ABSTRACT
The purpose of this research is to examine “An Evaluation of Credit Management and The incident of bad Debt in Nigeria (A study of union bank of Nigeria). The introduction of the prudential guideline in banking industry, the volume and value of loans and advances classified into non-performing account ahs continued to increase in bank lending. Obviously this has adverse effect on banks since it affects their cash flow and impair profitability. Most loans and advances go bad because of the inadequacy in credit management and recovery procedure of banks. Appraisal of lending vis a vis the credit management of banks and the impact of the application of prudential guidelines on credit, form the major objective of this study. Union bank of Nigeria Plc Okpara Avenue Enugu was used as a case study with a view to highlight the effectiveness, the adequacy or otherwise of the credit management policy of Nigerian commercial banks with a view to finding the causes and consequences of non-performing loans and advances. The causes are excessive lending on security values and bad management of borrowers. Having analysed the data, the following findings were made, the principal objective of bank lending is to generate revenue, the loan deposit ratio affects the liquidity position of commercial banks, non- performing account kept on increasing the frequent occurrence of non- performing accounts was discovered to be as result of the banks inability to put in place an effective process of loan recovery, implementation of prudential guidelines by Nigerian commercial banks reflect the real income of banks. In conclusion, the prudential guidelines reduced the profitability of commercial banks and made banks classify their loans clearly. In the recommendation, the researcher suggested that the provisions of the prudential guidelines should be adhered to and an effective loan monitoring unit should be set-up in al commercial banks.
TABLE OF CONTENTS
Title Page i
Approval Page ii
Dedication iii
Acknowledgement iv
Abstract ix
Table of Contents x
CHAPTER ONE: INTRODUCTION
- Background of the study 1
- Statement of the Problem 5
- Objective of the study 6
- Research Questions 7
- Formulation of Hypotheses 8
- Significance of the Study 9
- Scope/ Delimitation of the Study 11
- Definition of Terms 11
CHAPTER TWO: REVIEW OF RELATED LITERATURE 39
References
CHAPTER THREE: METHODOLOGY
3.1 Research Design 47
- Source of Data 49
- Instrument for Data Collection 49
- Area of Study 51
- Population of the Study 52
- Sample Size Determination 52
- Method of Presentation of Data 53
- Techniques of Data Analysis 54
References
CHAPTER FOUR: DATAPRESENTATION AND RESULT
4.1 Data Presentation and findings 57
4.2 Discussion of Findings 65
4.3 Statement of Hypothesis 70
References
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND, CONCLUSIONS
5.1 Summary 76
5.2 Recommendations 78
5.3 Conclusion 80
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
- Background of the Study
Adekanye (1983:12) noted that in a modern economy there is distinction between the surplus economic unit and the deficit inconsequence’s a separation of the saving investment mechanism. This has necessitated the existences of financial institution whose job includes the transfer of fund from sales to investors. One such institution is commercial bank. The intermediating roles of the banks place them in a position of trustees of the saving widely disposed surplus economic unit as well the determinant of the rate and shape of economic development.
The techniques employed banks in this intermediating function should provide them with perfect acknowledgement of the out come of a lending such that funds will be allocated to investment in which the probability of full repayment is certain.
Ajayi, (1981:23), define credit as the extension and acceptance of promise to pay in the nearest future. Credit therefore supplement money in the economy and makes possible the s of goods as well as rendering of services without immediate payment to creditors the importance of credit in an economy could be best viewed, when it is realized that the rate of development mighty be virtually impossible without credit. Lack of credit is often the greatest single impediment to the growth and diversification of most industries in Nigeria. There is an increasing pressure on banks in Nigeria to give out more loans and advances than their present level of operations, so as to help improve and increase the development of our economy.Credit risk management is an everyday fact of life in banking.
Mgbodile (2005:56), practice no such tools can be found in the decision of the lending bank virtually all leading decision is made under condition of uncertainty. The risk and uncertainty associated with lending decision. The situation are so great that the concepts of risk analysis need to be employed by lending banker in order to facilitate sound decision making and judgment.
Obasikene (2011:55), Principal objective of credit management includes the assessment of credit standing of both new and existing customers, establishing term have regards to the risks involved and the potentials profit collection of accounts in a way and manner that produces the option cash flow while ensure continuity of business. The increasing trends of provision for bad and doubtful debts most commercial bank is a major source of concern not only to management but also to the shareholders who are becoming more aware of the damage posed by these debts. Bad debt destroy part of the earning assets of bank as loans and advance which have been described as the main sources of earning and also determine the liquidity and solvency of banks. In other words, bad debt, according to (Oleka 2005:71), in commercial bank generates two major problems that is profitability problems. Bad debt emotive word to balance because they represent losses to banks, there are various reasons for the occurrence of bad debt and its impact on the bank operation.
