CRISIS MANAGEMENT IN BANKING INDUSTRY
According to Onyima (1994,9.75) crisis is defined as a situation whereby bank faced an acute shortage of cash and near cash assets to meet up to the increasing demand of her customers notably her depositors and intending borrowers. According to Ekezie (1994, p. 81 – 84) “crisis is that problems which financial Institutions encounter difficulty in the administration of banking service”. As a result of this, a lot of borrowers approaches the banks for credit advances and when these disbursement made as loans are not well accounted for, that is when people or personnel’s responsible for managing these advance are not well dedicated to their job, thereby diverting interest due to these loans and investment to personal accounts.
Management crisis arise in the first place and the bank lose on the other hand because the bank money has been tied up for sometime without any return made which should have been invested in other viable profit oriented ventures. This is how shortage of fund will continue of cripple the banking activities, however, if this manace is not checked in good time the bank will not be able to meet up with the banking services, even its running expense will not be met, crisis in its entirely has set in.
According to Obanala (1989) in his article of September, titled “loan syndication in the Nigerian bank”. Mr Obanala said that although loan syndication is a good medium for raising.
Large investment funds for big investors, if not appropriately managed many result to trying up of the bank. Fund over a long period of time, and when collateral security provided by the loan is not enough to back up the total loan advanced, and failure of the borrower to pay back his borrowed fund in case of his being declared bankrupt leaves the bank with no option than to write off his amount as bad debt. Consider where this happens to a bank, and assumed that the bank has written off a, lot of bad debt, it may be going through a crisis.
According to Ndekwo (1994, p. 89) noted that the domination of the banking industry by foreign.
Firms was not supportive as expected for new firm, mismanagement of fund was not helpful most banks has no experience and prudent managers nor the executive capacity required for sound banking.
Generally, the bank suffered from under capitalization and where a sizeable capital was available loan profile did not match the capital base was the quality of loans provided good enough to meet acceptable standards to make them perform. Most so-called bankers cannot differentiated between capital and income and consequently.
GENERAL CAUSES OF BANKING CRISIS
According to Onyima (1994, p. 71-82) the case of crisis can be summarized under these five headings.
Poor asset management quality
Capital represents the owners’s interest in a business and may be viewed as shock absorder. In automobiles, Ebhodaghe (1994, p. 25) adds that it provides a cushion to withstand abnormal lose not covered by current earning, this enabling bank to regain equilbrum. As observed by Onyima (1994, p. 48), the inflationary rate and low exchange rate of naira per other major curreicneis shows that the prescribed minimum capital is no longer adequate.
Ebhodaghe (1994, p. 27) however observed that most banks are under, capitalized and that his could be partly, as a result of the little capital used in establishing most of these bank this problem has been compounded by the amount of non-performing loans eroding the capital base of these banks.
- Asset Quality
The following factors are responsible for poor asset quality.
(a) Poor selection of risk- loan and lending beyond borrowers.
(b) Anxiety for income, lending unsound loans normal cost of more than they produce in revenue
(c) Over-extension of credit to outsiders.
(d) Lack of supervision and compromise of credit principles.
Echodagne (1993, p. 30) expressed the, view that the quality of management makes the difference that poor management which manifest in the form of poor credit policies and where good policies exist they are not implement faithfully and excessive risk taking and other instances of poor judgment resulted in stress for the banks concerned.
According to Ebhodaghe (1993, p. 48), the environment of some banks were characterized by instability of tenure of directors and key management staff board room quarrels, insider abuse, frauds and forgeries week internal control system as well as occasional contravention of well indented statutory regulations. All these has contributed immensely to bank financial crisis.
Onyima (1994, p. 54) base on the CAMEL THEORY good management boarder on the following criteria.
- Technical competence, leadership and administrative ability.
- Compliance with banking regulations.
- Ability to plan and respond to changing circumstances
- Adequate internal policies.
