AN ANALYSIS OF CREDIT MANAGEMENT IN THE BANKING INDUSTRY (A Case Study First Bank Of Nigeria Plc. Enugu.)
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AN ANALYSIS OF CREDIT MANAGEMENT IN
THE BANKING INDUSTRY (A Case Study First Bank Of Nigeria Plc. Enugu.)
ABSTRACT
Credit
extension is an essential function of banks and bank management strive to
satisfy the legitimate credit needs of the community it tends to serve. This
study is aimed at analysing the credit management in the banking industry in
Nigeria with particular reference to first Bank of Nigeria PLC. The importance
of credit in the economic growth and development of a country cannot be
overemphasized. Despite the important role played by credit in the economy, it
is associated with a catalogue of risks. The Nigeria banking industry witnessed
some failures prior to the consolidation era due to imprudent lending that
finally led to bad debt and some ethical facts. The issue of non- performance
of asset and declaring of ficticious project has become the order of the day in
our banking system as a result of poor credit management leading to bank
distress in the industry. Three hypotheses were formulated and tested through
use of chi-square on questionnaires administered to various respondents. From
the data collected and the tested hypothesis, results showed that: (i)
Inadequate feasibility study affects loan repayment in the banking industry,
(ii) The diversion of bank loan to unprofitable ventures affects loan repayment
and (iii) The problem of poor attention given to distribution of loan has
negative effect on banks performance. Amongst several recommendations were the
following: (a) Banks should establish sound and competent credit management
unit and recruit well motivated staffs (b) Banks should ensure that the chief
executive avoid approval in principle in the credit management, and (c) Banks
should have a monitoring and control unit or department to carry out a sort of
post- modern exercise by way of controlling and monitoring credit facilities
and also ensuring completeness of all conditions precedent to draw down.
TABLE OF
CONTENTS
Title Page
Approval
Page
Certification
Dedication
Acknowledgement
Abstract
CHAPTER ONE
1.0
Introduction
1.1
Background Of The Study
1.2
Statement Of The Problem
1:3
Objectives Of The Study
1.4 Research
Questions
1.5
Statement Of Hypotheses
16. Scope Of
The Study
1.7
Significance Of The Study
1.8
Definition Of Terms
CHAPTER TWO
2.0 Review
Of Related Literature
2.1
Introduction
2.2
Theoretical Review
2.3
Emperical Reviews
CHAPTER
THREE
3.0 Research
Methodology
3.1
Introduction
3.2 Research
Design
3.3 Sources
And Techniques Of Data Collection
3.4
Descripti0n Of Population And Sample Procedure
3.5 Method
Of Data Analysis
3:6
Determinations Of Critical Values
CHAPTER FOUR
4.0 Data
Presentation, Analysis And Interpretation
4.1
Introduction
4.2
Presentation Of Data
4.3 Analysis
And Interpretation Of Data
CHAPTER FIVE
5.0 Summary,
Conclusion And Recommendation
5.1
Introduction
5.2 Summary
Of Findings
5.2
Conclusion
5.4
Recommendation
Questionnaire
Appendix
Biblography
CHAPTER ONE
1.0
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Credit
management in our banking sector today has taken a different dimension from
what it used to be. The banking industry has adopted a lot of strategies in
checking credit management in order to stay in business. Thu the banking
industry in Nigeria has lost large amount of money as a result of the turning
source of credit exposure and taken interest rate position. Nigerian banks are
being required in the market because of their competence to provide transaction
efficiency, market knowledge and funding capability. To perform these roles, the
banks act as the most important participants in their transaction process of
which they use their own balance sheet to make it easier and making sure that
their associated risk is absorbed.
Credit
extension is essential function of banks and the bank management strive to
satisfy the legitimate credit needs of the community it tends to serve. This
credit advances by banks as a debtor to the depositor requires exercising
prudence in handling the funds of depositors. The Central Bank of Nigeria
established a credit act in 1990 which empowered banks to render returns to the
credit risk management system in respect to its entire customers with aggregate
outstanding debit balance of one million naira and above (Ijaiya G.T and
Abdulraheem A (2000). This made Nigerian banks to universally embark on
upgrading their control system and risk management because this coincidental
activity is recognized as the industry physiological weakness to financial
risk. The researcher, a New yolk-based, said that 40% of Nigerian banks that
made up exchange rate value in west Africa, has reduced the operating lending
as a result of bad debts which hit more than $10 billion in 2009 and this has
led to a tied-up questioning asset that is holding almost half of Nigerian
banks. The central bank of
Nigeria
fired eight chief executive officers and set aside $ 4.1 billion in order to
bail out almost 10 of the country‟s lenders. The reform which was introduced by
Central Bank of Nigeria (CBN) in 2010 has made Nigerian banks resume lending
supporting assets management companies and set up the requirement which will
allow Nigerian banks make full provision for bad debts that will boost the
market.
