Financial Crisis in the Nigerian Banking Sector: Role, Effects and Solutions.


This is a research project carried out to identify and determine the role, effects and solutions of financial crisis in the Nigerian banking industry, a study of selected banks (First Bank of Nigeria Plc, and Intercontinental Bank Plc). A sample size of 200 respondents. All randomly selected from the staff and management (both senior and junior) and customers of First Bank Nigeria Plc and Intercontinental Bank Plc were used in this study. Both primary and secondary data were collected and analyzed using percentages and chi-square test.

The researcher, based on the data collected and analyzed, found that poor liquidity is a salient factor affecting the viability of Nigerian Banks; incompetent and inefficient management gives rise to poor performance of banks in Nigeria: Diversion of credit by clients of commercial banks does not necessarily contribute to bank distress; and undercapitalization of commercial Banks does not only militate against the development of Nigerian banking sector. Finally, the findings were summarized, conclusions reached and recommendations made. 


The first phase of the Bank consolidation initiated by Central Bank of Nigeria in 2005 was in order to provide a strong and reliable banking sector that would guarantee the safety of depositors’ money. The consolidated Banks were expected to play a very active role in the economic growth and development of Nigeria. The consolidation exercise was remarkable as some of the banks merged while others went for outright takeover of the assets and liabilities of the weak banks.

Within the short period of consolidation, there were positive changes in the entire system, as interest and lending rates became stabilized and some of the consolidated banks became partners and correspondent Banks to some Foreign Banks. Before the consolidation exercise started in 2005, the Nigerian Banking Industry witnessed a lot of stress, uncertainty and anxiety. This eroded the confidence of the general public which used to be a great asset of banking sector in the past.

In addition, investors and depositors’ funds were not guaranteed, hereby making most of the Banks to come under stress due to capital inadequacy. These problems greatly. impaired the quality of Banks assets as non-performing assets became bearable and became huge burden on most of the Banks. The financial intermediation role of the Banks became heavily impaired while the micro economic activities seriously slowed down. 


Action Aid (2009) where does it Hurt? The impact of the Global
Financial Crisis. London: Action Aid International.

Al-Taki, A. (2005), “Bank Re-Capitalization and the Nigeria Stock
Market”, Nigeria Securities and Exchange Quarterly Bulletin.

Central Bank of Nigeria (2005), Statistical Bulletin. Abuja: CBN.

Central Bank of Nigeria (2006) ‘Statistical Bulletin ‘. Volume 17,
December. Abuja: CBN.

Central Bank of Nigeria (2008b) ‘Remittances Data’. Trade and
Exchange Office, Abuja: CBN.

Central Bank of Nigeria (Various Issues) “Annual Report and Statement
of Accounts”. Abuja, Nigeria; CBN.

Central Bank of Nigeria 2008a) ‘Annual Report and Statement of
Account’. Year Endured 31st December 2007. Abuja, Nigeria: CBN.

Chika Oluchi Kere (10 August 2008). “Sanusi Lamilo Sanusi Becomes
First Bank MD”

Clasessens, Stijn and Laeven, Luc, 2003, “What Drives Bank
Competition” Some international Evidence,” Policy Research
Working paper Series 3113, The World Bank.

Classens, Stijn and Laeven, Luc, 2004, “What Drivers Banks
Competition? Some International evidence,” Journal of Money, Credit
and Banking, Blackwell Publishing, Vol. 36(3), Page 563-83, June.

Freixas, X and Rochet, J. (2008), Microeconomic of Banks (2nd Edition),
London MIT Press.

StudentsandScholarship Team.

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *