Open AccessThe Effects of Bank Distress on The Nigerian Economy
Author(s) -
Adomola Felix Adefeya,
Marshal Tomola Obamuyi,
Olawale Femi Kayode,
James Ayodele Owoputi
Publication year - 2016
Publication title -
international journal of finance and banking studies
Language(s) - English
Resource type - Journals
ISSN - 2147-4486
DOI - 10.20525/ijfbs.v4i3.225
Subject(s) - loan , intermediation , financial intermediary , cointegration , asset quality , distress , asset (computer security) , financial system , economics , error correction model , economy , business , monetary economics , finance , capital adequacy ratio , market economy , econometrics , psychology , computer security , incentive , computer science , psychotherapist
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.