financial strategy as support determinant for the avoidance and resolution of distress in the nigerian banking industry

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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.


Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Abstract viii
List of Tables xiii
List of Figures xv
Chapter one: Introduction
1.1 Background to the Study 1
1.2 Statement of the problem 8
1.3 Objectives of the study 12
1.4 Research Questions 13
1.5 Statement of Hypotheses 13
1.6 Scope of Study 14
1.7 Significance of Study 16
1.8 Preview of Research Methodology 18
1.9 Operational Definition of Terms 19

Chapter Two
Literature Review
2.1 Introduction 23
2.2 The Evolution of Banking in Nigeria 24
2.2.1The Colonial Era (1892-1957) 24
2.2.2The Independence Era (1957-1970) 28
2.2.3The Indigenous Era (1970-1985) 29
2.2.4 The Privatization and Commercialization Era (1986-1992) 32
2.2.5Bank Rehabilitation and Restructuring Era (1992-date) 35
2.2.6The Nature of Bank Reforms in Nigeria 36
2.3 Review of Literature relating to Financial Strategy and Sustainable
Performance Growth 44
2.3.1 Competing for the future 44

2.3.2 Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance
Corporation (NDIC) definition of distress and analytical framework 46
2.3.3 Strategic Planning and Sustainable Performance Growth 52
2.3.4 Financial Strategy in the Banking Industry 55
2.4 Review of Literature relating to Strategic Planning and Bank
Performance for Sustainability and Growth in Nigerian Banking Industry 58
2.4.1 Strategic planning: Financial performance relations in Banks: A causal
examination 58
2.4.2 Corporate Governance and Sustainable Performance Growth 63
Cases of Poor Corporate Governance in Banks
1. The Rumbles in Spring Bank 67
2. Development in Wema Bank Plc 68
3. CBN Replaces Five Bank MDs, Directors 69
2.4.3 Budgetary Control and Performance Evaluation 70
2.4.4 Capital Budgeting and Sustainable Performance Growth 72
2.4.5 Tax Planning and liquidity 76
2.4.6 Leadership and Sustainable Performance Growth 81
2.5 Review of Literature relating to Investment Policies and
Management of Assets and Liabilities in Nigeria Banking Industry 86
2.5.1 A case study of distress banks in Nigeria by Central Bank of Nigeria 86
2.5.2 Banking crisis: causes, early warning signals and resolutions 93
2.5.3 The causes of financial distress in local banks in Africa and
Prudential policy 104
2.5.4 Incentives and Resolution of Bank Distress 106
2.6 Review of Literature relating to Bank Performance and Gross Domestic
Product to Determine their Co-movement 108
2. 6.1 Economic Profit and Performance Measurement in the Banking Industry 109
2.6.2 Banking practice and the Nigerian economy 113
2.6.3 Micro and Macro Determinant of bank fragility in North Cyprus
Economy 114
2.7 Justification of study 117
2.8 Theoretical Framework 121
2.9.Framework Proposal:Causal Link between Model and Research Work 124

Chapter Three
Research Methodology
3.1 Introduction 128
3.2 Study Area 128
3.3 Research Design 128
3.4 Population, Sample Representatives and Sampling Techniques 130
3.5 Performance Indices 133
3.6 Restatement of Hypotheses 138
3.7 Data Collection Techniques 138
3.8 Reliability and Validity Test 140
3.9 Data Administration 142
3.10 Method of Data Analysis 143
3.11 Expected Results 148
3.13 Chapterization 150

