CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
Commercial banks constitute the core of a nation’s financial system. Traditionally, the function of a bank was to take deposits and honor demands made on those deposits of their numerous customers – involving individuals, business units and the government itself. But with the giant strides made by mankind in science and technology in an attempt to solve human problems, new sets of problems and human needs have been created. Thus, banks as forefront institutions in satisfying human needs have undergone dramatic changes in their functions. Today, banks render services in area of lending, transfer, remittance, salaries, sale of foreign currencies, overdrafts, sale of travelers’ cheques, safe custody, advisory services, to mention a few.
Although the number of services a modern bank offers has increased immensely, risk taking, which is a fundamental nature of banking, remains unchanged. It is inherent in maturity transformation, which is another fundamental feature of banking. Though other sources exist, the main source of investable funds remains bank deposits and loans and investments. The main source of income and profitability of banking remains the spread or difference between the rate at which funds are borrowed and the rate at which they are invested or loaned out. In these circumstances, customer service excellence and management includes the management of risks – of mismatches between assets and liabilities and between borrowing and lending rates.
In managing risks, banks have to satisfy five main constituencies; one is the surplus units from which it borrows. These units demand the best possible terms – in the rates of interest and maturity structures and maximum liquidity to enable them have the funds back when they want then or as agreed. The second is the deficit units, which borrow from the banks. They want to borrow when they need funds and as cheaply as possible. Like the lenders, the borrowers also impose the obligation of maximum liquidity on the banks to enable them obtain the funds when they need them.
In addition to satisfying the surplus and deficit sectors, the shareholders must also be satisfied. They require maximum or adequate return on their investments in order to remain in the bank and to be willing to continue to provide additional resources as and when needed. To these is added the fourth constituency, the regulatory authorities, whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements. There is, finally, the community at large. As the provider of the environment within which it operates, the bank owes an obligation to the community to be a good corporate citizen, capable of maximizing the exploitation of the opportunities available and minimizing the threats of the environment.
Banks are faced with the arduous or difficult task of balancing and reconciling the above five conflicting obligations in such a way that the five constituencies are kept satisfied by the rapid change in environment in which the bank operates.
These can only be achieved through excellent customer service delivery system and efficient management to ensure that the existing customers are retained, asset base expanded, deposits are generated and new customers are sourced through product differentiation, giving unsolicited extras to customers and exceeding customers’ expectation – customer delight. This is the crux of this study.
1.2 STATEMENT OF PROBLEM / PROBLEM DEFINITION
According to Osuala, statement of a problem serves to elaborate upon the information implied in the title of the study. It is the most important part of the research.
It is the intention of this research to find answers to the following problems.
(i) What do customers require from their banker(s)?
(ii) To what extent are they satisfied?
(iii) What can we do to delight our customers with regards to credit management?
1.3 OBJECTIVES OF THE STUDY
The main objectives of this research are:
(i) To highlight areas of neglect in customers credit management.
(ii) To review the credit issues involved in the management of commercial banks in Nigeria.
(iii) Highlight the various ways of determination of credit worthiness in assisting customers achieve their business goals /objectives.
(iv) To highlight ways of achieving banks’ credit objectives.
(v) Make recommendations on the finding of the research.
1.4 HYPOTHESIS FORMULATION
A hypothesis is a tentative conclusion that is to be tested and either affirmed or rejected through further investigation.
According to Selltiz, a research hypothesis is “a proposition, condition or principle which is assumed, perhaps without belief in order to draw out its logical consequences and by this method to test its accord with facts which are known or may be determined”. Kerlinger pointed out that “problem is of a broad nature and it is not directly testable”. It is only after data on the problem has been collected, collated, analyzed and tested that one can get a direction as to whether the hypothesis will be accepted or rejected.
In this research, the researcher will test the validity of the following statements:
Ho: The category and business of customers have an insignificant effect on credit/loan approval.
Ho: Servicing of loans/credit has an insignificant effect on loan/credit approval.
1.5 SCOPE OF STUDY
The Nigerian banking system is a large field in that it included different types of banks such as Central Bank of Nigeria (CBN), Merchant Banks, Commercial Banks, Development Banks, Community Banks and others. Each of the banks has features different from the other thereby warranting a different way of dealing with its operations. The Researcher would like to therefore restrict this study to the commercial banking industry in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
Banks are financial intermediaries standing between two groups the savers-depositor and borrowers-spenders.
A study of credit management and debt collection in commercial banks in Nigeria is therefore necessary and of great importance to the society because it gives an insight as to what goes on behind the cashier’s cubicle. The importance/significance cannot be over-emphasized as more than 60% of commercial bank profit come from lending.
This research analyses why it is sometimes necessary to give credit while not jeopardizing customers’ funds/deposits. A careful analysis of credit will reveal when and when not to give credit, the terms of such credits, including duration of payment, terms of payment, ways and means of securing and demanding payment for credits.
Mismatches between borrowing and lending rates, faulty credit analysis before disbursement of funds and perfection of collateral securities, dubious customers with intentions to borrow from banks and not repay same, inflation, natural disaster etc have been responsible for irrecoverable debts in the past. Granting of loans and credits therefore require special attention to avoid loss of funds to depositors, shareholders, banks and the economy and financial sector as a whole.
The need for this is not only imperative, but has become increasingly and extremely urgent. This is therefore the motivation for the research on this topic “credit management and debt collection in commercial banks in Nigeria”.
1.7 LIMITATIONS OF THE STUDY
With everything in life, there are limitations. And with every research work, there are forces, covert and overt, that exists to impair the perfect realization of an otherwise perfect objective. This research is not an exception. It was faced with a number of limitations, some of which include:
(i) The basic limitation is that the study is not all encompassing in respect of the entire banks in the nation’s banking sector. While a comprehensive analysis should involve generally a broad consideration of banks in the financial sector.
(ii) The greatest limitation was in the area of data collection. Highly guarded competitive secret and bureaucratic bottlenecks/red tape processes in banks made it difficult for the researcher to collect all the necessary up-to-date information.
(iii) Another limitation is the sample size, which is not too large, and the fact that all elements in the sample size may not be equal due to different strategies, polices, operational procedures adopted by various banks.
Despite the limitations stated above, the findings of this research are valid, as appropriate scientific procedures in research design and analysis have been used.