Financial Strategy as a Support Mechanism for the Removal and Resolution of Distress in the Nigerian Banking Sector

Abstract

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. 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.