Chapter Four
Analysis and Interpretation of Data
4.1 Introduction 151
4.2.Response to Questionnaire 151
4.3 Frequency Analysis of response to Questionnaire items 156
4.3.1 Section1 Relationship between Financial strategy and Sustainable
Performance 156
4.3.2 Section2 Relationship between Strategic Planning and Performance
For Sustainability of Growth of Business 167
4.3.3 Section 3Assessment of Investment Policy for Better Management of
Assets and Liabilities in banks 173
4.3.4 Section 4Evaluation of Relationship between Bank Performance and Gross
Domestic Product (GDP) 181
4:4 Descriptive Analysis of response to Questionnaire items 186
4.4.1Evaluation of the relationship between Financial Strategy and Sustainable
Performance Growth 186
4.4.2 Evaluation of the relationship between Strategic Planning and Performance
For Sustainability of Business Growth 189
4.4.3 Assessment of the relationship Investment Policy and Management of Assets
and Liabilities for Sustainable Performance Growth in the Banking Industry 191
4.4.4 Evaluating the relationship between Bank Performance and GDP 195
4.5.0 Statistical Testing Model 198
4.5.1 Testing of Hypothesis 1 199
4.5.2 Testing of Hypothesis 2 207
4.5.3 Testing of Hypothesis 3 215
4.5.4 Testing of Hypothesis 4 225
4.5.5 Testing of Hypothesis 5 236
4.6 Analysis of Secondary Data 245
4.6.1 Multiple Regression 245
4.6.2 Analysis and Comparison of Growth Change in GDP and Bank
Performance Indices 252

Chapter Five
Summary of Findings, Conclusion and Recommendations

5.1 Research Findings: Empirical Findings 258
5.2 Conclusion 265
5.3 Recommendations 266
5.4 Suggestions for Further Studies 275
5.5 Contribution to knowledge 275
References 281


In the ordinary parlance, the word distress connotes unhealthy situation or state of inability or weakness which prevents the achievement of a set goals and aspirations. A financial institution will be described as unhealthy; when it exhibits severe financial, operational and managerial weaknesses where sustainability and stability are missing in business. A business is any activity that seeks to make profit by providing goods and services to the society by using inputs from the environment and transform them into outputs that add meaning to human existence. A business can be one’s regular employment, profession, occupation and can be an organization established through the pooling together of resources by various investors with the aim of providing products or services to the economy, contribute to the development of the economy and earn returns on their investments. Nigerian businesses can be classified into three major segments viz: Private enterprises, Private limited Liability Companies and publicly quoted companies. The banking sector belongs to the private limited liability companies and the publicly quoted companies. While some banking institutions are privately owned by investors, some are publicly quoted on the Nigerian Stock Exchange. The banking sector is part of Nigerian financial system, and financial system refers to the totality of the regulatory and participating institutions, including financial markets and instruments, involved in the process of financial intermediation. The major objectives of investing in the banking sector are to provide financial services to the economy and earn compensatory returns on capital employed.

The Bills of Exchange Acts Cap 21, Laws of the Federation of Nigeria 1958 states that a ‘banker’ includes a body of persons whether incorporated or not who carry on the business of banking. By S.2 Coins Act Cap 34, laws of the Federation of Nigeria, 1958, bank and banker mean any persons, partnerships or company carrying on the business of bankers and also any saving bank established under the Saving Bank Ordinance, and also any banking company incorporated under any ordinance heretofore or hereafter passed relating to such incorporation. S.21 (1) Nigerian Evidence Act, Cap.62, laws of Federation of Nigeria, 1958, also provides in like manner. (Olulana, 1999:16). The Banks and other Financial Institutions Act No 25 of 1991 defines bank as one licensed under the Act and banking business as the business of receiving deposits on current, saving or other similar account, and paying or collecting cheques-S.62 BOFIA. The industry is the enabling hub of national and global payments system by facilitating trade transactions within and amongst numerous national, regional and international economic units and by so doing; it enhances commerce, industry and exchange. The banking industry in Nigeria is the bedrock of the economy.

