Challenges Facing the Nigeria Banking Industry


This topic “challenges  facing the banking industry in Nigeria is topic of unique, because it has to do with our day to day activities of the country, that is the banking sector to be specific. However, we have look into so many areas of this banking industry and  has found out the challenges to be those competitiveness of the banking business which is in connection with the services been render by this banks. Hence, banks trying to meet up the competitiveness of banking business this have to look at it a challenge on their part and so on.

Moreover, it has been noticed also that most banks has gone distress all in the name of trying to meet the competitiveness  of banking business and not knowing how the other banks to about their own business jumps into the business and may continue to services and verse versa.

Therefore, efforts have been made by this research to look into so many aspect of the banking industry; hence the next sub-chapter will has some good news to tell about the topic “challenges facing the Nigeria banking industry”


The present day banking activities business is a war front of mult-services competition ground, which only he brave among them conserves its hardness.

Therefore, a bold step will be taken to look into the world universal banking system because it is the arena were multi- services opportunity is given to the banking sector.


Reforms in the banking and finance industry came to a climax on 31st December 2000, when the government of the central bank of Nigeria released the guidelines for the practice of universal banking in Nigeria.

The guidelines introduced some radical changes which narrowed the gap between banking and insurance business. It also indicated that this much awaited new approach to financial intimidation would take off from 1st January 2001.

According  to the guidelines, “the governor of the central bank of Nigeria in the exercise of the powers confirmed on him by the provision of section 61 of banks and other financial institutions decree ( BOFID) 1991 as amended, has approved the issuance of the guidelines to all banks for the implementation of universal banking in Nigeria with effect from 1st January,2001. the new guidelines have redefined banking business in Nigeria by providing a new concept which now explains that in view of this concept of banking as declined by the guidelines, banks were advised to choose which activity ( or activities) or insurance marketing services, or a combination there of. They were also expected to comply with the guidelines specified for such activity or activities, and consequently, a bank would be regulated based the type of activities it engages in.

In view of the above guidelines therefore, a single uniform license would be issued to all, conventional banks desirous of practicing universal banking without delineation as “commercial” “or merchant” after returning the old license to CBN for cancellation.

Non –conventional banks like the development and community banks, and over specialized roles.



Following the CBN approval – in principle of the adoption of universal banking (UB) in Nigeria and the subsequent rat rication of report of the committee on the preparation of guideline for same the governor of the central bank of Nigeria in the exercise of the powers conferred on him by the provision of section 61 of banks and other financial institutions decree

(BOFID) 1991 as amended has approved the issuance of the following guidelines to all banks for the implementation of universal banking in Nigeria with effect from January, 1, 2000. To give effect to the adoption of the concept. Therefore, banking businesses in Nigeria shall be deemed as

“The business of receiving deposit on current, savings or other accounts. Paying or collecting cheques drawn or paid in by customers, provision of finance, consultancy and advisory services relating to corporate and investment matters, making or managing in investment on behalf of any person  and the provision of insurance marketing services and capital market business or such other services as the governor of the central bank of Nigeria may by gazette, designate  as banking business.

Bank are free to choose which activity to undertaken (money or capital market activities or insurance marketing services or a combination there of). And are expected to comply with the guidelines specialized for such activity or activities. Consequently, a bank will be regulated based on the type of activities it engages in.

In view of the above a single uniform in case will be issued to all conventional banks desirous of practicing universal banking with out delineation as to commercial merchant, after returning the old license to them central bank for cancellation. Non –conventional banks like the development and other specialized institutions shall continue to perform their specialized roles.


A part from the conventional banking functions like receiving deposits on current, saving, or other accounts, paying or collection cheques drawn by or paid in by customers, provision of finance or credit facilities, under the 4B program can choose to under take one, or a combination of the following.



Capital market activities e.g. under writing issuing house activities.


Bank can provide insurance services as specified below:

  1. Agency services ( ) marketing services.
  2. ( brokerage services)
  3. Under writing services ( s & b under writing services)
  4. Close adjusting services
  5. Re- insurance services
  6. Retrocessionire services ( e & f re-insurance services).

Banks may provide insurance marketing services (d) and ( b) above directly. However, banks may provide under writing ( c) and (d) above re-insurance services indirectly through a subsidiary or an associated company. Banks can therefore undertake insurance services as specified under the insurance guidelines as out lined below and can invest in subsidiary companies that engage in financial activities only as provided for in section u (d) of BOFID 1991, and amended.  The following regulations are for banks that may wish to engage in insurance business under universal banking.

