A Conceptual Review on Financial Distress Syndrome of Banks in Selected Developing Countries

Abstract

The inability of corporate entities to meet up with their financial obligations can be attributed to some economic factors from within and outside the business environment. In that regards, numerous studies were conducted to examine the determinants of distress syndrome particularly in banking sectors from different part of the world. Nevertheless, the present paper premised on reviewing some studies conducted around selected developing countries of the world. The paper aim at identifying the most frequently identified determinant of banks financial distress syndrome for the periods between 1980-2022, based on thematic and
chronological approach. It is important to note that the major determining factors extracted from the reviewed literature are basically ranked from the most frequently identified to the least identified ranging from None- performing loans, capital structure, inflation rate, interest rate, liquidity ratio, GDP, capital adequacy ratio, assets quality ratio, exchange rate, profitability and lastly, Sensitivity to market risk. Therefore, the study found that the frequently identified determining factors of financial distress of banks in developing countries most especially Nigeria based on the reviewed literature is none performing loans while, least is sensitivity to market risk. Therefore, it is recommended that the board and management of listed deposit money banks should strictly adhere to their established policies and operational guidelines towards effective debt management, to avoid none performing loans that could lead to financial and liquidity losses as well as increasing risk of financial distress, being one of the major determining factors of financial distress as far as banking industry is concern.