According to Onoh (2002:10-13),the establishment of modern banking in Nigeria dates back to the colonial era when the African Banking Corporation was formed in 1892 to distribute currency notes of the Bank of England for the British treasury. Subsequent developments were encouraged by colonial entrepreneurs who needed banking institutions to back up the colonial trade. In the bid to address the credit needs of indigenous entrepreneurs, Nigerians later ventured into the banking business, initially through private individuals and later through deliberate government policy. According to CBN and NDIC (1995:1), the problem of distress in the financial sector, including bank failure, has been observed in Nigeria as far back as 1930 when the first bank failure was reported. Between 1930 and 1958 when Central Bank of Nigeria CBN was established, about 22 banks were liquidated (appendix 1). In 1992, 3banks were liquidated while in 1994, 4banks were liquidated. The degree of intensity and scope of the distress has never been as serious as has been observed since June,1989 when the Government directive to withdraw deposits of government and other public sector institutions from banks to the CBN exposed the weak financial condition of most financial institutions. This led to the increase in the number of distressed institutions and the severity of the problem has been on the increase. The intensity of the problem led to the liquidation of 26banks in 1998(appendix 2).
According to CBN (2004:1), following the deregulation of the Nigerian financial sector in 1986 during era of structural adjustment programme (SAP), the banking industry witnessed remarkable growth, both in the number of deposit money banks and other types of financial institutions. However, in the early 1990s, Nigerian banking institutions faced many challenges, including increased competition and harsh economic conditions. Against this background, the incidence of financial sector distress induced by undercapitalization, liquidity crisis and high degree of non-performing loans characterized the banking industry in Nigeria. Some of the banks were faced with the threat of liquidation, while some were resuscitated as a result of the timely intervention of the regulatory authorities.
Several measures have been taken by the supervisory agencies to tackle the problem of distress in the financial system most especially the banking industry to stem the deterioration in the financial conditions of ailing banks with the ultimate aim of restoring confidence in the financial system. These varied from financial assistance, imposition of holding actions and supervisory intervention to the outright liquidation of some distressed banks. As a way of minimizing the distress in the banking system, the Central Bank in 1990 introduced the Prudential Guidelines on early recognition of loan losses and required banks to make adequate provisions for bad and doubtful debts, a factor which was responsible for the insolvency of some banks.
The Central Bank of Nigeria explained that based on bank examination reports, the supervisory authorities drew the attention of the Boards and Managements of distressed banks to a number of shortcomings such as poor credit policy, large portfolio of non-performing assets, weak internal controls, insider abuses. All the recommendations were unheeded. The regulatory authorities had to impose holding actions on such banks, the implementation of which was time bound. The CBN in collaboration with the NDIC granted liquidity support to illiquid banks to assist them meet their obligations as and when due. This helped to achieve some measure of success and restore public confidence. Technical assistance was provided by the supervisory agencies in form of advisory services and secondment of staff when the need arose. Owing to limited success in the application of Holding Actions, the CBN assumed control and management of some distressed banks with the intention to acquire, restructure and subsequently sell them to the public. In order to sanitize the banking system and install market discipline, the licences of some banks were revoked in the system in 1992, 1994, 1998 and 2005.

According to Eghodaghe (1993) and cited by CBN/NDIC (1995), a financial institution in distress is usually one where the evaluation depicts poor condition in all or most of the five performance factors as follows:
(a) Gross undercapitalization in relation to level of operation;
(b) High level of classified loans and advances;
(c) Illiquidity reflected in the inability to meet customers’ cash withdrawals;
(d) Low earnings resulting from huge operational losses, and
(e) Weak management as reflected by poor credit quality, inadequate internal controls, high rate of frauds and forgeries, labour turn-over, etc.
Based on the extent and depth of the problem, it is evident that Nigeria has been experiencing generalized type of distress. The generalized type of distress exists when its occurrence is spreading so fast and cut across all the sub-sectors of the industry but its depth, in terms of the ratio of total deposits of distressed institutions to total deposits of the industry; the ratio of total assets of distressed institutions to total assets of the industry; and the ratio of total branches of distressed institutions to total institutional branches of the industry; among others, has not adversely affected the confidence of the public in the financial system. This situation arose because of the highhandedness of the Board of Directors and Management of the various institutions. The Managing Directors and Chief Executive Officers of these banks had influencing and controlling power over operational issues which have breached the tenets of corporate governance. The four pillars of corporate governance of Accountability, Fairness, Transparency and Independence have been thrown into the dustbin. Non-compliance with monetary and fiscal policies and regulatory authorities principles and regulations have resulted into abuse of power, lack of initiative to put in place good credit policies that will aid assets and liabilities management. Fraud and malpractices and poor lending habit have been introduced into the system despite all the efforts of the regulatory authorities to sanitize the system. Despite the growth in business and volume of assets of these institutions, rather than performance growth sustainability, what is prevailing is performance deterioration and financial distress. The performance growth indices could not be sustained. The banking institutions failed to design on their own strategies that will bring sustainability and stability into the system like developing strategies that critically measure and analyze performance indices of capital, assets quality,profitability,liquidity,didvidend paid and tax paid. In 2005 December, when the Central Bank of Nigeria concluded the consolidation exercise in the industry for a new reform and transformation, only the following banks had the financial capacity to meet the minimum capital base of N25billion: First Bank Plc, Union Bank Plc, Zenith Bank Plc, Oceanic Bank Plc and Citibank Ltd. Others went into mergers and Acquisition options which eventually produced 25megabanks in the industry. Fourteen (14) banks whose balance sheet did not possess any value for merger or acquisition were liquidated (appendix 3).