  1. An insurance subsidiary of a bank shall comply with the capitalization requirements under the insurance decree. No 2 of 1997 and any subsequent amendment.
  2. All insurance activities wherever they occur shall be license and regulated by NAICOM and subject to the provisions of the insurance decree of 1997 or such other insurance laws as may be enacted.
  • An insurance policy should not be rejected solely because the policy has been issued or under written by a person not associated with the bank when such insurance is required in connection with a loan or extension or credit.
  1. A debtor insurance, or insurance agent or broker must not pay a separate change for the handling of insurance that is required in connection with a loan unless such is required when the bank affiliate is the license insurance agent or broker providing the insurance.
  2. There should be no payment or receipt of any commission or brokerage fee for services as a broker or agent unless such a person is properly licensed by NALCOM.
  3. A bank shall not release any insurance information about customers to any person other than an employed, agent, subsidiary, or affiliate of a bank for the purpose of soliciting or selling insurance with out the consent of the customer.
  • A bank shall not use health information obtained from the insurance records of customers for any purpose, without the customers consent except for activities as license insurance agent or brokers.
  • A bank shall not insist, for extension of credit, on the condition that the customer obtains insurance for the banks’. Affiliate /associate or a particular insurance, agent, or broker but must inform the customer or prospective customer that insurance is available form the institution.
  1. Banks shall not require that, when a customers application for a loan pending and insurance is offered to customer or it is required in connection with the loan, a written disclosure be provided to customer indicating that his choice of an insurance provider will not affect the credit decision or credit terms except that the bank may impose reasonable requirements concerning the credit worthiness of the insurance provider and scope of coverage.
  2. The banks shall to the sale of any insurance policy that such policy is not.
    1. A deposit
    2. Insurance by the NDIC
    3. Guaranteed by the bank and
    4. An investment.

2.6 EXPERIENCES ON BANKS ( distress as a result of ( competition) challenges) ( CHALLENGES FACED)

Of a truth, the challenges faced by our present day banks in line with competition and other activities which has some vital link to these word “challenges”. However, a bank has in most cases fall into the temptation or problem of distress by trying to follow things up (universal banking services). Hence, the issue of bank distress will be considered properly below, its meaning, evidence, cause, brief survey of bank distress in Nigeria. Number of distressed banks ownership category in 1991 and some presently (2003) implications of bank distress, management of bank distress, preventive measures, rehabilitative measures. Measures bank can take just to mention but few.


Distress in Nigeria banking is a phenomenon that must be tackled with every amount of vigor and seriousness in order to completely remove or at least drastically reduce its occurrence in the national economy.


The term distress is referred to different things in different disciples. Even within the same discipline it may have variety of meanings depending on the academic stand of the members.

Websters. Dictionary (1991) defines distress as “a cute financial hardship” applying the term to banking industry, a distressed bank is one which has acute financial problem or hardship, a bank that has lots of bad debts, a bank crippled by frauds, forgeries and embezzlement on the part of its staff and / or owners, a bank rupt all these terms are synonyms for distress in banking industry.

According to Ekezie, “a distressed bank simply means a sick, ailing and / or liquidating bank or call “it a bank that has had a precarious financial position over time.


Definition of a distress of bank is one thing and its identification is another. “distress in Nigeria banking is evident from the rising incidence of loan defaults in the industry, the increasing ill- liquidity or of banks the persistent erosion of the asset and capital base of banks as well as the drastic decline in bank earnings and profit margined states prof  F.O.. Okafor (1991).

Every bank dose experience operational problems, which may be transient or persistent it is persistency or permanence of the operational problems that render a bank distressed.

The most widely applied index is the uniform interagency bank rating system, known as the CAMEL bank rating system.

Under the CAMEL rating system the financial strength and performance of a bank is assessed by its rating in five operational area namely.

  • Capital adequacy
  • Asset quality
  • Management efficiently
  • Earnings performance and
  • Liquidity position.

The message of the CAMEL rating system is that there are five factors to consider before declaring any bank distress one factor is not e enough evidence.


The following can be considered to be the major curses of distress in Nigerian banking industry


In Nwaolu (1993) a renowned economizes, Nir Charles Nwogu attributed the collapsing services in the Nigeria banking industry to poor management. May banks do not employ experienced and well exposed staff to render meaningful service? Some employ mediocre and inexperienced managers. Who cannot manage the business efficiently and effectively? As such appointments are usually politically, socially or religiously motivate some of the appointees’ studies course that is unrelated to banking. They are there to collect their rat salaries and kick backs and serve the interests of their hoses and friends by callously milking their backs to death.


