Credit Management And Incidence Of Bad Debts In Nigeria Commercial Banks

Project and Seminar Topics with material for Banking and Finance

Credit Management And Incidence Of Bad Debts In Nigeria Commercial Banks


Abstract


This research work is on credit management and incidence of bad debts in Nigeria commercial banks a case study of African continental bank of Nigeria. On the course of this research work four research objectives, questions and hypothesis were formulated. The research adopted Chi-square and case study design as the research design for this work, Taro formula was used to determine the sample size of the population and thus the findings shows that inadequate collateral, fund diversion, lending policies and project evaluations affect credit management. That to manage loan and credit effectively, efforts have to be made to obey and respect the cannons of good lending and ensure adequate control and supervision on the facility extended within the frame work of government regulation and guidelines. Sound lending requires a clear, well-articulated and easily accessible policy document which spells out the philosophy of lending. The issue of bad debts cannot be ruled out in banking business but the incidence can be minimized with prudent lending philosophy and proper grasp of economic and political environment factors


Chapter One


Introduction

1.1 Background of the Study

Banks economic purpose is to act as financial intermediary. It facilitates the process of channeling savings into investment and one of the avenues of realizing this objective is by lending effectively. Lending is considered effective if it is successfully reconciles with the banks obligation to maximize liquidity to the depositor and maximum profitability to the shareholder. It involves environmental analysis of banks objectives, resources possibilities and constraints economic environment. The resources flow and potentials in the economy as well the government, therefore involves a thorough appraisal of the position including the analysis of the financial statement, analysis of security to be offered and management competence specifically.

Lending requires development of clear-cut loan policy. Strong department organization loan review programme comprehensive credit files among other things. In the light of the above, a bank being under obligation to the shareholders and realizing the fact that the interest accruable from advance constitute the largest chunk of the annual income declared by bank considering also that banks lend to meet the economy in general. They should constitute religious commandment rather than mere techniques and guidelines, which have serious limitations. Political interference may go contrary to the laid down policy guideline.

From the fore going, it was recommended amongst others the state owned commercial banks should be effectively managed. Banks should use the services of external consultants/professionals to manage and collect debts on the account classified as doubtful and to avert the diversion of funds by some borrowing. The bank should try as much as possible to deal directly with contractors or suppliers of the borrowers, as the case may be. Much of the occurrence of bad debts cannot be eliminated totally its hope that the suggestion made in this treatise will in no small measures reduce its incidence by a wide margin. In the ordinary course of lending however, bankers unavoidably remain uncollectible and hence, charge against the income generated with the obvious afar matters of depleting profit and in some severe circumstance liquidates the affected bank. All business regrettably, experience bad debt but bankers whose stock in trade is money view debt incidences with dread.


1.2 Statement of the Problem

  1. African continental bank closed down by central bank of Nigeria because of the incidence of bad debts resulting from inefficiency of the bank workers and dishonesty.
  2. This unfortunate trend in the Nigeria banking industry had left creditors of the bank loose their money and their dividends as bad debts.
  3. Conflicts between boarders and management banks or among members of the board and management. This caused dissipation of bank resources and the entrenchment of inimical operating parties.
  4. African continental bank was also closed down due to doubtful debts, which gave rise to fraud and other unethical practices represent the most dominant factor responsible for its distress. It can often be traced to the very high incidence of bad debts and loan losses. This could be called fraud and unprofessional conduct.
  5. Weak internal control most operational problems are by and large symptomatic of poor quality management. The quality of management often makes the difference between success and failure in banking as in most often frauds of economic end eave.

1.3 Purposes and Objective of the Study

The objective of this study is to critically analyze the incidence of bad debt in our banking sector.

The other objectives are:

  1. To highlight the rate at which inadequate collateral security provision by borrowers increases the incidences of bad debt in Nigerian.
  2. To determine whether fund diversion has any effect on bad debt of money deposit banks in Nigerian.
  3. To ascertain the extent to which government intervention in lending policies of money deposit banks has influenced bad debts in Nigerian money deposit banks.
  4. To highlight the extent to which improper project evaluation influence bad debt of money deposit banks in Nigerian.

