CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Banks generally provide avenue for saving to those who have surplus funds. The surplus deposits are then lent out to the needy personal, cooperate bodies and business customers in form of loans, advances and overdrafts. This proves the statement that “Banks serves as major intermediaries between the demand sector (which need credit to finance projects) and the supply sector (which provide such loan-able funds for such investments)”. Credits facilities are usually in form of loans, advances, bills discounted bonds and over drafts. Lending is one of the most intricate services rendered by banks and credit facilities are integral part of bank lending. Therefore, this project will in detail analyze the basic principles of bank lending and the mechanics of safe lending permeating the financial statement and interpretation.
It is an indisputable fact that most important asset items in the balance sheet of commercial banks are loans and advances; these items are reported for some good reason. From the bank perspectives they are the largest sources of income. Loans and overdrafts are the focus of prudential credit guideline, which are basis of monetary policy in Nigerian economy. This guideline normally set by CBN stipulates the minimum or maximum level of credit that could be given to particular sector of the economy. Bankers are therefore advised to follow strictly these guidelines on receipt and appraisal of a customer’s proposal for loan. There are some conditions, which must be fulfilled by customers before such facilities are granted popularly known as canons of lending which include the character of the borrower, the amount to be borrowed, purpose of the loan etc.
The first question that comes into focus is who the customer is (character) what is his or her previous relationship with the bank? And how does the previous transactional record look like? This goes into the integrity of whoever the borrower may be. Some borrower could pay will pay with ease but will fail to oblige due to lack of morality. Therefore, the lender should as a matter of fact make sure the integrity of the borrower is not in doubt. Most bad debts arise as a result of insufficient information about the prospective borrower. In order to avoid this, banks especially my case study (FIRST BANK NIG. PLC) are expected to carry out enough inquiries about the borrower so that adequate information would be obtained to enable them make better judgement.
The lending procedure as it pertains to my case study (FIRST BANK NIG PLC) has immensely contributed to the development of the Nigerian economy. Bank lending is very relevant of all sectors in the economy both private and public sectors because it is one of the major sources of financial sources of finance. Banks in this idea entails commercial banks, which mainly grant short-term credit facilities and development banks, which grants medium and long term credit facilities. They later include Nigeria Industrial and Development Bank (NIDB), Nigerian Agricultural and Cooperative Bank, (NACB) as well as Merchant banks.