The Lending Constraints Of Nigerian Commercial Banks
1.1 Background of the Study
The history of banking and lending dates back to the barter period and the period when sold Smiths were used as acceptors of deposits from the public. Banking developed out of the Gold Smiths who developed the practice of storing people’s gold and valuables for safe keeping. At first, such establishments were simply like were house.
Depositors left gold for safekeeping and were given receipts, which they would present, to the gold Smiths for their gold or valuables after paying a little charge to the goldsmiths. At apt, the goldsmiths discovered that not all to depositors of gold come at the same time to collect them, the goldsmiths started to issue receipts, which evidenced indebtedness, and was transferable out of the gold deposited. The goldsmiths started to lend out these services this marked the origin of lending in the history of banking.
The major difference between the goldsmiths system of banking and today system of banking is that it is not the particular depositor’s money that is given him back when he calls for it but the value of what he deposited whether his own or others in our economy today. There is much development in the system of banking compared with that obtained during the time of goldsmiths.
Today we operate different types of banking: development, merchant and commercial banking with extensive duties and responsibilities. However, in the discourse, we should focus mainly on commercial banking as demanded by the topic.
Commercial banking activities started in Nigeria in 1892 with the establishment of African Banking Corporation. The first bank of Nigeria than the bank of British West Africa was set up in 1894 followed by the Barclays bank in 1917. the banks were set up to provide banking services f ort he colonial administration and British commercial interests.
Then in 1933, the national bank of Nigeria came in to score prior to 1959, when the central bank of Nigeria (CBN) in 1959 added a new chapter in the evolution of commercial banking in Nigeria. The 1969 banking decree fully established commercial banking in the country by requiring all the banks to be fully incorporated.
Industrial and commercial banks and the Nigerian merchantable bank established prior to that time had collapsed the objective of the government was partly to discourage monopoly of monetary transaction by the two established expatriate bank and to liberalize credit facilities for Nigerian, Nigerian enterprises. This is the area that really interest. Thus banks have been called upon to be liberal in their credit policy.
Nigeria commercial banks while applying their funds mainly in loans and advances encounter problems in credit advances. It is in most cases the rule rather than exception that money advanced to most indigenous customers is often regarded as “our money or my own share of the Ori Boom” while is meant not to be repaid. In the book of most of our indigenous commercial banks. There is a backlog of bad debts. It is any wonder also that while the greatest security for an advance is the personal integrity of the customer, our environmental constraints have made us to make rather indigenous contribution to the world’s banking practice by our insistence on valuable security as a necessary condition f or an advance.
The lending policy of these banks showed that loans were granted to those close to the corridors of lowers without adequate. Securities, the average Nigerian has always complained grumbled abut his inability to obtain.
Financial assistance by way of credit facility from his bank the customer also complained of how the very strigent conditions for obtaining loans and overdrafts have crystallized the burdens on this way to secure bank credit; he has always believed that only highly placed and influential customers can obtained loans and advances with little or no form of security. This resulted in set backs in the growth and development of these banks so that more funds were being injected to neutralize the situation or restructuring and streamlining the boards of management which led to the existence of state owned banks like the bank of the North, new Nigerian Bank, progress bank etc.
One factor was dominant in the development of the early indigenous banks. This was that they were al founded to assist indigenous businessmen. To certain extents, banking facilities came readily to the door step of Nigerians. In spite of the problems involved, most state governments still see the establishment of the state banks as the panacea for the economic survival od their respective states more state banks have been established in recent years in collaboration with private sector partners as a means of improving the revenues base of the respective state government, and consequently as a means of stimulating the economic development of the state in particular.
It also extended its participating interest in business, enter in to the banking sector following the promulgation of the indigenization decree of 197 and 1977 by acquiring a 60% interest in all the established expatriate commercial banks. As a result of this, all the commercial banks are now indigenous these commercial bank render a lot of services to customers. These services include lending and it is the problems these banks encounter in rendering this service that the want to discuss.
Effective protection of depositors involves not only stringent measures to ensure unpredictable bank losses. Many instruments were therefore used for this and it is these instruments that pose problems to commercial banks, lending. These instruments will be discussed in later chapters of this book and the way they pose problems to commercial bank lending elaborated on.
Commercial bank give how types of credit to their customers namely overdrafts and loans but the researchers are concentrating on loans even thought that overdraft increase is discussed as well as the different types of loans. This issue is therefore a reflection of a remarkable progress of the financial sector in attaining proficiency and recognition its social and economic significance as well as highlights of most of the problems which the success of the sector has brought in its wake. The success and growth and profitability of all commercial banks depends on the satisfactory services which customers receive and the confidence they repose on them.
1.2 Statement of the Problem
Lending is a very important services rendered by commercial banks. The researchers shall critically examine the credit risk that militate against bank lending in Nigeria, we shall equally book in to the central bank of Nigeria (CBN) credit guideline its directives on lending as regard sectarian allocation.
