International Journal for Tourism and Technology (IJTT)
This study examined banking distress on economic growth in Nigeria from 1998 to 2023. The source of data was obtained from CBN statistical bulletin and Supervision Report. The study employed Liquidity ratio, Non-Performing loans, Loan loss Provision, Lending rate and bank regulatory capital to risk-weighted asset as measures of bank distress, and real gross domestic product as the measure of the Nigerian economy. The ex-post facto research design was adopted and the data were analyzed with the application of Augmented Dickey Fuller unit root test, ARDL bound test and ARDL shortrun Error correction Model with the aid of E-view statistical package. The study found that longrun relationship exists between the variables. Furthermore, the study holds that Federal government bonds have a positive but insignificant impact on the gross domestic product in Nigeria. Liquidity ratio has a negative and insignificant effect on the Nigerian economy (RGDP). Non-Performing loans had a positive but insignificant effect on the Nigerian economy (RGDP). Loan loss Provision has a negative but significant effect on the performance of deposit money banks in Nigeria. Lending rate has a positive and insignificant effect on the Nigerian economy (RGDP). Finally, bank regulatory capital to risk-weighted asset has a negative and insignificant effect on the Nigerian economy (RGDP). The study concluded that bank distress has a significant impact on the Nigerian economy. The study recommends that banks should not focus mainly on liquidity, but strive to grow by striking a balance between liquidity and profitability. Banks should ensure to reduce its amount of loan loss provision and increase is lending rate to ensure more profits that will serve the productive sector of the economy.
Introduction
The Nigerian economy has experienced fluctuating growth over the years, largely influenced by the performance of key sectors, especially the banking sector. Economic growth, typically measured by the increase in Gross Domestic Product (GDP), represents the total value of all goods and services produced within the economy (Depersio, 2021). Banks play a crucial role in this growth by facilitating capital mobilization, financing key sectors, and serving as intermediaries between savers and investors (Olukotun et al., 2019). However, when banks encounter distress, characterized by illiquidity and insolvency, the resulting economic consequences can be severe, undermining their capacity to support economic activities and thereby impeding growth. Bank distress in Nigeria, particularly during the years following the 2008 financial crisis and subsequent economic recessions, has posed significant challenges to sustaining economic growth (CBN, 2020).
Banking distress arises from various causes, including non-performing loans, poor risk management, and inadequate regulatory oversight, which lead to the deterioration of a bank’s financial health. In Nigeria, this distress has often manifested in banks being unable to meet their financial obligations, threatening the stability of the entire financial system (Mayuku et al., 2020). According to Aburime (2019), the Nigerian banking system has, over the years, faced multiple distress episodes due to factors such as poor asset quality, lack of experienced personnel, and weak internal controls. Furthermore, banking distress is often exacerbated by systemic issues such as high inflation, regulatory lapses, and economic downturns, all of which hinder banks' ability to lend profitably and recover outstanding loans. When banks fail to function optimally, their inability to provide credit impairs investment in key sectors,
leading to slowed economic growth.
The effects of banking distress on economic growth are evident in Nigeria’s financial landscape, where distressed banks struggle to support productive sectors of the economy. According to Uwalomwa et al., (2015), the Nigerian banking sector has been plagued by recurring distress, mainly due to weak regulatory frameworks, poor lending practices, and fraudulent activities. This distress leads to reduced capital availability, higher interest rates, and decreased confidence in the banking system, all of which stifle economic activities. As bank distress persists, its ripple effects spread across various sectors of the economy, disrupting industrial production, reducing consumer spending, and ultimately affecting GDP
growth. This study seeks to investigate these dynamics by analyzing key distress indicators such as non-performing loans, liquidity ratios, and loan loss provisions—and their relationship with Nigeria's economic performance between 1998 and 2023.
Liquidity Ratio, Loan loss