However, researchers like Clifford and Richard (1999: 45), over the years have revealed that a large segment of rural populace and low income group have been marginalized in granting credit facilities by excising banks due to their inability to provide collateral security. In other to checkmate such situation, a proper analysis of the activities of commercial banks as well as their credit management technique will be carried out so as to devised means of extending credit facilities to rural populace as well as low income group.
- Statement of the Problem
This statement is an evolution of lending and credit management and policies of a typical commercial bank using the union Bank of Nigeria PLC as a case study. The aim is to find the causes and consequences of bad debt in Nigerian Banks.
Suffice is to say that year after year, Banks suffer much from the part or loan extended to customers which in one reason or the other provide irrecoverable. Many banks experienced a lot of bad debt when the government abandoned the project awarded to contractors by civilian government. These contractors borrowed money to execute the project awarded to them but could not. The economy loan due to government action to revamp the economy thereby abandoning the project. Hence, this study stirs to reconcile these capes with banks performance.
- Objectives of the Study
- To identify the criteria for commercial banks lending and basic principals that should guide bank lending?
- To find some factors that may cause bad and doubtful debt to arise?
- To find out problems associated with financial statement?
- To find out why borrowers often refuse to repay loan extended to them?
- Research Questions
- What are the requisites for commercial bank lending and basic principal that should guide the bank lending process?
- What are the factors that may cause the occurrence of bad and doubtful debts?
- What are the problems associated with financial statement?
- What are the reasons why the borrowers often refuse to pay loans extended to them?
1.5 Research Hypotheses
Hypothesis One
HO: There is no reliable criteria for commercial banks lending and basic principals that should guide bank lending.
H1: There is no reliable criteria for commercial banks lending and basic principals that should guide bank lending.
Hypothesis two
HO: Bad debt does not affect commercial banks profitability
H2: Bad debt affects commercial banks profitability.
Hypothesis three
HO: Government intervention in lending policies of commercial banks has no influence in the bad inured by union bank Nigeria.
H3: Government intervention in lending policies of commercial banks has influence in the bad inured by union bank Nigeria.
Hypothesis Four
H0: Ascertainment of the effect bad is not significant in the profitability of commercial bank.
H4: Ascertainment of the effect bad is significant in the profitability of commercial bank.
1.6 Significance of the Study
The extend to which the success or failure of the banking industry in any that may develop lies in the effective management is a pre-requisite in the protection of assts and management of adequate investment. Undoubtedly in the recent past there appears to be very little in print on the above mentioned subject, this study will therefore mirror the issues of bad debts and as well reveal more in addition to the existing volume of bank literature.
Effective loan management demands that beyond the application of supposed sound banking principal. When ever a loan is advanced, urgent and perise action needs to be implemented whenever the loan assumes a doubtful dimension in its repayment in other to curb the eventuality of capital loss.
Understanding that bad debts are mitigated factors in achieving profits, Owing to the striate competitions amongst banks. This study would as well give an insight into the shaman involved in the banking industry focus on credit management and bad debt.
Furthermore, the economy will benefit from the study as it would enlighten the stake holders in the industry on values of profit making and its attendant contribution to economic development.
Without forgetting that it would inevitably enlighten the general public on the incidence of bad debt and credit management contributory factor to further research on the topic.
1.7 Scope and Limitation Of The Study
This research work is concerned with the evaluation of credit management and the incidence of bad Debt in Nigeria commercial bank, a case study of union bank of Nigeria.
It excludes the central bank of Nigeria, merchant banks, development banks as well as other financial institutions not covered by his research.
It is limited to only credit management and incidents of bad debts in a commercial bank.
1.8 Definition of Terms
The following terms are defined in the context of this study
- Credit: this is the extension and acceptance of a promise to pay in the nearest future.
- Borrower: this term refers to any individual or business entity that seeks for loan and advances form lender (i.e bank)
- Lender: this term is used to denote any commercial bank from which individual and business entity may borrow.
- Bad Debt: this term refers to a situation whereby principles and / or interest remain unpaid or outstanding for 360 days or more are not secured by legal title or perfected realizable collateral in the course of collection.
- Collateral: this is the pledging of properties as a security for the payment of a loan according to the terms of the repayment.
REFERENCES
Adekanya, F. (1983), Element of banking in Nigeria, Ibadan: Star Press Limited
Ajayi, S.I. (1981),Money and Banking, London:, George
Allen and Urvin publisher
Adenyi, O. A. (1985), Employment Credit Scoring as in aid
to personal Lending decision in Nigeria, Ibadan: The University Banker
Clifton, H. K. and Richard F. Wacht (1999) Credit
Administration2nd Revised edition, USA: America Institute of Banking
Mgbodille, (2005), Banking Lending and Loan Administration
Enugu: Academic Publishing Company
Obasikene, A.C. (2011), Second Edition Bank Credit Analysis
Enugu: Hugotez Publication
Oleka, C.D. (2004), Business Financial Management, Enugu:
Joebest Enterprise
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