EVALUATION OF BANK LENDING AND CREDIT MANAGEMENT IN NIGERIA

CHAPTER ONE

1.0      
INTRODUCTION

Commercial
Banks operate to mobilize deposits from the populace and

keep. Some in trust
payable on demand. Through the performance of this role, Banks act as reservoir
for surplus funds and thus lend safe portion of these funds to clients that
have genuine needs for them. The banks have special responsibility to ensure
effective management of these funds kept in trust with them by depositors.
Chester A Rude puts it that the way and manner in which funds are handled
“determines whether they are laying a sound foundation or creating future
problems for either the borrower, themselves or the economy” If bankers
unnecessary withhold credit, the business suffer and so do the economy.

Lending
activities are prominent at all levels of our economy, which gave rise to loan
management and credit administration. This credit analysis, documentation,
disbursements and monitoring of loan to ensure repayment of both principal and
interests on due dates becomes pertinent.

One of the goals credit
extension is to achieve prompt repayment on due dates thus loan management
typically involves credit appraisal and administration.

Lending carries a reasonable portion of
resource exposure of commercial Banks in Nigeria. Therefore, the ability of a
bank to generate much profit is largely a function of effective and efficient
management of its lending portfolio. Due to its trustee status and in order to
protect the depositors Nigerian banks are being

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guided in their operations by so many
regulatory bodies in order to avert bad lending and liquidity problems.
Operations and prudential guideline by the Central Bank of Nigeria are always
in place.

Inspite
of measures, which is aimed at protecting depositors and other public
interests, the incidence of bad and doubtful debts resulting from lending
activities has been on the increase in commercial Banks in Nigeria. This is as
a result of negation in the primary objectives of granting credit and profit
objectives of banks, hence the need for an appraisal of the present lending and
credit administration techniques.

1.1      
STATEMENT OF THE PROBLEM

Most
Commercial Banks in Nigeria are currently being threatened by huge bad debt
burden. This incidence has eroded the confidence in the industry and eroded
shareholder funds in most cases. Have BOFID (1993) and prudential guidelines
helped in arresting these trends? The roles of regulatory framework is analysed
to ascertain level of assistance to the financial system.

1.2      
OBJECTIVES OF THE STUDY

In
the light of credit polices of commercial Banks vis-à-vis regulatory

guidelines,
this research work has the objectives to evaluate or appraise various
techniques in the Administration of Bank lending from the point of disbursement
to the point of recovery at the same time identify causes of increased level of
bad debt profanation. The research has also identified reasons

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for
bad debts provisioning and recommend appropriate strategies that may be
appropriate in reducing debts write off.

The study also has objective
of ascertaining credit appraisals and the effect bad debt provisions on income
of Commercial Banks.

1.3     
HYPOTHESIS:

1.          
There is high correlation
between lending and Bad debt portfolio in Nigerian Commercial Banks.

2.          
The credit policies of Banks
and regulatory guidelines if properly implemented can help reduce bad and
doubtful portfolios in Nigeria Banks.

1.4   
SIGNIFICANCE OF STUDY

The current spate of
liquidity problem vis-à-vis distress syndrome being experienced in the Banking
industry is a function of lending policies and poor credit management. This
trend has given rise to colossal losses of shareholders fund and depositors had
earned savings.

Therefore this research work
is apparently going to be useful to top level managers who may find the
recommendation and suggested strategies useful in managing credit portfolios.
In similar manner, branch and credit managers will be guided on loan
disbursement to ensure strict adherence to lending guidelines and economic analysis
of environment.

Banks shareholders
would be able to acquaint themselves on the adverse effect of bad debts
hitherto covered by management of their respective Banks.

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Again students of Finance will find this
piece of academic work useful in their academic pursuits.

1.5        
SCOPE OF STUDY

The research work limit
itself to one case-study i.e FIRST BANK PLC. The investigation was conducted at
Branch level and annual reports material made available to the researcher.

The research focused on
lending process before and after disbursement up till final repayments with
emphasis on effects, causes and remedies of Bad Debt.

The assumption of
this research include the following

(i)        
That all Commercial Bank
grant facilities to worthy clients with high expectation of 100% repayments of
principal plus interests

(ii)         
That all Commercial Banks in
Nigeria are governed by same operational guidelines offered and professional
conduct as issued by Central Bank of Nigeria in addition to their internal
policies

The study is limited
to facility with repayment tenor of between 1 – 5 years duration.

1.6     
DEFINITION OF TERMS

In order to have a common knowledge and
understanding between Research work and the meaning transmitted to its targeted
beneficiaries, it beholds that a clear and unambiguous definition of words
often used in the study be given. Although the words may have numerous
meanings, the one given

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herein
should be regarded as those referred to their usage in this research work.

Some of
the “words” are defined as follows.

i)            
LENDING:
A process by which a Bank customer is founds for specifiedpurpose and
specified period of time with a promise to repay the amount borrowed and
applicable interest.

ii)           
CREDIT:
This involves giving (receiving) goods or purchasing powernow in return
for a promise to receive or re-pay the goods or purchasing power later. It is
the sale of goods, services or money claims in the present in exchange for
promise to pay (usually money) in the future. It includes a power to to repay
both principal and interest instalmentally or in lump – sum in the future. BAD
AND DOUBTFUL DEBT. This may be defined as a loan or debt, which has become
irrecoverable at date of maturity. A loan may be termed bad or doubtful on
event of borrowers failure to repay the loans in accordance with terms and
conditions of the agreement.

iii)         
ANTICIPATORY DEFAULT:
On the other hand recognizes thehappening of certain events which are
ipso factor conclusive evidence of default whether or not the loan or the
interest has fallen due”

(Banking
digest and Finance Vol. 5).

iv)         
FINANCIAL INTERMEDIATION:
This is defined as financialtransactions, which bring savings surplus
units together with savings deficit units so that savings can be redistributed
into their most productive uses.