According to Masi, (1981) cited in Agene, (1995: 56) “On the day of independence the financial system was underdeveloped and most of the complex ramifications which are integral to it today were not there. The Central Bank was only established two years before independence and up to that date, there was little or no regulation of the banking industry. Fiscal policy in colonial Nigeria was frankly rudimentary as most of the banks were foreign-owned and foreign managed, and their orientation was essentially foreign. He further explained that the two decades preceding the country’s independence were therefore, a period of tremendous growth and development in this crucial sector of Nigeria economy. The Nigeria banking system may therefore be conceived as a network of monetary financial institutions which act together as a repository for the community’s wealth; the interbank financial markets i.e. foreign exchange and money markets, which provide a web of debt instruments; and the framework of laws and regulations which control the flow of money and credit in time and space.

The failure of various reforms introduced in the past to resolve distress in the banking industry, makes it imperatives for a survey to be carried out to get a strategy that will be supportive or for avoidance and resolution of distress even in the face of financial reforms. For the sustainability of performance, avoidance and resolution of distress in the present Federal Government Economic Reforms where consolidation has taken place in the banking industry, this research work was chosen to assess this problem of financial distress that has posed a big challenge with a view to getting a permanent solution. It is high time we moved from generalized distress to stability and sustainability and avoid systemic distress which is imminent with the sack of eight (8) Managing Directors and Chief Executive Officers of the following banks in 2009: Intercontinental Bank Plc, Oceanic Bank Plc, Afribank Plc, Finbank Plc, Union Bank Plc, Bank PHB, Spring Bank Plc and Equatorial Bank Ltd. They were sacked for the manifestation of distress syndromes in their banks with erosion of their capital base, threats to depositors’ funds, high figures of non-performing loans and advances in relation to total loans and advances in the banks and clear manifestation of poor corporate governance. The Central Bank of Nigeria had to inject N620billion as bail-out capital pending recapitalization. According to Balino (1991) as cited in CBN/NDIC (1995:32) systemic distress is when its prevalence and the contagious effects become endemic and pose some threats to the stability of the entire system, with its attendant negative effects on the nation’s payment system, saving mobilization, financial intermediation process and depositors confidence, and under this situation, the ratios of the relevant variables should have risen to a level that public confidence in the system would be completely eroded.

According to Hamel and Prahalad, (1994:5-8) the painful upheavals in so many companies in recent years reflect the failure of one-time industry leaders to keep up with the accelerating pace of industrial change.
From the evolution of the banking industry, the industry gained astronomical growth in the number of commercial and merchant banks from 11 in 1960 to 120 with a total of 2,107 branches at the end of 1992 and above 2,500 in 2005. This phenomenal growth and expansion in the activities of banks resulted in successes and failure of banks. Despite the robust growth in financial institutions and assets and profitability, some problems remained while new ones developed, the most prominent being the financial institution distress.The banking institutions could no longer meet their financial obligations to their customers and various stakeholders. It is evident that distressed banks were liquidated, depositors lost their deposits, investors lost their various investments, stakeholders lost their holdings and other sectors of the economy were adversely affected economically. Between 1990 and 2005, the financial distress was of greater intensity, both in scope and depth. During this period, confidence in the banking sector waned as the table 1 below shows the data of liquidated financial institutions during the period:
S/N Year Number of Banks
1 Pre-Independence 22
2 1992 3
3 1994 4
4 1998 26
5 2005 14

