Impact Of Credit Management In The Banking Industry
This study is on impact of credit management in the banking industry. The total population for the study is 200 staff of first banks in Akwa Ibom State. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, accountants, customers care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
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 Objective of the Study
The objectives of this study is as follows
- To examine how feasibility study affect loan repayment in the banking industry.
- To highlight the extent in which diversion of bank loans to unprofitable ventures affect loan repayment.
- To examine how distribution of loans affect banks performance if banks give proper attention.
1.4 Research Hypotheses
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
- H0: Inadequate feasibility study does not affect loan repayment in banking industry.
H1: Inadequate feasibility study affects loan repayment in banking industry.
- H02: The diversion of bank loans to unprofitably ventures does not affect loan repayment.
H2: The diversion of bank loans to unprofitably ventures affects loan repayment.
1.5 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.
1.6 Scope and Limitation 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. The researcher encounters some constrain which limited the scope of the study;
a) Availability of Research Material:
The research material available to the researcher is insufficient, thereby limiting the study
The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
c) Organizational Privacy:
Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities
1.7 Definition of the Study
Credit management is the process of granting credit, the terms it’s granted on and recovering this credit when it’s due. This is the function within a bank or company to control credit policies that will improve revenues and reduce financial risks.
A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets
1.8 Organization of the Study
This research work is organized in five chapters, for easy understanding, as follows
- Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
- Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
- Chapter three deals on the research design and methodology adopted in the study.
- Chapter four concentrate on the data collection and analysis and presentation of finding.
- Chapter five gives summary, conclusion, and recommendations made of the study
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to ascertain impact of credit management in the banking industry
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of credit management in the banking industry
This study was on impact of credit management in the banking industry. Three objectives were raised which included: To examine how feasibility study affect loan repayment in the banking industry, to highlight the extent in which diversion of bank loans to unprofitable ventures affect loan repayment, to examine how distribution of loans affect banks performance if banks give proper attention. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of first banks in Akwa Ibom State. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, accountants, customers care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
The researcher concludes that the credit control department has the least personnel and experience across all departments. Given that this area is an essential component to maintain the performance and stability of a financial institution (Finlay, 2006); it appears inefficient of credit unions to not place more emphasis in this area. Even though credit control personnel in the sample credit unions are the most qualified, the findings (Respondent C) and the literature (Posner, 1990) state that experience and training are essential for this area to work effectively and seamlessly. Therefore this research deduces that there are deficiencies in the credit control area of credit unions regarding the level of personnel and their experience
The following recommendations have been made based on the findings of the study: There is the need for a strong policy on the management of banks’ credit facility. This involves the need for control at the various stages of collecting loans and advances in the banks. Furthermore, banks must ensure strict tradeoff between the liquidity and the profitability of the banks. This will ensure strict compliance with the money being kept by the bank and the amount granted for loans and advances. There is the need for an immediate change in the banks’ management style and internal control system of the banks. This will help to enhance the debt recovery method in operation. There should also be close watch of the laonablefunds portfolio by the regulatory authorities (CBN, NDIC etc).
Furthermore, the formulation and implementation of appropriate economic policies by the government as well as maintaining a stable economic environment will enhance the development of a secured loan and advances portfolio to both the customers and the banks. There is also the need for a proper and well articulated analyses over all collaterals presented for loans and advances. This will help the banks in ensuring that the assets serving as collaterals have the economic value that will cover the loans and advances collected. It will further help the recovery effort in case of any default.
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