanitizing the banking sector.      18

  • Supervisory activities of the Nigerian

deposit Insurance Corporation.                              19

  • Functions of the Nigerian

deposit insurance corporation                                          20

  • Supervision activities of the NDIC 27
  • Off-site surveillance                                                      28
  • On-set examination                                                        29
  • Meaning of bank distress 32
  • Implications and consequences of bank distress. 35
  • Techniques for identifying

financial distress in banks                                                38

  • Either qualitative or indication 39
  • Management of financial distress 44
  • Resolution of banking distress in Nigeria 48

Reference                                                                                 61

Chapter three: Research design and methodology                 64

3.1     Research design                                                              64

3.2     Area of study                                                                 64

3.3     Population                                                                      65

3.4     Sample and sampling techniques                                     65

3.5     Instrument of data collection                                           67

3.6     Methods of data collection                                              68

3.7     Methods of data analysis                                       68

Reference                                                                                 70

Chapter four:      Data presentation and analysis            71

4.1     Distributions of questionnaires                                        71

4.2     Test of hypothesis                                                          72

4.3     Test of hypothesis using chi square                                 75

Reference                                                                                 82

Chapter five: findings, recommendation and conclusion 83

5.1     Findings                                                                         83

5.2     Recommendation                                                  84

5.3     Conclusion                                                            85

Bibliography                                                                            87




Significant progress has been made during the past years but more intensely during the last five years towards the significations of the Nigerian financial sector through the implementation of distress resolution options. The Nigerian financial systems comprise the financial institutions rules and regulations instruments, and markets for effective intermediation. The financial institution unit of the systems comprises two major categories of institutions in the Deposit taking types and the non-Deposit taking types.

Deposit taking financial institutional include banks, and other saving institutions.

The Nigerian financial sector has been in state of trauma. The banking industry was not exception. Financial distress, non-supportive investment climate, political instability and likes and the major problems that militate against   effective banking systems in Nigeria.

Financial distress is an ancient problem that had posed great difficulties to the Nigeria banking sector. The incident of distress in the Nigerian financial sector was first recorded in history during the 1930 world economic depression.

Distress in the Nigerian banking system dates back to the early 50’s when about 51 banks were forced out of the system following the introduction of the very first banking law in Nigeria, the banking or distance of 1952. The ordinance  and the CBN Act of 1958 brought the first ever regulation and sanity into the banking system, which was formally a free banking, era. However, the degree of intensity and   the scope of financial distress in banks  had never been as deep as has been observed  since the year 1986.  the periods of years starting from 1986-1995 witnessed the greatest ever recommended distress incidence in the Nigerian banking industry. This owned its strength from the operational issues involved in the introduction and implementation of the structural adjustment programme (SAP). During the  SAP, the economy was deregulated, banking licence  was easily obtained, there was an influx of the banking system with  both efficient and inefficient banks.

The incidence of financial distress got of it peak in the year 1989 when the government withdrew its deposit and that of the other public sector institutions from commercial and merchant Banks to the control Banks  of Nigeria. This act exposed the weak financial conditions of most banks.

The monetary authority had come with more regulations and regulatory policies on the  banking industry in the development sector in a modern economy cannot be over-emphasized. The   important of a banking sector in any economy derives from its role of financial intermediation, provision of an efficient payment system, and facilitation of the implementation of  monetary policies. An efficient and effective banking sector is essential not only for the protection of depositors encouragement  of healthy competition maintenance and protection against system risk Ebhodaghe (1996:24).

Another role or essential role that is being carried out by banks, states  by  Emekekwue is the role of transferring saving   from the surplus economic units of deficit economic units who will utilize these saving in generating investments. The savings surplus economic units would in the process have earned income in the form of interest  on those funds that could have been lying idle. Whole the savings, deficit economic unit would in the process earn profit from their investment.  It is against this background that they are called financial intermediacies (Emekekwue 1997:15)

In contrast to the ideal, the Nigerian banking sector is caught  up in systemic crises.

The   menance of  financial  distress  in banks lead to every many reactions and actions taken by the federal governement and its agents in financial matters (The Central Banks of Nigeria ).

