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AN ASSESSMENT OF LOAN
MANAGEMENT IN BANKING SECTOR (A CASE STUDY OF UNION BANK OF NIGERIA PLC)
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE
STUDY
Generally in Nigeria, banks are usually accused by customer’s
of number of short comings, which are regarded as problems and failure in
banking system. These include lack of awareness by customers of the services
they offer subjecting the customers to long queues unsympathetic staff in terms
of courtesy and efficiency, intricals and unprogressive lending policies and
procedures irregular issue of statement etc, all these result in low level of
customer satisfaction.
At moment, Nigeria is fast attempting to transform into a
modern industrial society whether this attempt will be achieved or not is still
questionable. The urban area having now high population densihes from rural,
which are supposed to be the sources of raw materials for the industries. Hence
the achievement of industrial objective rest squarely on the shoulders of the
banks.
Banks could help Nigeria reframe herself and produce raw
materials for her mills and not solely depend on imported ones.
This could be done by diversifying the source of income from
the present mono (based solely on petroleum revenue) to that of (diversified
one)
The banks role in attaining the above objective ultimately,
specially and efficiently is very crucial.
Having experienced the strain, intricale and procedures of obtaining
banks loanable fund that researcher mind was directed to the questions as to
what participates such stumbling blocks in our banking system. It is the blame
on the banks, the customer and the government for not appreciating the place of
credit in our society for instance, the banks by the nature of their business
exercise a high degree of economic power. To them belong to the naira power
which is the lubricate/accelerator of our economy. They have the prerogative in
the choice of assets (businesses) they place their disposable portion of funds
deposited with them by customers. Tough they know and have experienced the
positive results of attempt in the effective provision and use of credit, the
banks have been rather very skeptical in exercise this their power not withstanding the central bank of Nigeria
issues annual directives to licensed banks allocating prescribing quantitative
ceiling as well as sectorial allocation of their loans and advances to the
economy through the monetary policy circulars conveying the central banks,
credit guidelines.
However, it has come to be realized that these are certain
problems associated with he present lending schemes which must be highlighted
and solved by the customers, the banks and
government in providing loanable fund so that more benefit would be
taped from this usage.
Hence, the motives behind the caring out of this research
study.
1.2 STATEMENT OF
PROBLEMS
There is hardly any approach to obtaining bank loans/credits
that is devoid of problems. This project thus sets out to identify the lending
problem of bank and customer in Kaduna and its environments.
- high
rate of interest/charge
- banks
lend on short term basis cannot accommodate medium and long term borrowers.
- High rate of defaut
-
Difficulty in banks policy/central bank policies
- Lack of
security to back-up the lending
-
Customers request are not well packaged.
1.3 OBJECTIVES OF
THIS STUDY
Specifically, there are some factors outside management
control such as the Central Bank credit guideline (rule and regulation),
policies and the value of managers implementating bank policies, which
influence in one way or the other on the lending decisions and outcomes for the
bank. The aim and objectives of this research include:
i. how can
we reduce the high rate of interest charge bank.
ii. How can
customer be educated on how to package their request correctly.
iii. How
possible it is to evaluate the lending difficult policy of both bank/central
bank
1.4 RESEARCH
QUESTION
Ho: To what extent
will judicious utilization of loan lead to effective management control.
Hi: To what extent
will judicious utilization of loan not lead to effective management control
Ho: Will assessment
of loan management and accountability
serve as an aid to increase the capability of Nigeria banks?
Hi: Assessment of
loan management and accountability will not serve as an aid to increase the
capability of Nigeria Banks?
1.5 SIGNIFICANCE
OF STUDY
After identification of certain problems, on this research
work recommendation will be made for solution, considering their specific cause
and nature. Such recommendation and findings hopefully will be useful to
management of banks in the countries who have similar problems to the banks
studies.
It is also hoped that such recommendations will be of use to
potential borrowers from the bank, banking and accountancy student in the
higher school of learning, and to the numerous private management consultancy
firms throughout Nigeria.
1.6 SCOPE OF THE
STUDY
The scope of the study is on commercial banks in Nigeria or
banking sector as a whole but using Union Bank Nigeria Plc Kaduna as a case
study.