Source: CBN, 2002, 2006 Annual Reports
According to Ugwu, Olajide, Ebosede, Adekoya, Adepetun, and Oji(2009),the post 2005 consolidation exercise recorded the following problem :
1. The Central Bank of Nigeria sacked the Board and Management of Spring Bank Plc on January 5, 2007 for technical distress and falsified mergers and acquisition reports.
2. The Central Bank of Nigeria sacked the Managing Director of Wema Bank Plc in March 10, 2008 for technical distress and lack of transparency in reporting
3. In August 14, 2009, the Managing Directors of the following banks were sacked for technical distress, poor corporate governance, destructive investment policies that had eroded the capital base and eating deep into customers deposits, growing poor quality assets that earned no income and breach of budgetary control policies: Intercontinental Bank plc, Afribank plc, Finbank plc, Oceanic bank plc, and Union bank plc.
4. In October 6, 2009, the Managing Directors of the Bank PHB plc, Spring Bank plc and Equatorial Bank plc were sacked in similar manner.
5. To avoid waning of public confidence and runs in these affected banks and other institutions in the industry, the CBN had to quickly inject N620 billion in all the eight affected banks to keep them running.
The following are the factors that characterize the problems identified above.
1.Non-compliance with the various monetary and fiscal policies which gave room to abuse of power, manipulations of figures, lack of transparency in their reports to CBN and outright fraud.
2. There were absence of financial strategies in the industry that gave room for continuous appraisal of performance in order to sustain performance growth. Sustainable performance growth should meet the needs of the present without compromising the ability of the future generations to meet their own needs. The present growth of business in the industry has not been sustained to be able to prepare them for the future.
3. The following sustainable performance growth strategies are either not instituted, poorly instituted or not reviewed during implementation thereby producing negative results: corporate governance, investment policy for effective assets and liabilities management, capital budgeting system, corporate planning, tax planning for effective fund management and payment of equitable tax, budgetary control and consideration for economic profit of investment.
4. Absence of responsibility accounting where key performance indices are reviewed and variances analyzed and corrected to ensure better performance and sustainable growth. Such indices are capital, assets, profits, liquidity, dividend paid and tax paid. That was why during consolidation and recapitalization, only five (5) out of eighty nine (89) banks could meet the minimum capital of N25billion. The implication of this is that 84 banks were distressed. The mergers and acquisitions option created opportunities for 70banks which were technically distressed to go for the option. 14 banks with total distress and whose cases were beyond redemption went into liquidation. This was a position of inadequate capital base and worthless assets values for purchase/merger considerations.
CBN had to revoke their operating licences (Ugwu, Olajide, Ebosede, Adekoya, Adepetun and Oji: (2009)
5. According to CBN and NDIC(1995) collaborative study, overhang of non-performing loans and advances, capital inadequacy, non-compliance with monetary policies, poor corporate governance, poor planning and control, lack of financial transparency, poor asset and liability management, macro economic instability, political instability, inadequate legal framework and economic recession are the contributing factors to distress in the system
6. As the Gross Domestic Product (GDP) is the measure of total money value of all the goods and services produced in a country at a particular period of time, the contribution of the banking industry to the GDP has been affected by the distress. The position of the industry which occupied 3rd in contribution prior 1990 dropped as a result of the distress. Table below shows the evidence.
Year % Contribution Position in economyIndustry No
1998 3.97 5th 33
1999 4.06 5th 33
2000 4.03 5th 33
2001 4.02 4th 33
2002 4.97 4th 33
2003 4.12 4th 33
2004 3.96 4th 33
2005 3.81 4th 33
2006 3.77 4th 33
2007 3.22 5th 33

Source: CBN Annual Reports (2007)
The distress in the industry has affected negatively the percentage contribution of the industry to the Gross Domestic product and also dropped to 5th position out of 33 industries in the economy. The CBN records revealed that if distress is resolved, the bank performance contribution to GDP will be better than the present position.
7. Mismatch of assets and liabilities: The banks financed long term projects with short terms funds thereby created illiquidity problem. According to 2005 Central Bank report, the total assets to total available funds of distressed banks was 124.09% in 1995, and 154.47% in 1996. The industry position was 178.27% and 176.23% in1995 and 1996 respectively. The position for the unsound banks was 2,514% in 2003 and marginally unsound bank was 159.67% while the industry was 207.10%. In 2004, the position was 885.87% for the unsound banks, 186.67% for the marginally unsound banks while the industry was 223.64%. With these figures, there is clear evidence that these banks had liquidity problem which metamorphose into financial distress.
Despite the efforts of regulatory authorities to revitalize the affected institutions, Nigeria banking industry continued to witness this financial distress even after consolidation. Moreover, copious studies like those reports and early warning signals on the vulnerability of the banking system in Nigeria, comparatively, little has been done to provide a comprehensive assessment of the causes and strategies for the avoidance and resolution of the problem so that the industry can fully take its position as the bedrock of the national economy.
1:3 OBJECTIVES OF THE STUDY Financial distress has been a phenomenal event in Nigerian banking industry from pre-independence to date which seems to have defied all past economic reforms of Federal Government of Nigeria and Central Bank of Nigeria. The main objective of this study is to evaluate financial strategy as antidote to distress in the banking sector. In doing this,
the study shall:

i. evaluate the strength of the relationship between financial strategy and sustainable performance growth in the banking industry.
ii. examine the sustainability of the growth in the Nigerian banking industry by evaluating the relationship between strategic planning (corporate governance, capital budgeting, budgetary control, tax planning and corporate planning) and performance.
iii. assess the investment policies in the banks with a view to suggesting better policy for better management of assets and liabilities in the banking industry,
iii. examine the relationship between Bank performance and Gross Domestic Product (GDP) with a view to determining the co-movement between the two.
The pertinent questions which this research work addressed therefore are:
i. To what extent is the relationship between financial strategy and sustainable performance growth in banking industry?
ii. To what extent will strategic planning impact on the performance of banks in Nigeria
iii. To what extent are the existing investment policies of banks assisting in the quality of management of assets and liabilities in the banking industry?
iv. What is the relationship between bank performance and Gross Domestic Product?


Usually an hypothesis is formulated with the aim of nullifying it and rendering the hypothesis insignificant.
The following are the hypotheses for this work:
1. H0: There is no relationship between financial strategy and sustainable performance
growth for avoidance and resolution of distress in the banking industry. .
2. H0: There is no relationship between strategic planning and business failure and bank liquidation in the banking industry.
3. H0: Strategic planning and performance do not affect sustainability and stability in the banking industry
4 H0: Investment policies do not affect assets and liabilities management in the banking industry.
5. H0. There is no co-movement between bank performance and Gross Domestic Product.
It is to be noted that hypotheses 2 and 3 were formulated from objective 2 because strategic planning and performance could produce business failure and liquidation if not properly implemented, and could produce stability and sustainability if properly implemented.