Among the actions taken include the terminations of SAP in the year 1991 following the enactment of Bank  and other financial institutions Decree (BOFID)No 25 of 1991 still on its attempt to provide a cushion against further bank failures, the Nigerian Deposit Insurance Corporation (NDIC) was established under the  NDIC decree No  22 of 1988 by the  federal Government there was also the introduction of the prudential guideline the year 1990.

Re-capitalization and stringent regulation of banks were also among the effective tools adopted by the government and the CBN  to fight  against financial distress in Nigeria.

It is the objective of the research work tot identify the main course of distress in the Nigerian banking sector, assess the NDIC set out  modalities for fighting and managing financial distress in the  banking system.

The researchers would also try to assess the NDIC performance in it financial distress management role in the banking industry.

Many problem facing the corporation in its distress management functions shall be discussed, suggestions  on better options for achieving the aim of its establishment this piece of work has much to tell about  the NDIC   and its roles in banking distress management.



Financial distress in an economic setting always has a lot of trouble, and  numerous problems associated with it. When an economy distress, nodling moves smoothly.

Labour suffers, government suffers, like wise  income per capital goes down and there comes economic depression.  In the banking and financial sector, the situation goes the same way in periods of financial distress banks do not meet up with depositors demands. Borrowers and investors finds   things difficult since credit will be  hard to obtain shareholders and foreign merchant are not   left out.

During  the late 80s when the issues of financial distress was well pronounced in most  Nigerian banks, there erupted a lot of fear and created argument in the banking sector  and  the entire economy.

Those fears and argument started from  broad issues  and narrowed down to more specific ones for instance, some deposition questioned and rationality behind their banking habit.

A good  number of depositions resorted to the financial institutions which are not part of the monetary base and that  will constitute  a problem to effective  operations and individuals took to investing their cash in tangible assets like building and cars. This act would handicap effective financial intermediatory roles of the bank since customers deposits constitute main assets of banks.

In the areas  of  role of erea of NDIC in bank distress management, a  lot of problems do arise.  In the year 1998, for instance, certain controversial issues emanated from the operations of the  corporation.

The liquidation exercise and the long silence and delayed that proceeded was not desired by the banking public. Many depositors were sent to their grave before NDIC decided to come to sawage.

Another problem  is the issue of amount insured the maximum coverage of #50,000 per depositors in the events of bank failure is generally considered not enough by the general public. The inadequacy of the amount insured is a big problem in the sense that most depositors do lose huge sums especially the uninsured depositors.

It is against these problem that the study would try to have an objective view of the constitute hindrance and economic set back.



Financial distress in banks and  Nigeria economy  have given a lot of concern to the common man, the banking sector  itself, the entire financial system and the populace in line with the problems stated, it is the objective of the study to accomplish the following:

  1. To assess the effects of bank distress in the Nigerian economy.
  2. To assess the contribution made by NDIC in sanitization of banks.
  3. To get solution to bank distress in the Nigerian financial system.
  4. To evaluate the impact of bank distress resolution option so far applied in the economy and their implications  on the Nigerian financial system.
  5. To assess it liquidation options as banks distress management having any implications on the confidence of the banking public.



In the question to look into is the issue of the role of Nigerian Deposit Insurance Corporation in managing financial distress in banks. The researcher would try to provide answers to he following questions:

  1. What are the effects of banks distress on the Nigerian economy?
  2. what contribution has NDIC  made in sanitising distress in banks
  3. what are the solutions to banks distress in the Nigerian banking system?
  4. what are the impact of  bank  distress resolutions options so far applied in the Nigerian financial systems?



1   Ho : Bank distress has no adverse effects  on the Nigerian economy


Hi : Bank distress, has adverse effect on the  Nigerian Economy


  • Ho: Contribution made by NDIC in sanitising distress in banks is not  effective in the Nigerian financial industries.


Hi : Contribute made by NDIC in sanitising distress in banks is effective in the Nigerian financial industries.

3    Ho:       There is no solution  to bank distress in the Nigerian banking system.


Hi: There is solution in bank distress in the Nigerian banking system.

4    Ho: The resolution options so far applied has no implication in the confidence of the banking public.


Hi :The resolution options  so far applied  has implication in the  confidence of the  banking public.


5   Ho:        liquidation option, as Bank Distress management has no implication on the confidence of the banking confidence.

