A CRITICAL ANALYSIS OF FACTORS RESPONSIBLE FOR FINANCIAL DISTRESS IN NIGERIA BANKING SECTOR

Background of the study: In a development economy, where it is believed that adequate financial resources are a pre-requisite for industrial transformation, the importance of capital as a necessary though not sufficient condition for economic growth is recognized. However, this does not negate the fact that capital is a necessary condition for economic growth. Experiences in various nations, most notably Japan, India, and Germany, have proven that banks, if properly developed in their respective countries, have the potential to act as an engine of development and significantly contribute to the promotion of fast economic transition in any country (Adehla, 2022). Banks all across the globe maintain a crucial position within the financial industry, as well as a lending role. A significant number of Nigerians see financial institutions like banks as safe havens.

As a result of this, they consider financial institutions to be a secure location in which to put their money. It is also because of the faith they have in the sector as a whole that over the years, many of them have ingrained this habit of saves, which is, in turn, highly vital for the positively oriented economic growth of the country. According to Altman (2022), confidence is a prerequisite for economic recovery and sustainable prosperity, but confidence is not a given. Confidence is something that must be earned. Confidence is something that must be gained by the work of adjusting to new circumstances; alternatively, it may be leased since it is never really yours and because it can be taken away at any moment. Each and every day, the effort that can be adjusted must be put forward. The expansion in the number of banks in the nation prior to the implementation of the structural adjustment program (SAP) in 1986 is one of the legacies that the structural adjustment program (SAP) left on its trials. As of August 1995, the total had reached around 127.

This amazing rise of banks was first lauded as a positive development in the economy since it was to share the resources that were available in the market. However, recent research has shown that this growth may really be harmful to the economy. Because of the vital role that banks play in the economy, the regulatory bodies in charge of money devote a lot of attention to the banking sector (Babalola, 2021). During this process, they are sometimes confronted with the challenge of figuring out how to effectively deal with the widespread financial instability in the Nigerian banking industry. The troubled financial history of Nigeria's banking industry can be traced back to 1930, when the Industrial and Commercial Bank (ICB), which had only been operating for a year at the time, went bankrupt. According to the definition given by Horn, distress may be described as "severe aches, discomfort, and grief caused by lacks of money or other required items." In his explanation of the causes of financial hardship, John Ebhodaghe states that "two key difficulties are frequently of great concern" (Ebhodaghe, 2022).

These are referred to as liquidity and insolvency, respectively. He went on to define liquidity as the incapacity of financial institutions, such as banks, to satisfy their obligations when they come due for payment while insolvent. This occurs when the value of a financial institution's realizable assets is lower than the entire value of its liabilities. The following traits, which have defined banks from the beginning of the era in question, might be used to outline the causes for the early crisis of banks.