Analysis of the Determinants of Banks Distress in Nigeria: An Autoregressive Distributed Lag Model Approach

This study examines the causes of bank distress in Nigeria using annual data from 1986 to 2015. The study employed Autoregressive Distributed Lag Model developed by Pesaran et al (2001) as the technique of data analysis. The study reveals that exchange rate and non-performing loans have positive and statistically significant impact on bank distress, while inflation and interest rate have negative and statistically insignificant effect on bank distress. The study further found that liquidity ratio exerts positive and statistically insignificant influence on bank distress. In consistent with the findings, the study recommends the followings: firstly, there should be proactive measures by the banks such as loan surveillance and monitoring.The government should strengthen the mechanisms that will create favorable and sustainable macroeconomic stability in the economy; secondly, to guarantee effective control of non-performing loans, banks should ensure that loans to be given must satisfy the requirements of banking policy and finally, the Central Bank of Nigeria must ensure that deposit money banks are operating in line with the banking policy guide lines and any bank that violate or bridge the policy should be call to order or penalized.