Hi: Liquidation option as Bank Distress management has implication on the confidence of the banking confidence.



The significance of study derives from significance of a proper banking system in an economy. The threats of financial distress have never gone out of the minds of the banking public especially the dispositions and to them the level of NDIC’S committement into protective their interest in banking business since they are always the worst victims of banks failure.

Lastly, the study would not fail x-ray the areas where much is expected of the Nigerian Deposit insurance  corporation so that the federal government would know.



The focus of the study will be specific, accordingly although a broad view    of the economy would be made emphasis and place on the critical examination and assessment of distress and its management in the Nigerian banking system.

Therefore,  for the purpose of this work, not all institutions would be covered. Institution like development banks community banks, mortgate  banks, and other related  institutions would be outside the scope.

The scope in effect covers commercial and merchant banks being the focus of the study. However no specific case of study would be carried out in the institution cover, but a general trend of appraised and objectives would be made  in the execution of the study so as to make the researcher meaningful. The entire role of the Nigerian Deposit Insurance Corporation (NDIC) would not be exhaustively discussed and assessed as much  attention would be directed to bank distress management distress  to the roles of the corporation.

The bank systems is a dynamic one indeed, what was useful yesterday in the system may became obsolete tomorrow. This dynamic nature of the banking industry made materials which were complied by some interested writers, and other researchers in the past   not to be of much help to the study.

The research spent time and money in search of current issues. Other constraints of the study include: The  unwillingness on the parts of the bank managers and NDIC officials to relate crucial issues concerning financial distress in banks and NDIC operations as a way to protect the banking industries and NDIC from further injury which such a disclosure may cause.

To this end, certain sensitive information sought for this work were not disclosed by the relevant authorities concerned. For fear of having negative result not only in the banking sectors but on the economy  at large.

Moreso, the questionnaire is the main instrument used for primary data collection. The heavy relevance of this tool is  more than the use of interviews, was assured to make it easy for the respondents to  react  independently since most of them are always occupied with the  office work and have less time to entertain much personal interview. These constraints limit the objectivity  of the findings and conclusion of the study.

Therefore, this study is not conclusion  in itself but money serves as starting points  for further research works.



In this section, we  make brief definitions of financial banking terminologies and concept employed in completion of the study. This act would help to facilitate easy and better understanding of the work.

  1. Financial or Bank Distress: This term in the banking terminologies or field depicts and unhealthy condition. It means the inability of bank to meet their obligations while in operation and many constitute serious, mind or negligible bank failure depending on the circumstances

Secondly before a bank is pronounced distress, it is usually subjected to the acronomy “CAMELS” Rating system known as six key elements.

This elements which serve as index for assessment are called uniform. Index-Agency Banking Rating system (UIABRS) represented with the acronomy CAMELS, Onyia and Oleka (2000:66)

  1. Depositors:- This are bank customers who deposits money in the form of bank accounts of various type widu a bank.
  2. Insured and uninsured Depositors: Insured depositors are those deposition who have their deposit covers to the time of N50,000 by the NDIC and who are entitled to a maximum of the amount in event of Liquidation, while uninsured depositors refers to those depositors who have deposits in excess of the amount insured (N50,000).
  3. Amount insured: This is the fixed Amount which a depositors receives of his bankers. The amount insured may or may not be covered by the depositors.
  4. Insolvency: A bank is said to be insolvent when its total liabilities exceeds its total assets.
  5. Liquidity: A bank is illiquid when it has no cash or neasr cash items to settle its mature obligations and meet the customers demands.
  6. Resolution option: The choice made by authorities (CBN/NDIC), to reserve bank failure.

Liquidation: Dissolution of an insolvent Resuscitation: Bringing back to life and proper functioning of a distressed bank  through the help either CBN, or the NDIC by its distress management roles in the banking industry.






Patric .E. Emekekwue, (1997); Role of financial institutions, corporate

Financial management

3rd Edition P:15.

Oleke .D.C.(2000), Business fianance A fundamental Approach, Auto

Century Publishers

Enugu, Nigeria, P.66.

Ebhodaghe S.O. (1996), Bank Distress: A menance to the Banking


CBN Bullcting Vol.10 No 8 March, P.32.



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