Besides, the securities required of the customers as a constraint to bank lending will also be looked at. Also, the effect of security or collateral provision on loan disbursement and repayment will be looked at and dealt with.
In addition, we will bring to book the effect of society and general economy on loan disbursement and repayment by commercial banks and the possible solutions high lightened.
1.3 Purpose / Objective of the Study
The purpose of this study is to examine critically the problems commercial banks encountered in loan lending and repayment and how this loan disbursement has contributed to economic most other business activities; lending is prone to two types of risks generally called the dynamic and pure risks.
The study of commercial banks loan disbursement problems and prospects is important especially at this period of economic recession. Also bearing in mind that finance is the prime mover of every venture, the study of ultimate source of this finance is very essential. Besides the rational of this study can be justified now that Nigeria is growing bank wise.
1.4 Significance of the Study
This project answers an important question and it is upon this that research is based problems and prospects of commercial banks. This work is of great importance which provides such guidance to all in the business profession especially the financial, banks and businessmen the recommendation given there on are of immense help to bank management in correcting some of the problems inherent in the system so that in more reliable and efficient banking system will be ensured.
As regards organizational procedures, this work is therefore a reflection of the remarkable progress of the financial sector in attaining proficiency and recognition of its social economic significance.
Finally, the success, growth and profitability of al commercial banks depend on the satisfactory services, which customers receive, and the confidence they repose on them. The reason is that the most important aspect of bank-customer relationship is the confidential relationship. The issue of this confidence is the one that disservices serious attention.
1.5 Limitations of the Study
Research in Nigeria often faces a number of problem which are inherent in the society. The researchers here was not an exception and so had a fair of these constraints are mainly environmental problems. This study will be limited to the lending constraint in the Nigeria commercial banks in Nigeria. In the conduct of the is study the researchers are faced with some inherent problems among which are:
- Time constraints
- Insufficient Funds
- Lack of response from the public
- Inadequate accessibility of materials.
a. Time Constraints
This research will be handicapped by time constraint. The study of this nature requires a sufficient time to under take an extensive and deflective estimation. Taking cognizance of the data with which to submit the final work and having other pressing academic work to attend to, the magnitude of this limitation will e taker care of.
b. Insufficient Fund
One of the major factors that will restrain this paper will be lack of fund since this work will be grouply finance from a meager income. But for this inadequacy of fund, we would have liked to cover other types of banks in Nigeria.
c. Lack of Response from the Public:
Those concerned here are aggrieved customers and bankers. The lacks of response were could be as a result of the nature of this project. As a matter of fact, bank are under a tight statutory obligation, to treat with secrecy and confidentiality certain vital information another limitation is that the oral interview is likely to be laborious since we will be shutting between one bank and another. There could also be shutting between one bank and another. There could also be problem of translating in to vascular the questions for respondents that are not literate especially some of the customers.
d. Inadequate Accessibility of Materials:
There is also the problem of getting access to the materials needed. This is due to the lukewarm attitude of some library staff even the libraries. So not haves enough related book since this will be a handicapped in getting more information.
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Recommendation and Conclusion
Empirical evidence in Nigeria has shown that moat commercial banks established their finance house and security officiates to serve as rents through which customers or investors are directed and granted substantial cons and advance over and above the level stipulated in this example neither the reasons for the regulations nor the banks sufficiently prevented from granting of loans above the prescribed maximum were achieved.
It is in the light of this that the researchers advocated for the entire deregulation of the banking system.
However, whether an entirety deregulated banking system would augur well for a developing economy like ours as against an advanced economy on which the researchers based their opinion is another issue altogether.
Commercial banks should ensure re stricter control of advances to minimize diversion of fund to purpose other than those for which facilities were specifically granted.
Suffice to say here that, as long as banks recognize the need for sufficient liquidity to meet depositors request and appropriate collateral security assuage loans and advances granted, bank should be allowed to acquire any risky asset considered highly profitable. In other words regulation limiting them to certain category of asset should be dismasted and they should be granted the freedom to diversity by acquiring any asset no matter how risk but adjudged highly profitable since profit making is the basis of their continued survival. Highly riskily assets with substantial profit margins would in effect reduce the overall risk in this way banks would be much more self sustainable relying less on the central bank of Nigeria and other bodies like the Nigeria deposit insurance corporation (NDTC) to ball them out of the slightest problem.
Evidence has show that less risky assets such as commercial loans and government bonds are either less incrative, contributing less to the overall profit margins, or ironically, increasing their risk standing.
Therefore as long as profit is the prime motive of commercial banks they should be given the freedom to finance any investment or acquire any asset in diversifying their asset base to enhance their profit standing and indirectly safe guarding depositors interest.
Assets diversification therefore supports the merits of the conventional wisdom what disapproves putting all investments in to one basket and of course risks are better spread with the resultant reduction of overall risk.