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THE IMPACT OF EFFECTIVE CREDIT
MANAGEMENT ON THE PROFITABILITY OF FIRST BANK
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Credit
generally denotes loans and advance made either directly by a credit (lender)
or a debtor (borrower) on the principles of different payment. The banks as a
lender, provides credit facilities by making funds available to customers in
agreed terms and condition of payment. The gain of credit to the bank is
purposed to be huge profit instead of this over year, modern banks
(particularly First Banks) have been recording huge amount of bad debt provision
which increase with each consecutive.
The
term credit is the granting of money (loan) and advances to borrowers with the
general expectation that they would honour their obligation to repay the fund
or without interest when due.
Credit
is the means by which we are able to obtain immediate benefits of goods and
services upon the promise of payment at a future date. One of the main reasons
for obtaining credit is that money which is our recognized unit of exchange is
kept in relative short supply and although we may have enough credit for those
items which require but cannot immediately afford and as these problems is not
confined to individuals. A banks objective is to make money and one of the
methods used to achieve this by loans.
However,
loans are only granted to those whom they have every confidence in them as
often as not, demand some form of security. The motive for lending money is
therefore to acquire profit for themselves and not out of favour to the
customers. Although, we are not able to adapt such stringent attitudes, our
motives for granting credit must be the same.
It
is however, dishearten to note that not withstanding the level and magnitude of
impact that the banks have on economy in terms of importance which is
unarguably immense. Whenever money is always certain a risk of not getting it
bank from such customers. It is this (non payment of loan) that has made it
necessary for this research to go into area of credit management. The impact of
effective credit management as a process is very essential for banks because
poor credit revaluation leads to poorly unstructured loans facilities that
reduce the profitability and liquidity of the banks.
First
Bank of Nigeria Plc is a leading banking institution in Nigeria with over a hundred years of banking
experience, founded in 31st March 1984 by a shipping magnate from Liverpool , Sir Alfred Jones. It commenced as a small
business bank in the Office of Elder Dampster and Co. in Lagos
It
was incorporated as limited liability company in London ,
with its Head Office in Liverpool under the
corporate name “Bank of British West Africa”, with a paid up of Twelve Thousand
Pounds Sterling (E12,000). It commenced business after it had absorbed its
predecessors assets in the African banking of the pre-eminent position which
the bank was established in the banking industry in Wet Africa.
In
1896, a bank was opened in Accra , Gold Coast
(now Ghana Nigeria
was situated in the old Calabar in 1990 and two yeas later, it services had
extend to Northern Nigeria with a branch network of 291 in 1996 spread
throughout the federation, including London
The
banking has experience a phenomenal growth over years with a share capital of
55.6 million in 1980, which rose to N684 million in 1995, the banks total
assets currently stand at N69.82 million, supported with a deposit based on
N41.641 million.
When
the bank began operation in 1894, it has a staff of six composing of 3
Europeans and 3 African today, the bank is virtually fully Nigerianalized. This
is of course has been the result of planning responsiveness of the yearning of
the Nigeria
As
a result of corporate policy to clivas its portfolio of noncore activities and
in order to meet the bank of England’s regulatory requirement of the banks
foreign partners, the standard chartered banks of Africa Plc, have reduced
their shareholding to 9.9% following the offer of 120.941.195 share to the
Nigerian public, thus bringing the equity holdings by Nigeria to 90.1%.
The
bank has maintained its leadership in financial long-term lean to the colonial
government. Today, the bank boast of a diversified loan portfolio to various
sectors of the economy. The banks rural banking record is unmarked by army
banks while its agricultural credit facilities through the community farmers
tremendous access to the much needed bank credit.
In
meeting the challenges of the second century the First Bank of Nigeria Plc is
committed to put a smile on the face of every customer.
1.2 OBJECTIVE
OF THE ESSAY
The
objectives of the extended essay include the followings:
i)
To examine the various considerations
and analysis in the impact of credit management for lending purpose in the
principal industries especially the First Banks.
ii)
To assist practitioners in the banking
industries to acquire the high degree of unperformed credits as presently
carried in their debt portfolios and assist in sound and reasonable credit
aimed at minimizing the incident of bad debt.
iii)
To suggest the portion of lending
(i.e. advances and loans) that should be allotted to individuals customers.
iv)
To find out from all available data
the lending structure of banks (First Banks) in Nigeria
v)
To stir or stimulate interest in this
area for prospective students who may wish to develop their career in the area
or filled of credit management.
vi)
To serve as a useful preliminary
paraphernalia (tool) or materials for further study in the filed of credit
management.
1.3 SIGNIFICANCE
OF THE ESSAY
It
is the hope of evaluate credit management process and the subsequent problems
of unperforming loans and the increasing incidence of bad debt that this study
is made. It is also hoped that it will serve as a useful tool (material to
those who may wish to further in the filed or credit portfolio in banks with
view to or in an attempt to identify those credit that are performing against
these credit with a high degree of default in order to enhance debt management
practices in the Nigerian banking environment.
The
impact of credit management as a system or a process is very essential for
banks because poorly structured loan facilities result in bad debts and losses
which in-turn goes to educe the profitability and the liquidity of the banks.
Taking into cognizance the above significance it use hope that the material as
a product of this research shall assist the practitioner in the banking
industry to promote their skills on the impact of credit management.
1.4 SCOPE
OF THE EXTENDED ESSAY
The
research examines of the banking and the activity of First Bank of Nigeria Plc.
It also highlights the importance of banking services to the economic and
commercial activity of a counting. The research emphasized more in a way and method
facilities to a customer. The maintaining of such loan by the bank officials.
It also looks into the policies guiding or these policies made and review the
steps followed by the bank to process a loan request the types of security
accepted as collateral. Also the problems of bad debt or loan granted to
borrower are being locked into.
1.5 LIMITATION
OF THE ESSAY
The
incidence of credit mis-management in the financial system has no Luther to
attract due to attention and discussion until recently.
The
depth of distress in financial system which could be essentially traceable to
credit mis-management as well as a few other forms of frauds appeared to have
brought to the need to address this economic malaise.
The
incidence of huge bad debt in the banking industry has not only attracted the
attention of the monetary authorities but the public at large. There is a
growing concern in these sectors of increase potential for bank failures if the
problems is not urgently address. The fear may be out of place when viewed
against recent development on the industry. In January 1991, the Central Bank
of Nigeria took over control
of Nigeria
The
research is going to optically analyze the inefficient credit management
procedure adopted by some banks which is the initiator of bad debts incidence
thereby reducing its liquidity ratio. The research is aimed at finding the
cases and solution to such problems, bad debts for effective and efficient
management.
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