The population for this study is the banking industry, which is the financial bedrock of Nigerian economy and consists of the 24 universal banks, the discount houses, the mortgage banks and the micro-finance banks; the two banking industry regulators-CBN and NDIC; capital market regulator –NSE, and two professional bodies that control ethics in the banking industry-Institute of Chartered Accountants of Nigeria (ICAN) and Chartered Institute of Bankers of Nigeria (CIBN). Before 2002, there were operations of commercial banks in Nigeria until the reform in the financial sector converted all to universal banks. For the purpose of this work, the operations of all the commercial banks from 1998 to 2002 were taken into consideration as commercial banks, and the operations from 2002 to 2005 were considered as universal banks. The operations of the 24megabanks for 2006 and 2007 were considered as universal banks for adequate data and comprehensive analysis.
Sample Size:
The sample selected consists of the present 24megabanks (universal banks) in the economy which resulted from the consolidation that took place in the banking industry in 2005, and the 5 regulators in the sector. The decision to focus on universal banking is judgmental and purposive because the sector is the major financial bedrock that services the economy and the recorded distress and liquidation in the economy are majorly from this sector which has shaken the root of the nation. Furthermore, since the issue of distress affects the whole economy, it is professionally right to involve all the banks because 89 banks reduced to 24 because of the problem of distress required adequate data that cut across the period before mergers and acquisitions and the post consolidation period. Five of the regulators were added to the sample for relevant information necessary for the work thereby making the sample size 29 corporate bodies.
Geographical Coverage:
Even though this study was designed to cover the universal banks in the entire economy, it was however limited to Lagos and Abuja due to sampling constraints. Lagos is the headquarters of all the banks with the exception of Unity Bank Plc which is based in Abuja. The design of the study required that the primary and secondary data be obtained from the headquarters of the banks. Each banking organization is treated as a corporate entity in the samples selected. The five regulators are also located in Lagos and Abuja
Time Horizon:
The time horizon for this study was 10years from 1998 to 2007 in which the audited accounts for this period were analyzed and interpreted.
The Situs:
Covenant University was used as data collation and analysis center.
The importance of this research cannot be overemphasized in view of what the banking industry has witnessed before independence and post independence in the areas of economic recession, distress in the industry, collapse of banks and the inability of Nigerian banks to integrate into the global economy (Soludo: 2004,p.48). The present economic reforms of the Federal Republic of Nigeria have affected the banking industry very greatly. With the efforts of the Federal government for favourable and good environment for all banking operators and various investors in the economy and for the banks to play active developmental roles in the Nigerian economy and be competent and competitive players in the African and global financial system, there was the need for this research work. The “financial distress” which has become a feature must be eradicated and become history. The project was designed to benefit the following operators of the economy:
(i).It will form a theoretical focus as a basis for solving any form of distress in the financial sector of the economy. The various financial strategies will become concepts for sustainable performance growth in the economy.
(ii).The Management of various banks operating in the economy will benefit immensely from this work. The recommendations contained therein about financial strategy, as necessity for sustainable performance growth in the banking industry will be of immense benefit to them. They will be able to review their objectives and take a critical look at the internal and external resources to achieve the set objectives. They will perform a critical analysis of their weaknesses, opportunities and threats to be able to prepare a realistic budget and put in place necessary financial strategies that will ensure growth and continuity of businesses in the economy. They will be able to put in place budgetary control strategies on the management of their risk assets that can guarantee good earnings, sound liquidity, growth in capital and guide against distress. They will have the opportunity to learn from past mistakes and misjudgments. The model introduced in this work will form basis of the new transformation agenda.
(iii).Researchers and various universities will benefit from the work. The indices of sustainable performance growth in an economy will help them in their research work, publications, conferences and seminars. This thesis will also assist them to conduct further research in other areas highlighted in the last chapter of this work.
(iv).The professional bodies will benefit as basis for policy formulation and enhancement of their curriculum in order to be relevant in Nigerian economy.
(v).Potential investors and existing investors will benefit, as it will help them in their planning and the execution of various plans concerning new investment and diversification of investment in the banking industry.
(vi).The government will benefit immensely as they have the responsibility of providing enabling environment for all operators in the economy. They will have to put all the various financial strategies into consideration in formulating policies and regulations for the economy. The government will benefit most especially in the areas of corporate governance, which has been a major problem in the public sector, and tax planning, as many operating companies in the economy are known to be evading and avoiding taxes, according to Chartered Institute of Taxation of Nigeria CITN (2005). It will assist them in the proper planning of their tax system to avoid leakage. The work will have a significant impact on the economy.