The banks
identify the existence of destructive debtors in the banking system whose
method involved responding to their debt obligations in some banks and tried to
have contract of new debts in other banks. Banks are trying to make the
database of credit risk management system more open for them to be more
functional and recognized as to enable banks to enquire or render statutory
returns on borrowers. There are some banking practices which increase the risks
in the bank and cannot be easily changed. This result still leads to the
question: what are the possible ways that will help make Nigerian banks manage
their credit risks?
Credit risk
management helps credit expert to know when to accept a credit applicant as to
avoid destroying the banks reputation and making decision in order to explore
unavoidable credit risk which gives more profit. Controlling a risk results in
encouraging rewards that give internal audit more technical support service and
customized training in banks or financial institutions. This research is
presented to outline, find, investigate and report different state of
techniques in risk management in the banking industry
1.2
STATEMENT OF THE PROBLEM
In the
history of development of the Nigerian banking industry, it can be seen that
most of the failures experienced in the industry prior to the consolidation era
were results of imprudent lending that finally led to bad loans and some other
unethical factors (Job, A.A Ogundepo A
and Olanirul
(2008)). Also the problem of poor attention given to distribution of loans has
its effect on the bank‟s performance. Most of the people collected loan from
the banks and diverted the money to unprofitable ventures. Some bankers are not
actually considering the necessary criteria for disbursement of loans to the
customer. This work therefore intends to outline, explain these problems
identify the causes and suggests lasting solutions to the problems associated
with credit management and consequently banks debts.
1:3
OBJECTIVES OF THE STUDY
The
objectives of this study is as follows
1. To
examine how feasibility study affect loan repayment in the banking industry.
2. To
highlight the extent in which diversion of bank loans to unprofitable ventures
affect loan repayment.
3. To
examine how distribution of loans affect banks performance if banks give proper
attention.
1.4 RESEARCH
QUESTIONS
Bank lending
is said to be effective if it successfully achieves the banker‟s obligation of
maximum liquidity to the depositors. The questions here are
1. To what
extent does feasibility study affect loan repayment in the banking industry?
2. To what
extent does diversion of bank loans to unprofitable venture affect loan
repayment?
3. Does
distribution of loans have effect on banks performance if given proper
attention?
1.5
STATEMENT OF HYPOTHESES
A reputable
credit management system enhances good control on lending and proper keeping of
credit account.
HYPOTHESES 1
Ho.
Inadequate feasibility study does not affect loan repayment in banking
industry.
Hi.
Inadequate feasibility study affects loan repayment in banking industry.
HYPOTHESES 2
Ho. The
diversion of bank loans to unprofitably ventures does not affect loan
repayment.
Hi. The diversion
of bank loans to unprofitably ventures affects loan repayment.
HYPOTHESES 3
Ho. The
problem of poor attention given to distribution of loans does not have effect
on banks performance.
Hi. The
problem of poor attention given to distribution of loans has effect on banks
performance.
1.6 SCOPE OF
THE STUDY
This study
is aimed at analysing the credit management in the banking industry in Nigeria
with a particular reference to First Bank of Nigeria plc. The study intends to
analyse the credit facilities in banking industry. It also reviews the various
concepts procedures for efficient and effective credit management. It examines
the success and failure (if any) as well as recommending corrective measure.
1.7
SIGNIFICANCE OF THE STUDY
This study
will be useful to the executive and managers in the banking industry and other
financial institutions. This is because it provides guidance which will enhance
effect and efficient credit management aimed at attaining and boosting maximum
profitability and liquidity in their banks. The depositor (public) on the other
hand will be more enlightened on the need to be honest and fulfil the
responsibilities in credit transaction with the banks so that they can look up
to improve service from the banks. Finally to the researcher, this is an eye
opener because as a potential manager it will guide one in future on how to
manage credit facilities.
1.8
DEFINATION OF TERMS
Below are
the major terms used in the course of this research work.
1)
BANKRUPTCY: A state where a person or firm is unable to meet their financial
obligations.
2)
MANAGEMENT: management is the study of decision-makers from the supervisor and
line managers at lower levels to the Board of Directors.
3) LOANS AND
ADVANCES: These are credit facilities granted by banks to their customers. They
could be short, medium or long term depending on the length of period of
repayment
4)
OVERDRAFT: A credit facility (usually short term) granted by banks to current
account holders and it carries interest charges on daily basis
5) BANK:
Section 61 of BOFIA 1991 Act defines a banking business as business of
receiving deposits on current account or other similar account paying or
collecting cheques drawn by or paid in by customers.
6) CUSTOMER:
A person is a customer if he or she has account with the bank.
7) FINANCIAL
RATIO: These are ratios usually expressed in mathematical terms to test the
financial obligations.
8)
FINANACIAL STATEMENT: They are firm balance sheets, profit and loss account and
classified statement which show the financial state of affairs of the firm.
9)
GUARANTOR: A person or group of persons who stand for bank customers for credit
facilities.
10)
COLLATERAL/ SECURITIES: is an asset presented by a customer to his bank to
secure a credit facility granted to him by the bank.
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