Financial Strategy As Support Determinant For The Avoidance And Resolution Of Distress In The Nigerian Banking Industry

ABSTRACT

The banking sector is the bedrock of the Nigerian economy, and this industry is known to

have contributed in no small measure to the development of the economy. This industry

is the enabling hub of national and global payment systems, which facilitates trade

transactions within and amongst numerous national, regional and international economic

units and by so doing; it enhances commerce, industry and exchange. In performing

these various functions in the enabling environment provided by the government through

various fiscal, and monetary policies and reforms, this industry has been experiencing a

phenomenal distress whereby the banking institutions could not meet their financial

obligations to their customers and stakeholders, which led to the liquidation of many

banking institutions, lost of deposits by depositors, lost of investments by many

investors and the crisis of confidence by the general public. Various researchers and

bodies including the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance

Corporation (NDIC) have done some works to solve this problem. The Central Bank of

Nigeria (CBN) has introduced various reforms, yet this problem persists. The objective of

this work is to evaluate financial strategy as determinant for sustainable performance

growth and an antidote to distress in the Nigerian banking industry. The research method

is empirical, and descriptive with the use of primary and secondary data from 1998-2007.

Primary data were obtained from a sampled population through the use of a corporate

questionnaire, and for the secondary, macro data were obtained from Central Bank and

Nigerian Stock Exchange. Multivariate Analysis of variance method (MANOVA) was

applied in analyzing the primary data. The results revealed the homogeneity, co linearity,

and strong interrelationship between the dependent variables and the independent

variables to solve distress in the three types of banks analyzed. With the results obtained,

all the five null hypotheses were nullified. Multiple regression analysis was used to

analyze the secondary data in conjunction with change in growth model. The results from

the two statistical methods revealed a co-movement and correlation between Gross

Domestic Product and Bank performance indices in the banking industry. A change in

bank performance will have the same directional change in Gross Domestic Product as

other sectors of the economy are also affected. The Bank performance indices are strong

predictors of Gross Domestic Product. The work recommended a transformational

financial strategy model in the work for implementation in the banking industry so that

distress can be avoided and totally resolved. The model contains the following indices:

sound corporate governance, good investment policy, effective capital budgeting,

corporate planning, effective tax planning, effective budgetary control and economic

profit of investment. An implementation of the model will give birth to sustainable

performance growth which contains the following growth variables: adequate capital,

quality earning assets, stable profitability, sustainable liquidity, enhanced dividend paid,

and equitable tax liability. Other recommendations are: effective risk assets management,

sound training of credit analyst, quality supervision from the industry regulators, and

independence of EFCC for effectiveness. However, all stakeholders must be committed to the model and other recommendations.