The study is an empirical work which applied on samples chosen from population to evaluate the impact of financial strategy for sustainable performance growth in the Nigerian banking industry in order to avoid and put an end to financial distress. The population for the study is the banking industry which consists of universal banks, the mortgage institutions, the micro-finance banks, the discount institutions, and the various regulators in the industry viz: CBN, NDIC, ICAN, CIBN and NSE. Using Judgmental and purposive sampling techniques, the study covers all the 24 consolidated Universal banks in the economy plus five regulators because of data collation and analysis. Primary and secondary data were used for the study. The instrument for the primary data is a corporate questionnaire developed for field work on the five stated hyphotheses, while Macro data for ten years from 1998 to 2007 were obtained from Central Bank of Nigeria (CBN) Annual Statistical Bulletin, Nigerian Stock Exchange Facts Book, and Nigerian Deposit Insurance Corporation (NDIC) Annual Bulletin for the secondary data. In the secondary data, we considered the data of all the commercial banks from 1998 to 2001,universal banks from 2002 to 2005 and megabanks for 2006 and 2007.This is to enable us analyze the complete macro data for the industry between 1998 and 2007. The primary data were analyzed using Multivariate Analysis of variance (MANOVA) which is a parametric test technique. The secondary data which were the bank performance performance from 1998 to 2007 were analyzed using two principal statistical tools viz: Multiple linear Regression and Analysis of growth change in dependent and independent variables. Multiple linear regression was applied in finding the relationship between the independent variables and the dependent variables with a view to computing their significant ratios, homogeneity and the Analysis of Variance (ANOVA) to determine the co-linearity of the variables. The second method used was to determine the co-movement between the dependent and independent variables, analysis of specific trends in their growth changes over two-five years period and the ten years period.
The following terms are defined for easy understanding by readers, and users of this work:
Acquisition: The gaining of something for oneself. The system where a bigger bank buys over smaller or weak banks to add to its value, skill and gain synergy in business.
Avoidance: Measures taken in advance to avoid an unpleasantness in business.
Antidote: Something that helps to improve the effects of something bad.
BOFID: Banks and other Financial Institutions Decree 1990.A decree which is to guide the operations of banks in Nigeria economy which later became an Act. (BOFIA)
Benchmark: A reference point for making measurement.i.e where a bank chooses another better performing bank as a standard that its activities can be compared with.
Channelization of Money: This is a system that connects two sectors together in the economy for easy access to cash and savings, i.e by connecting surplus sector to the deficit sector.
Consolidation: The process of strengthening a captured position to become solid, as it took place in Nigeria in 2005, which reduced 89 banks to 25 and further to 24. It is to a position of success stronger so that it is more likely to continue in business.
Creation of Money: This is a process of wealth creation through the bank services by taking deposits from investors and extending credit facilities to intending borrowers to create another deposit in circulation.
Dearth of banking legislation: This is a situation where the banking sector of the economy is operating without legislation or is in short of legislation to guide operations.
Determinant: Decisive element or determinant factor
Financial Distress: This is an insolvency/illiquid situation in a financial institution where it can no longer meet its financial obligations to the stakeholders.
Financial Strategy: This is the application of accounting tools, skills and techniques to achieve the corporate objectives and goals and to ensure an organization achieves a sustainable performance growth and stability in the industry.
Forbearance: To profess an effective legal framework needed to protect authorities, to provide clear signals to the private sector, and to force policy makers to act promptly during financial distress. To endure taking advantage of the strength of the authorities. Nigerian banking industry
Growth: This is the process of growing or development and increase in size. Growth is when securities of investments are expected to increase in value due to expansion of the industry or the company.
Generalized Distress: This is the distress that exists when its occurrence is spreading fast and cuts across all the sub-sectors of the industry, but its depth, in terms of ratios of total assets, total deposits, and total branches to the totals in the industry has not adversely affected the confidence of the public in the financial system.
Heterogeneity: When the variables relevant to analysis composed of different or disparate ingredients/elements.
Moral Hazard: A damage or problem experienced by an organization following the practice of the standards of behaviour considered acceptable and right by most people not on legal rights or duties.
Painful Upheavals: This is a big change in the operations of a business that causes a lot of confusion and problems and therefore results into an unpleasant situation. Nigerian banking industry
Performance evaluation: To determine and assess what is accomplished in a task, by comparing actual results with predetermined expectations with a view to reviewing or instituting more controls for corrective measure or to deplore more resources for performance enhancement. Nigerian banking industry
Sustainable Performance Growth: This is the performance that meets the needs of the present without compromising the ability of future generations to meet their own needs .It is a time path whose sustainability over the future is never less than its current consumption/position.
Repository: This is an organization like bank where a large number of things can be kept and where full information required for a certain purpose can be obtained.
Strategy: The process of planning or carrying out a plan in a skillful way so as to achieve a purpose. Creative positive ideas in order to achieve some objectives in the industry
Sustenance: The power to keep something/business alive, prevent from falling, from collapsing and making it to continue to exists. Nigerian banking industry
Support: To prevent from sinking, and to be actively in favour of a course
Systemic Distress: Is a problem that gives serious concern to the relevant supervisory/regulatory authorities when its prevalence and the contagious effects become endemic and pose some threats to the stability of the entire system, with its attendant negative effects on the nation’s payment system, savings mobilization, financial intermediation process and depositor’s confidence.  Nigerian banking industry
Transformation: The process of changing the fortune, the character of organization to metamorphose especially so that it is better. Nigerian banking industry
Resolution: The quality of not allowing difficulties or opposition to affect one’s purpose.Nigerian banking industry

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