THE IMPACT OF BANK CREDIT ON THE NIGERIAN ECONOMY

CHAPTER ONE

INTRODUCTION

1.0   BACKGROUND OF THE STUDY

Credit in deeper perspective conates different definitions depending on angle on which it is being viewed. In an accountant, credit means financial benefit and also put in another way, having a corresponding relationship on a dual entry principles. To a banker it means financial accommodation, a type of financial facility, packaged, for the benefit of the deficit economic unit. In essence, it involves an allocation of finds. For example, chamber Dictionary define credit as sum placed at one’s disposal in the books of bank. This definition crystallizes the concept that when an account is in surplus position it liberty? Up to the limit of his funds. Therefore, when an arrangement is made between the bank and the borrower overdraws his balance, a form of bank credit has been allowed in which case, there is an obligation to repay such debt at a future date.

Relating this to Bank, credit means that Bank frequently uses part of its deposit in granting credit to his customers thereby affecting confidence in the integrity at customers (borrower) is to whom such loan and advances are made either by way of discounting bills or otherwise, to increase the borrower to increase in borrower purchasing power.

Credit is, therefore created by way of loans and advances or by discounting of bills and engaging in other investment securities normally oblige to the borrowers.

Financial institution ensures that there is enough stock of money to service the needs and aspiration of the economy. It also performs economic as of transferring money from areas of surplus economic units to deficit economic sector.

Credit management is regarded as a vital instrument in the management of banking industry especially as it affects the commercial banking system. Attention in this work would be focused on this area of endeavour. More so as to be one of the most neglected areas of management in most countries today (especially in the developing and underdeveloped nations of the world including Nigeria) it could therefore be said that the inherent problem as experience by banking sector today can be linked to the partial or total neglect of cannons of lending, by the officers of the bank, impact of government policy and customers attitude towards the entire spectrum of credit facilities.

1.1   STATEMENT OF RESEARCH PROBLEM

Research work is carried out to investigate into some areas where attention has not been focused or even where there has been work and ideas put forward in its area, but this has been neglected at the end, this work attempts to find out certain problems and try suggesting solution. Some of these problem include the following:

1. Does the bank lack competent hands to handle the sensitive area of credit control of the bank?
2. Does the bank actually carry out critical assessment before advancing credit?
3. Does the intimacy of some loan suckers both the authorities of the banks inhibit proper credit evaluation?
4. Does the counter-order from superior officers affect the lending banker decision?

1.2   OBJECTIVES OF THE STUDY

Based on the background information, this study therefore aims at examining and actually finding out how the banking industry in Nigeria has been facing in managing credit with a view to meet the financial requirement and satisfaction of the various categories of customers like the private sector, industrial and government department vise-visa, the federal government series of monetary policies and control exercise through the central bank of Nigeria in terms of credit guidelines and sectional allocation of funds. The greater the bank credit is, the greater the stimulus to economic activity provided by monetary policy.

The study also aims at examining the management of credit and man tools at the disposal of the banking industry. Since these are necessary for carrying out a safe and sound practice based on statistical data analysis needed for efficient risk evaluation.

1.3   SCOPE OF STUDY

This work is restricted Union Bank of Nigeria Plc, and no attempt was made to compare finding with what is obtainable in the banks within the same sector or industry, although reference could be made in this regard when the need arises.

1.4   SIGNIFICANCE OF STUDY

The significance of this research work includes among others, the gains occur to the researcher, the bank and invariably to other interest groups. To the researcher, a vast knowledge of effective management of a credit in Bank and financial institutions have been gained.

This project work will enable the bank and other financial institutions to know whether the existing credit management system is in line with the recommended credit policy laid down by the Central Bank of Nigeria and if not necessary corrective measures will be taken in order to achieve greater efficiency in the future.

The result from this study would provide the policy makers, opinion leaders and head of organizations most especially the Board of Directors (BOD) of Union Bank of Nigeria Plc a background information for proper credit management system in the Bank.

1.5   RESEARCH HYPOTHESIS

Hypothesis also mean test of the research. Hypothesis could be defined as statement or assertions which are yet to verification in order to prove their validity or otherwise, such preposition for this work include:

H0:   Union Bank of Nigeria Plc has adequate credit policy.

H0:   The cannons of lending are not often followed when         granting credit facilities to customers.

H0:   Some customers have the problem of inadequate collateral      securities for loan requested for

H0:   Bank customers direct borrowed fund to other purpose different from reason of taking the loan

1.6   LIMITATION OF STUDY

The factors that limited the scope of this work is grouped into two variables namely controllable and uncontrollable variables. The former is base on the time at the researchers’ disposal to carryout the study and financial constraint, while the later is attributable to the non-cooperative study. Some staff related questionnaires administered with contempt and resentment which affected the number of question that were retrieved, while some vital information that would have added to the substance of the work was not given as it was claimed to be management decision and they viewed such request as probing into their into their facilities.