- Debts and succession
- Demonstrated willingness to since the legitimate banking needs of the economy.
Earning arise as result of proper mix of capital management and asset quality. Earning over losses, provision for taxes and distributable dividends.
The test of liquidity tests on the tolerability of deposit, the reliance on interest sensitive found and level of borrowing.
The scalability of assets readily convertible of cash and the access to money markets and other ready source of cash.
Ultimately, banks liquidity is evaluate on the basis of its capacity of promptly meet the demands for payment obligation and ability to meet sound credits needs of customers.
- OTHER CAUSES OF CRISIS
Oradipo (1993) identified disregard for and in some causes unethical application of banking rules as some reason for deteriorating bank fortune. He listed the following as well. Non application of the prudential audiences execution of new projects without clearance from CBN extension of loans and advances without collaterals, failure to identify dormant accounts and lack of effective debt recovery machinery.
Nwaolai (1998) observed that many banks employed medicines and appointed inexperience management of who studied courses not related of banking. He adds that CBN who suppose to regulate the caliber of banks management staff, had not done this effectively.
Ekezie (1994) observed that some directors are more or less “Cauboy’s busy making overseas trips and engaging the bank in poorly recorded money movement. Also credit facilities were extended to friends of board members on complimentary cards by or after “lack backs” have been shared by the board.
Other causes of distress are diseased under the following headings.
- INHIBITPOLICY ENVIRONMENT
Government in developing countries sees banks as instrument for promoting investment. On these grand Oryma (1994) noted that government often intervenes n the financial market in an attempt to extend credit to priority sectors through regulation that effects the banking system. Also, that sound and viable functioning of banks is also adversely affected by the choice of certain monetary and economic policy instrument like a rigidly administered interest rate structure.
- Ownership structure/political independence in banks managements
banks owners intervention is the internal management of banks has contributed to the financial distress in most bank.
ACCORDING TO Ebhodaghe (1994) some shareholder borrow more than the capital they put into start their banks, usually through director related companies for example in a recently liquidated bank like Savannah Bank, if was found that the bank borrowed from the CBN to fund its director shared.
Ebhodaghe (1992) observed that directors and the key management staff of banks owned by state government were appointed by state government using criteria, which placed little Emphasis on merit and professionalism.
Despite the impressive growth in deposit bases of these banks, Ahmed (1991) noted they were not free from the problems which hampered the operation of some of them in the prevision years name of huge had and doubtful debts, fraud and forgeries board room squabble, siphoning bank funds into their private pockets.
Some staff colludes with outsider to defraud a bank to conceal this malpractice, returns head offices are doctored while inter branch accounts are manipulated.
- Depositors Greed and Ignorance
Ebhnodaghe (1994) observed that some depositors complain about the inadequacy of NDIC’s insurance cover but such depositors forget the greed that made them to patronize high. Interest paying bank depositors are found of patronizing high interest paying banks which are normally distressed banks which can only attract depositors by offered high interest.
- Supervisory Authorities
The supervisory authorities intervention has not been very timely so as to prevent losses, they have not been as effective as they ought. Also CBN has not prevented the employment of mediocre in banking industry to be effective.
- CHARACTERISTICS OF DISTRESSED BANKS IDENTIFICATION
The supervisory/regulatory monetary authorities have various technique of identifying distressed banks. This includes off-site banks. Analysis programme and on site bank examination programme.
Off-side analysis programme is based on the statutory monthly returns and the statement of audit annual accounts submitted by banks. It provides can early warning system regarding those banks that are development adverse trends. Where the statutory returns are window- dressed, the true financial position of the reporting bank many not be readily disclosed when signs of distress are discovered.
On-site bank examination p0rocess involves the physical examination of the books, records, and affairs of licensed bank with a view to ensuring the safety and soundness of their operation and their compliance with the various banking laws and regulation. It could be routine in generation current information as regards the bank condition and or special examination with specific terms of reference. Base on the examination above, a bank can be classified as potentially distressed and technically insolvent. Some negative trends evidencing potential distress in bank are among others.
