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DETERMINANTS OF BANK DISTRESS IN NIGERIA COMMERCIAL BANKS: A MULTI-DIMENSIONAL STUDY
ABSTRACT
This study examined internal and external factors that determine banks distress in Nigeria. The objective is to examine the extent to which macroeconomic variables, monetary policy variables and bank internal variables determine bank distress in Nigeria. Annual time series data was sourced from Central Bank of Nigeria Statistical Bulletin, financial stability reports and annual reports of the deposit money banks. Three multiple regression models were formulated to determine the effect of the variables in determining bank distress. Ordinary least square method of co-integration, unit root test, Granger causality test and Vector error correction estimate was adopted to examine the effect of the variables in determining bank distress in Nigeria. From the monetary policy variables, the study found that 53.7 percent variation on bank capital adequacy ratio can be explained by the independent variables. The beta coefficient found that monetary policy rate and treasury bill rate have negative effect on capital adequacy ratio while growth of broad money supply, real interest rate and financial sector development have positive impact on bank capital adequacy ratio. Model II found that macroeconomic variables can explain 83.3 percent variation on bank capital adequacy ratio. The beta coefficient found that inflation rate, public expenditure and real gross domestic product have negative effect while openness of the economy and exchange rate have positive effect on bank capital adequacy ratio. Model III found that the internal variables can explain 82 percent variation on bank capital adequacy. The beta coefficient found that credit expansion, earnings and management quality have positive effect while liquidity and non-performing loans have negative effect on bank capital adequacy ratio. From the findings, the study concludes significant relationship between the monetary policy, macroeconomic and internal variables and deposit money banks banking distress. We recommend that management of deposit money banks should formulate polices and device measures of managing the internal and external factors that can cause bank distress.
Keyword: Bank Distress, Openness of the economy, Multi-dimensional Study, Bank capital adequacy ratio and credit expansion