1.7 HISTORICAL
BACKGROUND OF THE CASE STUDY
Union Bank of Nigeria Plc was established in 1917 as a
colonial bank will its first branch in Lagos. In 1925, Barclays bank acquired
the colonial bank which resulted in the change of the bank’s name to Barclays
Bank (Dominion, colonial and overseas). Following the enactment of the
companies act 1968 and legal requirement for all foreign subsidiaries to be incorporated
locally, Barclays bank remained un-changed until 1971 when 8.33% of the banks
share were offered to Nigeria’s in the same year, the bank was listed on the
Nigerian Stock Exchange. As a result of the Nigeria enterprise promotion act of
1972, the Federal Government of Nigeria acquired 51% of the bank’s share, which
left Barclays bank plc. London with only 40%. By the enactment of the 1972 and
1977 Nigeria enterprises promotion act, Barclays bank International disposed
its shareholding to Nigeria in 1979 to reflect the new ownership structure and
in compliance with the company and alied matter act of 1990, it assumed the
name union Bank of Nigeria Plc.
In line with the Central Bank of Nigerian banking sector
consolidation policy, Union Bank of Nigeria Plc. Acquired the former universal
trust bank Plc. And broad bank ltd. And absorbed it erstwhile subsidiaries
Union Merchant bank ltd. The bank also increased its shareholders funds through
a public offer/rights issue in the last quarter of 2005. with these development
Union Bank remains one of the most capitalized developments Union Bank in
Nigeria. It has a shareholder fund of N102,542 billion and operates through 368
net work of branches that are well spread across the country, all of which are
line, real time subsidiaries.
a. Union
homes saving and loans plc
b. Union
trustees limited
c. Union
assurance company limited
d. Union bank
UK Plc
e. Banquet
Intenational Benin, cotonou
f. UTL
communications services limited
g. UBN
property company limited
h. Union
capital markets limited
i. Union
registration limited
ASSOCIATED COMPANIES
a.
consolidated discount Ltd
b. HFc banks
Ghana limited
c. Unique
venture capital management co Ltd
Union bank group operates in Interlocking organizational
structure whereby some board members of Union of Nigeria Plc act as external
director in the subsidiaries and over sight and participation in the decision
making process of these companies, thereby safeguarding the banks investments.
Today, Bank in a leading regional bank in sub-sahara Africa
in terms of its diverse investments across the globe. A glance at the bank’s
financial summary reveals its solidity. As at 31st march 2007, the banks gross
earnings was N88.095 billion, profit before tax was N17,393 billion, total
asset, was 699.24 billion shareholders fund was N102,245 billion.
The bank’s management is headed by Dr. B. B. Ebong as the
group managing director/chief executive others are:
Ado Abdullahi executive director (operation, up-country
south).
Dr. K. S. Adeyemi executive Director (information
technology/services).
S.I. Ayniuem executive director (Risk management and control)
E.U. Emeruem executive Director (Lagos operations)
A. E. Esangbedo executive directors (operations up country
north)
WCO Mbeh executive director (Corporate resources)
A. I.N Obigwe Executive Director Co-operate and International
Banking.
1.8 DEFINTION OF
TERMS
The author considers it necessary to define the following
terms as applied within the context of this project.
Asset portfolio: Arrangement of bank assets on order of its
liquidity and profitability.
Advances: These
are monies lent by a bank generally in
the form of an overdraft on a current account and also by
means of a loan or personal loan.
Affidavit form: This is a written statement used as a legal
proof.
Bank credit: Credit
created by a bank increasing the size of
the account of a depositor e.g. when making an advance.
Branch banking: the typical commercial bank in most
countries is a very large institution with a large number of
branches.
C.O.T:
Commission on turn over or cost of
transaction, this is normally charged on the total of debt
turn over of current account.
C.O.F.O:
Certificate of occupancy
Cash ratio: This
is the ratio of cash to demand deposit
usually calculated on percentage.
Clean lending: Loan and advance granted without any
security.
Collateral security: properties perhaps in the firming deeds
to
a house or stock and shares deposited with a creditors to
guarantee that a loan will be repaid.
Demand deposit: this is the total amount of money deposited
with the bank.
Deed of release: this is the document usually signed by
customers when any property held by bank is returned.
Equitable mortgage: Property pledged to the bank as security
without legal backing.
Guarantor: One who
makes or gives a guarantee or
security for loan.
Liquidity preference: this refers to the degree at which
invaluable prefer that funds to be near cash. They many
prefer to hold saving in a completely liquid form that is as cash.
Lieu Distain: this is
a document issued by the bank to an
insurance company declaring their interest in a customer
share.
Loan: It
is the lending of money borrower one of the
credit services rendered to account holder by banks.
Monetary policy: this refers to the use of certain monetary
controls by the government.
Moratonum period:
A period when loan yield no return
Overdraft: This
involves letting the customers to draw
money in excess of the draw money excess of the balance in
the customers account.
Pledged property:
this is delivery of goods or document, of
little goods by the customers to the Bank as security.
Standing order: An authority given by a customer to his
banker to transfer, e.g. a fixed amount from his current
account to his loan account.
Secured loan: Loan
granted with proper security.
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