ABSTARCT
Commercial banks are profit-making ventures and as such they share with the other business the same set of expectations concerning the health of the economy.
It is in this light that they make loans available to borrowers on interest, which is a source of profit to them.
So the purpose of this study is to know how fair the commercial banks lending has contributed to the development of the economy.
In order to achieve the objectives, the writer set forth hypothesis that has been tested with chi-square.
The information requirement for this research were generated from secondary data and primary sources through the use of questionnaire.
Commercial banks been confronted by a lot of problems which made them not to be up and doing towards lending as revealed by the writers analysis made some recommendation among others.
- The bank draft should be used for professional valuation of the property being offered as collateral and perfecting the legal mortgage of the property.
- The ability to conduct a fruitful interior is crucial to the success of every bank manager and lending officer.
- Men of high level of integrity should be officers of the commercial banks, who receives gratification from customers in order to file in false reports about project viability.
TABLE OF CONTENTS
Title page – – – – – – – – i
Approval page – – – – – – – ii
Dedication page – – – – – – – iii
Acknowledgement – – – – – – iv
Abstract – – – – – – – – vi
Table of content – – – – – – – viii
CHAPTER ONE
- Introduction – – – – – – 1
- Statement of problem – – – – 2
- Purpose of the study – – – – – 3
- Significance of the study – – – – 4
- Statement of Hypothesis – – – – 5
- Scope of the study – – – – – 7
- Definition of terms – – – – – 7
References – – – – – – 15
CHAPTER TWO
- Literature review – – – – – – 16
- Historical Background of commercial banking in Nigeria, operation/Bank lending. – – – – 16
- The history of lending/concept of lending. – 21
- Lending principles and practices – – – 21
- Constraints to commercial banks lending – 29
- Environmental influences of comm. Banks lending. 34
- Background of Nigeria economic development – 39
- Commercial bank lending and economic development 44
- Commercial banks lending and small scale enterprise -8
- Management of lending. – – – – 52
CHAPTER THREE
- Research design and methodology – – – 57
- Sources of data: – – – – – – 57
- Sample plan – – – – – – 58
- Method of investigation. – – – – 60
CHAPTER FOUR
- Presentation of data and data analysis – – 62
- Date presentation and analysis – – – 62
- Test of hypothesis – – – – – 63
CHAPTER FIVE
- Summary of findings, conclusion and recommendation.70
- Findings – – – – – – 70
- Conclusion – – – – – – – 74
- Recommendation – – – – – – 75
BIBLOGRAPHY. – – – – – – 79
Questionnaire – – – – – – 83
Appendix – – – – – – – 84
CHAPTER ONE
- INTRODUCTION
Lending is the backbone of banking activities. It generally provided the larger part of a banks profit and help in economic development. This banks have lending policies to establish the directions and use of funds from stockholders, depositors and creditors to control the composition and size of the loan portfolio and to determine the general circumstance under which it is appropriate to make and advance.
The most important purpose of an explicit lending policy is to provide guidance for the lending officers and thereby establish a greater degree of uniformity in lending practice.
Furthermore, it provides the providence of lending officer in credit appraisal so that the risk/reward ratio will be satisfactory and danger of default minimized.
Some of these policies are externally imposed by the government or monetary authorities either in the form of laws or regulations, while others develop from the nature of the baking system or by convention of the trade association, which transforms into practice in the profession. This paper will therefore consider commercial banks lending and economic development, highlighting the lending policy of the banks and securities accepted as collateral.
- STATEMENT OF PROBLEM
Lending is a very important services rendered by commercial banks. The major problem they encounter in rendering this services is the central bank restrictions on the percentage share of the total funds of a bank, to be given to the different sectors of the economy as loan. The central bank also specifies the rate of interest that will be paid when the loan/principal amount is repaid back.
Another problem is the altitude of some members of public in repaying the loan. There have been many cases of loan default in the past due to one reason or the other, as such the banks now resort to imposing stringent conditions to be fulfilled by any person who wants a loan. This is done because the funds available to lend and effectively held in trust for other people – depositors, and the banks are in the final analysis accountable for their use.