1.6 Research Questions

In view of the consequences of bad debt in Nigerian money deposit banks, it is necessary to formulate some research question which will enable the researcher formulate statistical tables for testing hypothesis.

  1. Does inadequate collateral security provision by borrowers caused bad debt in African continental bank of Nigeria Plc.?
  2. Does fund diversion have any effect on bad debt of African continental bank of Nigeria Plc.?
  3. To what extent has government intervention in lending policies of money deposit bank influenced bad debt in African continental bank of Nigeria Plc.?
  4. To what extent does improper project evaluation influenced bad debt of African continental bank of Nigeria Plc.?

1.7 Research Hypothesis

The following hypothesis were drawn as follows.

  1. Ho1: inadequate collateral provisions by borrowers does not increase the incidence of bad debt in African continental bank of Nigeria Plc.
  2. Ho2: Fund diversion does not affect bad debt in African continental Bank of Nigeria Plc.
  3. Ho3: Government intervention in lending policies of money-deposit banks
    has no influence on African continental Bank of Nigeria Plc. bad debt.
  4. Ho4: improper project evaluation has no significant relationship with bad debt in African continental Bank of Nigeria Plc.

1.6 Significance of the Study

In the study relating to African continental bank, a conscientious bank investigation will be undertaken on the lending issued that led to its collapse. An overview of the mancour, view institute meaningfully to the achievement of its objective, while leaving behind a source of reference to other banks who and probably in similar difficulty, the relevance of the study is under come in its desire to assist banks confirm the multifarious help about and account operation through the flagging position of his account, account could be easily.


1.7 The Scope of the Study

In the study of credit management in Nigeria, African continental bank of Nigeria Plc was used for my analysis. All references therefore relate to African continental Bank of Nigeria plc. A Six-year period covering 1988-1993 will be studied.


1.8 The Limitations of the Study

The limitations of this study include some of unavoidable constraints and problems encountered in the process.

They are as follows:

i) Finance:

The problem of finance was not left out in the course of research to this study. This type of study required adequate money and time to enable the researcher visit the necessary places for collection of data. Insufficient fund hindered an in-depth study of this research since it was financed from meager pocket money of the researcher.

ii) Non-Availability of Records:

This is one of the most important limiting factors in the course of the study. This includes the problems of easily getting the appropriate data due to bureaucracy which hinders the information flow in the country.

iii) Non-Challant Attitude of Bank Officials:

The reluctance of bank officials to reveal information on the need for this study, for fear of breach of duty of secrecy to customer’s exposure of banks administrative short-comings.

iv) Ignorance of Respondent / Borrowers:

Most bank customers were semi-illiterates and most often it was very difficult to collect adequate data required from them.

v) Time:

Since this study is one of the many courses offered by the researcher, the researcher was constrained by time to carry out an indent research on the study.


1.9 Definition of Term

Debt:

This is what one owes to another person.

Loan:

A Loan is a credit arrangement, a security is pledged and must be repaid with interest over a stipulated period of time.

Overdraft:

This is a credit arrangement by banks to their customer to withdraw money over and above that what he has in the account.

Default:

This means failure to pay one´s debt for credit extended which has fallen due.


Chapter Five


Summary of Findings, Recommendations, Conclusion.

5.1 Summary of Findings

In the course of the topic, credit management and the incidence of bad debt in Nigeria Deposit-Money banks (A case study of African continental Bank of Nigeria) the researcher had the following findings.

