Effects And Causes Of Bank Failure In Nigeria

Banking is associated with different kinds of risks.  Although some of these risks like liquidity risks and credit risks have been as a result of rules and regulations guiding the industry.

Failure is a word, which almost nobody would like to be associated with.  Everybody would like to succeed, to grow bigger, to excel rather them to fail.  In the immediate past up to the turn of this decade, it was only an issue of debate whether or not bank will fail again in Nigeria after the mass bank failure of the 1950’s.

The area of SAP and deregulation equally increased number of banks in Nigeria.  Such failures seemed unlikely because the Nigerian banking industry appeared to have been resilient in its boom.  Banks kept on reporting huge profit which is fact were more “paper profit”.  This created impression that all was well with the industry.  This euphoria led to the emergence of new banks (both merchant and commercial) and other financial institutions.  Unfortunately many banking exports erroneously believed that the fears of bank failure were unfounded.  In an attempt to dispel such fears Nwankwo even argued that though well founded in the early history of banking in the country, that environment in different bank failures constitute a very big problem to the economy and should be carefully avoided for occurrence in the economy.  When a bank is unable to meet the bank examination rating system (CAMEL) this always lead to bank failure.

Bank failure occurs in a bank if such a bank fails to meet such rating standard and this was what happened to so many banks as of 1950’s.

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