1.2 PURPOSE OF THE STUDY
The purpose of study are as follows:-
- To know the services and operations of commercial banks render to enhance Economic development.
- To know the role of lending in economic development.
- To know the environmental influence on commercial banks lending.
- To know how banks lend to small-scale enterprises.
- To know the commercial Banks lending policy and
- Finally, to know securities accepted as collateral by commercial Banks.
1.3 SIGNIFICANCE OF THE STUDY.
The impact of debt on the liquidity of the bank is serious considering the important role and sensitive place of banks in the development of a country. Any distortions of their smooth operation may have negative impact on the growth and development of the economy because of their functions as financial intermediaries.
In light of the foregoing the study is intended to .
- Elicit the knowledge on loan administration practices.
- The knowledge on Banks loan and concepts of lending.
- To know the environmental influences of commercial Banks lending.
- It also highlights on the background of Nigeria economic development and the management of lending.
- To know how commercial Bank plays role on the economic development of the country.
- The study would also assist all those who may be interested in carryout further research on commercial Banks lending and economic development.
1.4 STATEMENT OF HYPOTHESIS
Considering the various problems identified, the researcher formulated the Null Hypothesis (Ho)
Alternative Hypothesis (Hi)
Ho: Commercial banks lending do not lead to economic development.
Hi: Commercial banks lending do lead to economic development
Ho: The economic environment has not led to restriction in commercial banks lending.
Hi: The economic environment has led to restriction in commercial banks lending.
Ho: The type of bank loan given by commercial banks is not independent on the type of security.
Hi: The type of bank loan given by commercial banks is independent on the type of security
Ho: Poor branch Networks in the rural areas have led to non-participation by rural dwellers.
Hi: Poor branch Networks in the rural areas have led to participation by rural dwellers.
Ho: There is not a significant relationship between the level of bank deposit and the manner of loan.
Hi: There is a significant relationship between the level of bank deposit and the manner of loan.
Theoretical and practical frame of lending policy and dwell more specifically on loans and advances. Commercial Banks lending and small scale enterprises. Commercial Banks and economic development and the management of lending. Given the purpose of this study the writer shall concentrate her effort more on the Union Bank of Nigeria Plc with its branch at Okpara Avenue Enugu.
1.5 SCOPE OF THE STUDY.
It could have been ideal for research of this type to cover the entire spectrum of all commercial banks in Nigeria. Unfortunately, the writer shall not be able to accomplish the idea in this research. Reasons being lack of resources and time to undertake a study that covers the entire commercial banks in Nigeria.
However, the writer tried to carry this study specially on Union Bank of Nigeria Plc, Enugu Branch and this will cover the period of 1991 – 1997.
1.6 DEFINITION OF TERMS
For a proper understanding of the study being carried out, the author gave the operational definitions of the following terms used in the study.
(a) DEBT: It can be simply said that debt is what is owed to another. It can also be described as an obligation to make further payments. It can be defined as money, goods or services owing to another by virtue of an agreement expressed or implied which gave rise to a legal duty to pay. Technically put, debt is credit received by a borrower from a lender.
(b) BAD DEBT: This is the case, where the debtor or borrower fails to meet up with his matured obligation, and all efforts by the lender to recover the money prove abortive. This gives rise to bad debt.
(c) CREDIT: This could be said to be what is owed to another. It has also been defined as money goods and services owing to another by virtue of an agreement expressed or implied which gave rise to a legal duty to pay. Technically credit is debt receivable by a borrower from a pure lender.
TYPES OF CREDIT.
The type of facility a bank grants to its customers depends very much on the purpose for which the facility is going to be utilized, even though they could belong to one sector entity or the other.
Apart from the purpose of the loan, the length of time before repayment is due. It also leads to the classification of the finance into long, medium or short term. The type of lending done by the Union Bank and indeed most commercials banks include, overdraft, loan, advances, discounting documentary letter of credit facility, trust receipt, bonds and guarantee.
