Why banks fail? The case of the Gambia commercial and development bank

Abstract

Bank failures are not uncommon, nor limited to developed or developing economies or a particular geographical region. The cost of bank failure can be high, and if this causes instability in the financial system, the effects can be adverse on the country’s growth rate and considerable bailout cost to governments and central banks. Bank failures can be attributable to both internal and external pressures. In this paper, quantitative Multivariate Discriminant Analysis Z-Score and qualitative A-Score were adopted to examine bank failure and in particular, to evaluate why The Gambia Commercial and Development Bank (GCDB) failed. The findings show that GCDB failed due to poor financial performance and weak management systems. The external factors of judicial ineffectiveness, political hijacking and severe macro-economic conditions played a considerable part in GCDB’s failure.

JEL Classification: J016, G2, O016, D53

Keywords: Bank, Finance, failure, Gambia