– High staff turnover and inadequate loan policies
– Abnormally high asset delinquencies and large volume of volatile deposits
– Negative examination comments and management disagreement with exammers findings.
– Inadequate cash reserves or readily marketable assets of cover short – term liabilities.
A bank’s designation as a “problem” or “crisis” or “distressed” bank is based on the “CAMEL” rating system.
A bank in a chronic state of distressed is usually one where the evaluation depicts poor condition in all or most of the performance for as follows.
– Liquidity reflected in the liability to customers cash with drawels.
– Low earning resulting from huge operation losses.
– Weak management as reflected by poor credit quality inadequate internal control, high rate of frauds and forgeries. Ojadipo (1993).
- MEASURES BANKS CAN TAKE TO AVOID CRISIS
Active and informed boards. The board of directors of banks (especially the state government owned bank should be re-organized. The uniformed and passive members should be replaced with actives positive knowledgable and relative stable ones, this will have the effect of having boards that could contribute to the formulation of articulated and positive strategies for the banks survival.
- COMPETENT MANAGEMENT TEAM
The management team of banks should be replaced with competent, positive, cantiously aggressive board minded and unparochial teams which are equipped with adequate academic pratical and professional know how with which to make and implement sound policies that are capable of removing crisis.
- UNBIAS INTERNAL CONTROL AUDIT SYSTEM
Internal audit or inspectorate departments should be establishing as much as possible from the influence of top management. These department should report objectively, uninhibitedly and immediately their finding and recommendations for better performance of banks.
- ADEQUATE PERSONNEL ADMINISTRATION POLICIES
Banks should put in place efficient personnel administration policies to define still needs, manpower development strategies to ensure that the operation of the bank are left in competent hands. Remuneration payable to personnel should be designed to boost the morale of workers and thereby helping to check financial frauds caused by poor condition of services.
- EFFICIENT MANAGEMENT INFORMATION SYSTEM
Information is a very strong weapon of management banks should therefore establish an effective management information system in collection, analyzing and dissemination of good quality. Timely and cost effective information for internal and external uses.
- MERGERS AND ACQUISITIONS
Some of the cases ridden bank can pull their resources together through merges, stronger banks could take weaker on for purpose of strengthening them and saving the entire financial system from collapse.
- IMPROVED MARKETING TECHNIQUES
The period of aim-chair banking is over. The bank are now faced with stiff competition and for a bank to survive, it must develo0p effective techniques, of marketing of banks services that have to out-class those applied by its competitors Orji (1998).
- SUMMARY OF RELATED LITERATURE
Going back to the researchers topics of investigation which is crisis management in the banking industry the researcher observed that there are so many crisis in the banking industry which some are caused by the operators (the management and staff of the bank) while some are caused by the regulatory/ supervisory authorities (ie. The central bank of Nigerian CBN and the National Deposit Insurance corporation NDIC).
In case of the operators, their problem include political interference in staff recruitment and in particular loan administration, weak internal control, non-compliance with directive of the central bank of Nigerian and the National deposit insurance corporation NDIC and floating of banking laws and regulations particulars on matter of investment and management and credit delivery.
On the other hand, the regulatory/supervisory authorities are helping matters at all for instances the central bank of Nigerian CBN are been accused for creating liquidity crisis in the system due to what the editor (1994) described as incessant mopping up of liquidity through insurance of stabilization securities and the national deposite insurance corporation (NDIC) accused of inadequate insurance cover.
Therefore, every citizen in this our society knows the implication of this disease know as distress in banking system. Every hand should be on desk the operations, the outsiders, regulating supervisory authorities and the central bank of Nigerian should contribute clearly to the success of the banking industry in Nigerian.
That is why we want to contribute to the solution of the distress in our study. Our investigation will focus o how to control the occurrence of distress on crisis in the banking industry.