(d) OVERDRAFT: Overdraft are the most widely used type of short term finance, usually used to tide over the population cycle and to finance occasional seasonal peaks. It’s maturity is usually within one year but in practices, most overdrafts are renewable. This finances is most suitable for financing transactions, which are self-liquidity over short period. Funds advanced on overdrafts are in theory repayable on demand, while interest is payable on the outstanding balance on daily basis.
(e) LOANS: Loans are usually raised by borrowing companies. It is widely used as part of a package of financial facilities. Repayment may either be made in one lump sum or instalmentally over a period of time.
The pattern of repayment can be tailored to fit the earning capacity of the assets being acquired or usually to be estimated cash flow of business. Interest rates are determined by the general rates prevailing in the market, the term of the loan and the sector into which the business is classified.
(f) ADVANCES – An advance is a type of loan that is given to finance specific project. And the most important distinction is that repayment is to come in block or as agreed, from the project financed.
This type of finance is in particular suitable for produce licensed, buying and selling and credit that is in the nature of “seed-time” to harvesting period, though must be comparatively of short duration usually not exceeding six months is made to the exporter by which time the facility becomes explicit.
TRUST RECEIPTS- This facility is usually granted in connection with letter of credit and in most cases as supplement to documentary credit facilities. Instead of debiting the customers account before documents are collected a Trust Receipt Account” could be reversed into account. The letter of credit need to be of insurance type.
- BONDS AND GUARANTEE
These are clear cut contingent liabilities which will only be crystallized if the customer on whose behelf the liability was undertaken defaults. Customers occasionally request for this type of non-cash facilities of contingent nature in order to facilitate their business operations.
Several types of bonds are issued depending on what purpose the bond is requested. These include performance bond, which is an undertaking by the bank that the customer will perform to specification bid or tender board assures the party to which they are issued to the Board of customers and Excises assuring.
(h) DISCOUNTING. By drawing a bill of exchange on his customer and ensure that it is accepted on the latter’s behalf, the supplier has a negotiable instrument which can be discounted with a discount house or bill broker with a small margin dedicated from the face value of the bill to cover the incidence of risk, administrative expenses and interest from the data of discount to the due date.`
Alternatively, where the bills bear good names and acceptor, they may be accepted by a bank to support additional bank finance, usually of a bridging nature pending the maturity of the bill.
DOCUMENTARY LETTERS OF CREDIT: This is similar to a guarantee in that bank undertakes on behalf of the customer to pay a specific amount . If certain conditions stipulated in its terms are met. Letter of credit are used largely on association with bills of exchange to which they gave added security to the financing of foreign trade (Adekanye, 1983, p.age5) .
The documentary credit facility is a method of setting debts in international trade. The bank issuing a letter of credit undertaken to make payment on behalf of the importer. Payment is made to the exporter against presentation of documents specified in the credit. If therefore, a bank is issuing documents specified in the credit on behalf of its customer and had not collected the local currency equivalent of the transaction prior to the insurance of such credit, such a bank has provided a contingent facility to the customer up to the time when actual payment assuring the board that the duty payable on imported and locally manufactured goods will be paid by the bank if the customer fails to pay.
A guarantee is a promise to answer for the debt of another made to a person or financial institution to whom a borrower is already or about to become liable. Guaranted must be in writing signed by the guarantor or his authorized agent
REFERENCES
Adekanye, N.C (1983) The commercial banks and credit management African Pre publisher limit.
Khat Khat D.R. &
Raecheal K.W(1984 Multi purpose Banking for developed countries International monetary fund staff paper 3
Klein S. J (1970) “Money and the Economy” HarcourtBrale and world Inc. New York
Nwankwo C.C. (1993) The Nigerian Banking structure and performance. The Banking system and contribution to economic development African Pep.
Majo H.B (1982) Finance, The Drydenpress New York.
Ojo, A.T.& Adewumi W.(1989) The banking and finance in Nigeria, A study of the Banking & finance Institution and marketing in Development economy. Bedforeshine, Graham Bum.
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