Impact Of Credit Risk Management On Liquidity, Growth And Profitability Of Commercial Banks

Project and Seminar Material for Business Administration and Management BAM

Chapter One

1.0 Introduction

1.1 General Background Of The Study

Bank plays a central role in the economy by providing financial intermediation services. To do this effectively, they must have the capacity to lend and expand the balance sheet, and it must be profitable in doing so, this means that there must be demand for their services and the banks are completive and efficient at meeting this while all this may be seen s self evident we observe that the role of commercial banks change over time. Banks are required to channel the funds generated into profitable economic activities through investors subject to the constraints imposed by the relevant regulatory bodies.

These judiciary responsibilities imposed on the banks three seemingly incompatible.

Tasks of satisfying – to ensure the safety of the fund entrusted to it
Profitable – to ensure the safety of the fund entrusted to it
Growth – to earn adequate returns for the owners of the funds into profitable activities.

The extension of credit by banks to borrows involves risk and the ability of the banking industry at fulfilling this role depends to a large extent of the banking industry at fulfilling this role b depends to a large ext6ent on the quality of the lending decision lending has been described as the core function of commercial banks (Robinsons 1962) loans and advances usually constitute the largest asset to banks and interest on these and advances constitute.

The most important sources of income for the banking industry in Nigeria today, the quality of the lending decision of commercial banks leaves much to be desired (Ariyo 1984) with all that has been written on the techniques of lending money.

The difficulties being faced by banks have led them to exercise great caution in extending concisely as loan and advances, due to inability or unwillingness or both for which the beneficially has not persistently compli9ed with the terms and conditions for granting them. Recovery of such loans is unlikely and the central bank o9f Nigeria (CBN) came in through special additional regulation. The central licensed banks in a circular letter No BSD/CO/213/VOL/I/11 of November 7, 1990 it outlined minimum requirement for asset classification disclosure, provisioning treatment of accrued interest and balance sheet engagement it sets out the principle on which provision and write-off are made against problem loans.

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