Every game or discipline has its rules and regulation policies and ethics.

Any bank that disgards all these, sets a side the prudential guidelines by executing new projects without clearance from central bank of Nigeria granting loans without collateral and ignoring effective debt recovery machinery is on a sure road to bank ruptcy distress and collapse.


Fraud and forgery, which are both internal and external, are contributors to bank distress. It is no longer news to hear that bank driven and messengers take achieves part in duping their bank and customers.


At the highest level, members of banks boards and the bank owners or proprietors contribute enormously to the collapse of their banks. Some of them abuse credit. Facilities by taking loans or securing loans for their friends without going through the normal procedure and such loans are never returned. In so doing, they nulk their bank to death.


Prof F. O. Okafor summaries all the causes under three major factors namely:

  1. Operational problems particularly poor management
  2. inconsistency in monetary and banking policy and
  3. Fraudulent and unprofessional conduct by bank operators and customers.

Operational problems include political interference in staff recruitment and particularly in loan administration, weak internal control non- compliance with directive of the central bank of Nigeria and NDIC and floating of banking laws and regulations particularly on matters of investment and management and credit delivery.


Bank distress is a word-wide phenomenon and as such is not peculiar to Nigeria. The financial crises of the 1950’s saw the collapse of 17 indigenous banks and deposits frauds vanish like a dream. The failure syndrome originated from the banking ordinance of 1052 which improved operating condition that most of the banks could not satisfy. The few expatriate banks who had monopolized the Nigeria banking scene were not affected. With the collapse of the 17 banks in the 1980’s public confidence in such banks had seriously been eroded. To restore this cost confidence regional government took interest in banking prepares the country well for independence. With the oil boom of the 1970’s bank distress became a thing of the past had the Nigerian economy remained buoyant, the problem of bank distress may not have arise again. The economy bean to experience a major down-turn from the beginning of the 1990’s. The economic recession saw the collapse of eight (8) banks in 1992).


Bank distress has the following implication.

  1. Customers lose confidence in banking industry.
  2. Customers whose saving is trapped suffer united hardship and mental agony.
  3. Unemployment problem is compounded.
  4. It scares away investors and depositor.
  5. Bank patronage is minimized as some prospective customers do decide to keep their money in their house or stall at the mercy of armed robbers.
  6. Work load of un-distressed banks is greatly increased and customers spend longer hours in bank transactions.
  7. Distress in one bank is automatically and easily transmitted to other banks with which the afflicted bank maintains operational relationships.
  8. Distress causes general depression in the banking industry and in national economy can grow and thrive it its banking long.
  9. In short, bank distress is an ill wind that blows no body or country goods.


Professor F. O. Okafor is of the opinion that the process of managing distress in banking should involve the combined efforts of both the afflicted banks and bank regulatory authorities.

The revival of any ailing bank depends a lot on the boards and management of the bank. This calls for the improvement of its operational effectiveness, asset quality, capital base and liquidity stands.

The monetary authorities comprise the central bank of Nigeria (CBN) the Nigeria deposits insurance corporation (NDIC) the Nigeria ministry of finance (RMF) and the Nigerian Securities and Exchange Commission (NISES). The NCBN and NDIC have regulatory powers to mange banking distress in Nigeria. They do use preventive and rehabilitation measures.


The following measures should be taken to prevent bank distress.

  1. Banks should be made to build up and maintain reserves to prop up their capital base.
  2. To have minimum share capital.
  3. To have prudential guideline to control credit facilities.
  4. To have routine visitations and checks by CBN and NDIC to ascertain the financial condition of banks as well as their compliance with operating regulations.


Where in spite of the preventive measures taken some banks become distressed the following rehabilitee measures should be adopted.

  1. Imposition of holding actions such as restriction on new lending, specific directive on debt recovery and mandatory recapitalization by share holders.
  2. Financial assistance to such banks to help tem remain afloat.
  3. Management taken over of such banks by CBN and appointment of interim management board (IMB).
  4. The CBN exercising its power under sections 36 of decree No.25 of 1991 by develop and execute a bail out programme for it.
  5. Outright revocation of a banks license and liquidation where there is a clear evidence of permanent insolvency.

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