The study is on the impact of Asset Management Corporation of Nigeria on the survival of distressed bank (A study of Polaris bank). Its main objective is to find out how AMCON’s intervention has helped in salvaging distressed banks and the bidirectional influence between AMCON and distressed banks. The purposive sampling technique was used to determine the influence of AMCON and distressed banks. The study reveals that AMCON has helped banks to solve the issue of liquidity. The study further concluded that AMCON’s intervention has helped banks to attain a high rate of profitability and stability.




1.1 Background to the Study

Banking sector is regarded as the hub of any economy. The role of banking in any society cannot be overemphasized. According to Ademola, Olusegun and Kehinde (2013), banking industry is so strategic to the economy that virtually everybody is a stakeholder. Bank acts as lubricants of the economy and the custodians of the payment system. They therefore impact on every sector.Banks are intermediary agents in the economy, which is the reason commercial banks are established. Commercial banks are regulated by the central bank of Nigeria (CBN). The Central Bank of Nigeria places monitoring activities in form of policies to check the activities of commercial bank in such a way to keep the economy healthy. According to Nnamdi and Chibuikem (2012), Nigeria banking system which is regulated by the central bank of Nigeria, is made up of deposit money banks referred to as commercial bank, finance companies, Burea De Change, discount house and primary mortgage institution.

However, due to recent reforms in the banking industry, some of the aforementioned functions were striped from commercial bank to allow them to focus on intermediary function. Ademola, Olusegun and Kehinde (2013) ascertained that banks help in mobilizing savings through a network of branches. By mobilizing deposit, the bank channels them into investment. Thus, they help in capital information. Other roles performed by the banks in the economy include financing trade, agriculture, industry, consumer activities and they help in the implementation of monetary policies.

Despite the fact that emphasizes are made on the bank to stabilize the economy, banking sector continue to experience distress from time to time. Distress in banking industry is not new but effort by CBN continues to salvage the sector.

At the end of 2011 financial year, it was obvious that the banks were neck deep in measures to come out clean in the 2012 performance an excuse given by a number of banks that posted not so encouraging results for their 2011 operations. This development was confirmed by the International Financial Advisory Firm, Renaissance Capital Limited, in its recent report on the big five banks in Nigeria, noting that with the exception of Access bank Plc., the NPLs ratios for the banks are now below the 5 per cent CBN guideline (ThisDay Newspaper, 2012).

The causes of Banking Sector Distress, (Sanusi, 1997), CBN/NDIC (1997), amongst others, have clearly articulated various factors responsible for the high level of distress in the banking sector which came to a climax in 1998 with the liquidation of 26 commercial / merchant banks in one fell swoop. Prior to the liberalization of the financial sector in 1986, the Nigerian banking industry was highly regulated. Banks were expected to perform developmental roles by the CBN through the provision of subsidized credit to the priority sectors which some of them were ill equipped to perform. Moreover, most of the loans granted to the priority areas were not repaid; therefore, this worsened the liquidity position of these banks (Ebhodagbe, 1997).

The Banking sector stabilization process started in August, 2009, following a special audit by the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Commission (NDIC). The CBN subsequently declared nine banks as being dangerously below minimum capital requirements with corporate governance concerns, thereby forcing drastic measures to save the banks from bankruptcy. Nine banks failed to meet the minimum 10 per cent capital adequacy ratio and 25 per cent minimum liquidity ratio (Alawiye, 2013).

As a result of this CBN established Asset Management Corporation of Nigeria. This primary objective was to manage some of the distress bank in Nigeria during 2008 economic meltdown. According to Njiforti, Lawong and Kelvin (2016), in mid-2008 when the global financial and economic crisis set in, the domestic financial system was already engulfed by several interdependent factors that led to the re-emergence of an extremely fragile financial system similar to the pre-consolidation era.

Njiforti, Lawong and Kelvin (2016), established that macroeconomic instability caused by large and sudden capital inflows, major failures in corporate governance at banks, lack of investor and consumer sophistication, inadequate disclosure and transparency about financial position of banks, critical gaps in regulatory framework and regulations, uneven supervision and enforcement, unstructured governance and management processes at the CBN/weaknesses within the CBN, and weaknesses in the business environment.

It is apparent therefore, that when the global crisis eventually hit Nigeria, the banking sector was ill equipped to withstand the storm in spite of bank recapitalization. In the real sense the financial crisis had an adverse effect on both the oil and gas sector as well as the capital market where the Nigerian banks were exposed to the tune of N1.6 trillion as at December 2008.

The result was a sharp deterioration in the quality of banks asset which immediately led to concern over banks liquidity. Indeed, the Nigerian banking sector was thrown into severe crisis as many of the banks become distressed. At the heart of this crisis is rising non-performing loans that engulfed the entire banking sector. In an attempt to resolve this systematic distress in the financial system, policy makers as well as regulatory authorities initiated reforms geared towards the resolution of these problems. One of the policy reforms initiated is the setting up of the Asset Management Corporation of Nigeria (AMCON) to serve as an intervention vehicle.

1.2 Statement of the Problem

The initial measures taken by the CBN in conjunction with NDIC and the Federal Ministry of Finance (MOF) included injection of N620 billion into the nine banks in form of Tier 2 capital to be paid from the proceeds of recapitalization in the near future (Egwuatu, 2012).