  1. In the test for the African continental hypothesis, which was aimed at determining whether inadequate collateral provision by borrowers increases incidence 5 in chapter 4 was posed and the responses received showed that 40 or 80% of the responses received were of the opinion that inadequate collateral security provisions by the customers affects the incidences of bad debt in African continental Bank to a great extent whereas 10 or 20% believed that it affects the incidences of bad debt to an extent. The researcher states as his findings that inadequate collateral security provisions by borrowers increases the incidence of bad debts in African continental Bank.
  2. In the test for the second hypothesis which was aimed at determining whether fund diversion affects bad debts in African continental Bank. Question 6 in chapter 4 was posed and the responses received showed that 47 or 94% of the responses received accepted that fund diversion has a contrary view. The researcher states as his findings that fund diversion affects bad debts in African continental Bank of Nigeria.
  3. 3. In the test for the third hypothesis which was aimed at determining the extent of which government intervention in lending policies of Money-Deposit Banks. Question 8 in chapter 4 was posed and the responses ceiling posses a problem to African continental Bank in granting loans while 2 or 4% had a contrary view. The researcher states as his findings that government intervention has direct influences on African continental Bank of Nigeria bad debt.
  4. In the test for the fourth hypothesis which was aimed at determining the effects of the incidences of bad debts in Money-Deposit Banks with regards to improper evaluation of projects, question 9 in chapter 4 was posed and the responses received showed that 50 or 100% of the responses received were of the opinion that improper project evaluation has significant relationship with bad debts in African continental Bank. The researcher states as his findings that improper project evaluation has significant influence on the bad debt of African continental Bank of Nigeria plc.

5.2 Recommendations

Based on the findings by the researcher in course of this research study, the researcher therefore made the following recommendations.

In the African continental findings, which states that inadequate collateral security provisions by borrowers increases the incidence of bad debts in African continental Bank, banks should ensure that loans given out to customers are backed by adequate collateral security. This means that loans should be given to individuals and corporations with adequate collateral security.

In the second finding which states that fund diversion affects bad debt in African continental Bank, there should be close and proper monitoring of loans before and after disbursement. In fact, the monitoring should continue for the entire life of the loan. In the third findings which stipulates that government intervention has a direct influence on African continental Bank bad debt in Nigeria, government should as much as possible reduce the incidence of conflicting policy pronouncements which have adverse effect on business projection. Again, much as interest earnings constitute a great proportion of the gross earning of banks, the bank should be caution in increasing the rates charged on a loan.

In the fourth finding which states that improper project evaluation has significant influence on the bad debt of African continental Bank, the bankers should lay relatively more emphasis on the integrity of the borrower, the ability of the project to pay itself and previous experience with the customers also advances department should be staffed with qualified and resourceful officers capable of making seasonal decisions based on credit analysis. These staff should benefit from regular training and re-training programmed in landing appraisals. The services of quantitative analysis who will appropriate data and can predict the provision for bad debts to be necessary.


5.3 Conclusion

To manage loan and credit effectively, efforts have to be made to obey and respect the cannons of good lending and ensure adequate control and supervision on the facility extended within the frame work of government regulation and guidelines. Sound lending requires a clear, well-articulated and easily accessible policy document which spells out the philosophy of lending. This will ensure that loan losses are kept at a minimum via a programmed which permits constant supervision on the projects being financed, easy identification of delinquent loans and instituting effective corrective measures. It is instructive to note that no one can have complete control of his environment, which is Banking is dominated by external factors such as economic and political situations and unpredictable behavior of human beings. All these factors are subject to change and therefore increase the risk of bank lending, losses are normal in the business of lending money but they must not be disproportionately high lending. Officers are therefore expected to continuously evaluate their loan portfolios and make adequate provisions for losses. The issue of bad debts cannot be ruled out in banking business but the incidence can be minimized with prudent lending philosophy and proper grasp of economic and political environment factors.


Get Complete Project Material

5,000 5000

The Complete Material Will Be Sent to You in Just 2 Steps

Quick & Simple…


Step One Purchase

Make Payment (Through Transfer) of ₦5,000 to the Account Below

Zenith BankAcc No: 1225513212
Samphina Academy
Current Account

Or CLICK HERE To Pay With Debit Card


FOR STUDENTS OUTSIDE NIGERIA
CLICK HERE To Purchase Material ($15)

Step Two Purchase

Send the Following Details on WhatsApp ( 08143831497) After Payment

  1. Payment Details

  2. TOPIC: Credit Management And Incidence Of Bad Debts In Nigeria Commercial Banks

The Complete Material Will Be Sent To You On WhatsApp After Receiving Your Details
T & C Apply


  Contact Our Help Desk


Need a Different Topic? Perform a Quick Search



List of Related Works

Click on Any Topic to Preview the Content

samphina.academy

Samphina Academy

Samphina Academy is an Online Educational Resource Center that is aimed at providing students with quality information and materials to aid them in succeeding in their academic pursuit.