1.7   HISTORICAL BACKGROUND OF UNION BANK

The history of Union Bank of Nigeria Plc cannot be distinguished the growth in international trade. Before the advert of Europeans, Nigeria and other West and East via the Sahara trade routes.

In 1917, the colonial bank which started operation in Africa in 1836, open branches in Lagos, Zaria and Accra. However, in 1929 the colonial limited merged with the Anglo-Egyptian Bank and the National Bank of the Africa to form the Barclays Bank (DCO) Dominion Colonial and Overseas.

This was the era where individuals could float bank at will subject only to provisions of section 2 (1) of the companies ordinances, respective of adequacy of skills, manpower or availability of adequate bank capital, window banking was a common features since banks proliferated at such a supersonic rate that can not be managed. The era could also be described as a rudimentary or elementary banking in Nigeria.

In 1973, the foreigners were the majority shareholders in the 4 Barclays Bank of Nigeria. Thanks to the indigenization Decree of 1973, which no longer allow the establishment of foreign banks with a majority foreign interest. In compliance with the Decree, the share holding of Barclays bank of Nigeria was changed with the federal government of Nigeria owning 51.7% of the shareholding, Nigerians owing 28.3% and foreigners owned the balance of 20%.

In 1977, the Barclays bank of Nigeria Limited changed its name to Union Bank of Nigeria limited. With Barclays bank giving up its 20% equity in Union Bank in May 1989, the bank became 100% Nigeria owned and managed, making it the first of its land among the big three Banks in Nigeria section 29 (2) of the Companies and Allied matter Decree (CAMD) 1990, mandated all the public companies in Nigeria, limited by shares to make a special resolution at an extra ordinary meeting to the:

1. The company’s memorandum which states that the company is to be a public company and
2. Make such other alterations in the memorandum as are                     necessary to bring it into conformity with the requirements               of the Decree with respect to the memorandum of a public                 company articles as are requisites in the circumstances.

In 1998, at the annual general meeting, members approved a special resolution to increase the share capital of the bank to N500 million to meet the Central Bank of Nigeria’s guideline that the minimum paid up capital beat least N500 million. In line with the resolution passed in that special meeting, the share capital was increased by N232 million as at 3 December, 1998. Union Bank of Nigeria Plc annual report and account (1998) states that the banks core capital consisting of past up capital, share premium account, bonus issue reserve, statutory reserve and general reserve is a little above the N8 billion mark. This is a record in Nigeria banking history and it confirm the banks strong position as one of the biggest enterprises wholly owned and managed by Nigerian stock exchange with over 80 years of banking services to the nation, the banks asset has risen to N102 billion and with a total deposit of N77.2 billion. The bank is the First Bank of Nigeria to achieve the N4.5 billion in savings account deposit. The bank has over 271 branches nation-wide and a fill-fledged overseas branch in London and a representative office in South Africa. The bank also has over 12,000 staff strength.

The terms credit and management has been defined and as a result would not need to be defined again. However, the following needs to be defined:

1. Bank: The patron commission defined banking as the business of receiving from the public on current account money which is to be repayable on demand by cheque and of making advances.

Section 61 of the Banks and Other Finical Institution Act No. 25 of 1991 (BOFIA) defines banking business as the business of receiving deposits on current account, savings account or other similar account, paying or collecting cheques, drawn by or paid in by customers, provision of finance or such other business as the governor may, by order published in the Gazette, designate as banking business.

Section 61 BOFID also defines four categories of banks as follows:

1. Commercial bank means any bank in Nigeria whose business includes the acceptance of deposits withdrawn by cheques. Community bank Micro finance bank means a         bank whose business is restricted to a specified    geographical area of Nigeria.
2. Merchant bank means a bank whose business includes receiving deposits on deposit account, provision of finance, consultancy and advisory services relating to corporate and investment matters, making or managing investment on behalf of any person profit and loss sharing bank means a bank which transacts investment or commercial banking business and maintains profit and loss sharing accounts.
3. Industry: An industry will be defied as a group of friends producing the same goods and services for the consumption of the public.
4. Facility: A bank facility is any credit service rendered by a bank. It is district from bank service. Bank services include all such functions performed by the bank for example opening of savings account, cashing cheque, opening letters of credit, foreign remittance etc. Bank facility is a concession given to trusted customers at time on the pledging of a valuable credit, credit facility are not mutually exclusive.
5. Money: This can be defined as anything which passes freely from hand to hand and a generally acceptable in the settlement of debt and for payment for goods and services.
6. Collateral: A property pledged as a guarantee of payment                 for an obligation or loan.

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