Consequently, the CBN had to introduce different forms of reforms to bail the banking sector out of its crises. Some of the measures include the cancellation of universal banking; introduction of tenures for chief executive officers and directors of banks; the setting up of the Asset Management Corporation of Nigeria (AMCON) to buy toxic asset of banks and the introduction of the Nigerian Uniform Banking Account Numbering System, among other reforms.

In line with its mandate, AMCON has so far acquired non-performing risk assets of some banks worth about N2.8 trillion, which has boosted liquidity, profitability, capital adequacy as well as enhanced their safety and soundness (Egwuatu, 2011). The nation would have lost over N2 trillion if the CBN had not acted at the time it did (Sanni, 2011). The CBN based its reforms on a four pillars namely: enhancing the quality of banks, establishment of financial stability, enabling healthy financial sector evolution, and ensuring that the financial sector contributes to the real economy.

However, there is a question that needs to be answered. It should be recalled that spring bank was among the nine distressed

From 2009 to 2018, banking sector seems to be standard against the experiencing distress. Public trust was built and the customers believe that whatever, happen to a bank in Nigeria, customers fund will be available for them to withdraw.

However, there is a question that needs to be answered. It should be recalled that Spring bank was among the nine distressed bank in 2009 that was salvage by AMCON. In the event of injecting fund to save the bank, Style bank later acquired Spring bank after certification from both CBN and AMCON that Spring bank is healthy. Unfortunately, Skye bank faced distress and was immediately handed over to AMCON.

In the event of injection of fund to save the bank, Skye bank later acquired Spring Bank after certification from both CBN and AMCON that Spring Bank was healthy. Unfortunately, Skye bank faced distressed and was immediately handed over to AMCON, therefore, it is paramount to investigate AMCON’s fund injection, possibly, its overall interference on distressed banks, and, whether or not remarkable milestones has been achieved under AMCON’s subjugation and scrutiny

1.3 Objectives of the Study

The general objective of the research is on the impact of distress bank in Nigeria. However, the research will be guided by the specific following objectives.

      i.         To evaluate the extent to which the saved banks have progressed in their operations over the years.

    ii.         To evaluate the relationship between AMCON’s fund injected and the performance of banks that survived distress and

  iii.         To examine the extent to which the activities of AMCON affected the management of distressed banks.

1.4 Research Questions

The research will be guided by the following research questions.

  1. How have the saved banks have progressed after been salvaged by AMCON?
  2. What is the effect of AMCON’s intervention fund on the performance of banks that survived distressed?
  3. What effect has AMCON’s intervention made on the management of the salvaged banks?

1.5 Research Hypotheses

      i.         There is no relationship between AMCON intervention and performance of distressed banks in Nigeria.

    ii.         There is no relationship between AMCON fund intervention and managerial improvement of banks that survived distress.

1. 6 Significance of the Study

The study is important because it is coming at a time the banking industry is getting serious and credible from the customers. It is imperative to know that AMCON is ten years this year and a lot had happening.

There has been need to research on this topic because of the new case of distressed among the bank that was previously saved by AMCON. Many scholars claimed that never in the history of Nigeria that any in Nigeria will close down.

This study will further help to determine how sound healthy banking system would support the growth and developmental needs and aspiration of the Nigeria economy given its functions of financial intermediation with reference to Polaris bank the default Skye bank.


1.7 Scope of the Study

This study is carried out to examine sector reform programme which took place recently in Nigeria from 2009 to 2018 and how it has affected theactivities of commercial banks in Nigeria. The study will be based on commercial bank in view of the recent bank consolidation reform programme (merging of bank) exercise which took place where only twenty five bank were able to meet the twenty-five billion (25, 000, 000, 000) minimum capital mobilization of savings and investment in the economy.

Also, the study will cover Polaris bank from the time Skye bank acquired Spring bank. This is aimed at enhancing sound and healthy commercial banking.

1.8 Limitation of the Study

The limitation include time, and also finance the researcher as a student lack the adequate finance to travel to various Polaris bank in Nigeria to get information that may be seen relevant to the study as the only closest one is in Obiaruku.

Secondary, the unwillingness of some banking officers (staff) to give relevant information to have direct interview with them was a big challenge to the researcher. Infect, most of them referred the researcher to the operational department for information and data, saving that the need for bank consolidation in the financial service sector is not their major area of operation, so they lack the time to render relevant information to researcher.

1.9 Definition of Term

i. Bank in Distress: this is a stress in state in which a commercial bank is facing liquidity issue.

ii. Banking Sector:this is an economic hub that covers all financial institutions like commercial banks, micro financial banks, insurance, Mortgage bank e.t.c. Financialoperations are performed by these financial institutions.

  iii.         Non-Performing Loan: this is loan on which the borrower is not making interest payments or repaying any principal. At what point the;loan is classified as non-performing by the bank, and when it becomes bad debt, depends on local regulations.

  iv.         Liquidity: this describes the degree to which an asset or security can be quickly bought or sold in the market, without affecting the asset’s price.

    v.         Undercapitalization: this is a situation whereby a firm does not have sufficient capital to conduct normal business operations and pay creditors. This can occur when the economy is not generating enough cash flow or is unable to access forms of financing such as debt or equity.

  vi.         Equity: this is the difference between the value of the assets and the value of the liabilities of something owned.

  1. vii.         Deregulation:This means removal or reduction of laws or other demands of governmental control. Deregulation often takes the form of eliminating a regulation entirely or altering an existing regulation to reduce its impact.
  2. viii.         Insider Abuse: This means any type of suspicious activity that arises from within a form.