The Effects of Bank Distress on The Nigerian Economy

Bank distress poses threats to financial intermediation process with serious detrimental effect on the economy. Despite all attempts made by the supervisory authorities, the problem appears to defy already established approach and the menace still continues to resurface. Hence, the need to investiga...

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Bibliographic Details
Published in:International journal of finance & banking studies 2015-07, Vol.4 (3), p.57
Main Authors: Adeyefa, Felix Ademola, Obamuyi, Marshal Tomola, Kayode, Olawale Femi, Owoputi, James Ayodele
Format: Article
Language:English
Subjects:
Bank loans
Banking industry
Banks
Cointegration analysis
Economic growth
Financial institutions
GDP
Gross Domestic Product
Growth models
Growth rate
Impact analysis
Investments
Literature reviews
Loans
Manufacturing
Poverty
Production capacity
Productivity
Studies
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Summary:Bank distress poses threats to financial intermediation process with serious detrimental effect on the economy. Despite all attempts made by the supervisory authorities, the problem appears to defy already established approach and the menace still continues to resurface. Hence, the need to investigate the effects of bank distress on the Nigerian economy. The cointegration and error correction mechanism were used to test the data which covers a period of thirty-one (31) years from 1982 to 2012. The research findings revealed that the ratio of non-performing loans to total loans, and total loans and advances have significant negative effect on economic growth with p-values of 0.0240 and 0.0445 respectively. Also, total bank deposit and cash reserve ratio have significant positive effect on economic growth with p-values of 0.0020 and 0.0374 respectively. The implication of this result is that the Nigerian economy is significantly affected by bank distress. The paper suggests that careful evaluation of loan proposals should always be carried out by banks to determine the viability of the projects and the repayment of the principal sum and its interest ensured to prevent weak asset quality.
ISSN:2147-4486