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The word “distress” has beamed the cost commonly used word not only in financial system, but also in all aspect of our life. It is common to hear one talk about distressed student. Distressed educational institution, distressed worker, distressed bank. Even the distressed marriage institution is not left out in this distressed palaver of these distressed institutions particularly. The banking sub-sector has attracted much more worries because of the role- banks are meant to play in economics life of a nation. It is true that banks are major engine of growth and development of any nation. As Ebhodaghe (1995) put it, banking institutions occupy a council position in the Nation’s financial system are essential agents in the development process of the economy by intermediating between the surplus deficit spending units. Banks increase the quantum of national savings and investment and hence national output by granting credits, creating money, thus, influencing the level of money supply, which is an essential item in the growth of the national come as it determines the level of money supply, which is an essential item in the growth of the national income as it determine the level of economics activities in the country. However in spite of the fact that the issue of financial distress sums to be generalized and hence often trivialize, it is an open secret that the banking industry in Nigeria is undergoing a very turbulent period one that is characterized by financial distress. The canker worm called distressed is causing a lot of concern to the government operators of our financial system. Depositors as well as bankers and business men alike, and this is threatening the investment ailment of our economy even as banks groan under the harsh economy condition in which the operators on the other hand are not assured  of their deposit  confidence. This is the uniqueness of the banking business, i.e.  Being eroded by this virus called distress. This erosim confidence is dangerous not only to the entire economy. Disturbed by the implication of further distress in banks on the economy. The monetary authorities are faced with the problem of check spelling this virus so that it close not spread to the healthy ones.  Government in a desperate bid to arrest the situation which has taken far reaching steps in its policy formulations as well as its implication in seeing that dying banks are reinvigorated. To this end. The central bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) are charged with the onerous task.

However, financial distress in Nigeria banks recently assumed an intractable dimension such that the regulatory authorities appear to be fighting a cosign battle in their bid to sanitize the system. In spite of the number of measures introduce by CBN and NDIC to turn around distressed system. The number of banks analyzed distressed has continue to grow from 8 in 1990. (The number of banks technically distressed rose steadily) to 45 in 1994 by the end of the first quarter of 1995. The number had risen to an all time record of 57. In 1994 by banks in financial distress accounted for 16.7 billion Naira or 10.3 percent out of the billion percent of the system outstanding loans and advances, more than two third (2/3) of the aggregate adjusted capital stood at #47.9 billion as at the end of the first quarter of 1995 a total of #47.9 billion was lost by depositors in the 57 distressed bank (NDIC quarterly 1995). The question is how long will this continue or can it be said to be another phase in the ending growth of the bank sub-sector that will surely come to pass, only time will tell.


The Nigeria Economy, particularly the bank has in recent past undergone considerable strains and stress frustrating the effort of many professional in possible solution. The deregulation of the economy which came with the structural adjustment programme (SAP) in 1986 brought in its stead a phenomenal increase in the number of banks in the country from 41 in 1985 to 120 in 1992 comprising 66 commercial banks and 54 merchant bank chuck new financial institutions like people’s banks community banks primary institution and a large number of financial companies were established (Nigeria Economy may 23 1993).

The explosion in the number of banks and other financial institution was a license development even as being necessary for healthy competition among bank; increase efficiency, increase magnetization of the economy. Unfortunately the reverser was the case as the increase in the number of banks came with great complexities not only for regulatory authorities but also for the entire populace as the quality of the assets and management fail because of less qualified staff which are catapulted to management position. The cutthroat type of competition included many banks into engaging in sharp practices that are inconsistent with banking ethics. The result is over half of these bank and other financial institutions have been officially pronounced distressed. The level of distressed in banking industry has continue to show a deteriorating trend as there has been a steady growth in the number of distress banks. As at the first quarter of 1995, the list of banks actualized distressed by CBN and NDIC has swollen to 57 from 8 in 1990.

Banks distress and the association run on banks limits the ability of banks to create money, jeopardize the payment mechanism and disrupt bank tunneling activities. The disrupting of lending activities may lead to dealing in investment and have to a depression. How can the regulator authorities put an end to this trend as every effort so far made had prove abortive? There the problem lies.


From the problems of this research study, the following questions have arise to help analyze the study carefully.

a        How to analyze examine the impact of financial distress in bank?

b        Does bank distress have adverse effect on the distress state of the economy?

c        Does bank distress have adverse effect on the growth of the small business in the economy ?

d        How can possible solution be recommended to help remedy the solution and improve banking operation of a well small scale business?


So many reasons have been advanced as the cause of banks distress and uncertainty beclouding Nigeria financial system.

The objective studies are

a        To critically examine and analyze the impact of financial distress in banks on small scale business.

b        To examine whether or not banks distress has adverse effect on the depressed state of the economy.

c        To determine whether or not banks distress has adverse effect on the growth of small business in the economy.

d        To recommend possible solution that could help remedy the solution and improved banking operation as well as small scale business.


          HYPOTHESIS 1

H0: Bank distress has no significant effect on small-scale business growth.

HA: Bank distress has significant effect on small-scale business growth.

Hypothesis 2

H0: Institutional factor have no correlation with bank distress.

HA: Institutional factor have a correlation with bank distress.

Hypothesis 3

H0: Political instability does not affect bank distress.

HA: Political instability affects bank distress.

Hypothesis 4

H0: Bank distress has no significant impact on the economy.

HA: Bank distress has significant impact on the economy.


This research work focuses in distress in Nigeria financial system with particular reference to commercial and merchant bank because of the uniformity in operations. The bank will treat uniformly in block to the cause of distress in particular bank will not treated separately.


Bank distress has a very disturbing issue bothering on our economy development. The topic has been an issue of ceaseless debate among banker’s economist and business, student, scholars and even the ordinary men on the street. So many debate, seminal workshop etc have been sponsored on this issue with participant expressing sometime. Conflicting views as the cause of this epidemic. It has thus, become essential to write in this topic to critically examine and analyze the cause of bank distress and its aftermath effect on the economy. Recommendations would be made and it hoped that such will help in checking further distress in banking sub-sector so as to restore the confidence of depositor and bring the economy on the track thereby complementing the effect of NDIC and CBN in steaming the tide.


Like every other research work, the research encounters series of problems in the process of caring out this work. The un-co-operative attitude of some bank official posed a serious problem. The searching of relevant material limited the success of this research work. The time frame also is short to carry out through job as this affect the distribution and collection of questionnaire. Financial constraint was also a problem to this research work. But in spite of all this, the researcher was able to appropriate both three and finance effectively and also overcome the problem of unwilling staffers through personal interview, hence this work will meet the objectives.


1        Distressed: Great pain, discomfort, sorrow, suffering caused by want or money.

2        Financial Distress: Inability to meet financial obligation as they fall due.

3        Financial Intermediation: Role played by financial in the banking surplus unit and the deficit unit of the society by talking from the surplus unit and unending to the deficit unit.

4        NDIC/CBN: Nigeria deposit Insurance corporation (NDIC) and central bank of Nigeria (CBN) are regular bodies of the federal government that regulate the activities of the commercial institution in the country so as to boost not only investors confidence in the various financial institution, but to protect depositors financial interest in the banking factor.

5        Loans and Advances: Sum of money that is lent out by the banks to their customers which can be classified as performing or non performing.

6        Deregulation of the Banking Sector: To free the banking sector from the regulations or control by the federal government and let the market forces regulates its activities.

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