THE METHOD OF CREDIT CONTROL IN COMMERCIAL BANKS
(A CASE STUDY OF FIRST BANK OF NIGERIA PLC, YAKUBU
GOWON WAY BRANCH OFFICE, KADUNA)
CHAPTER ONE
1.0
INTRODUCTION
The banking system is
an important sector of the economy because it acts as an agent for mobilizing
funds from those who wish to deposit their money and allocating the same to
those who want to borrow, thus facilitating the efficient functioning of
commercial and .manufacturing activities.
The credit allocation
and control policies are required by the bank and other financial in particular
development activity. Control of advances are usually targeted at reducing
unwise spending and promoting industrialization with a view to reviewing the
economy through generation of employment to promote development.
Government gives a
directive by constituting a forum of control for bank to recover all loans
advances disbursed on reduction basis so that funds available would be
channeled to more preferred sectors specifically agro-based, agro-alhed,
agro-chemicals industries and exports. Most of the times, the control of credit
at the head office and at the branch levels are essentially. On the same basis.
The only difference is that the head office and regional administration are
completely detached form the scene, and this takes a more realistic approach in
appraising proposals with limited and defined power, whereas as a branch often
makes a hurried assessment, which in most cases is completely full of
sentiment, pressure and influences. As stated above, the banking and financial
sector plays the role of intermediary. The sector mobilizes funds from small
and big savers who have no immediate need for such funds and provided such
funds for users who are basically business entrepreneurs and investors who need
such funds.
These surplus funds
owners may deposit their funds in the banking sector in the form of investment
and they are generally referred to ultimate savers of funds. On the other hand,
the users are the business entrepreneurs and individual who have brilliant
ideas on how to create additional wealth in the economy, but lack the necessary
capital to execute their plan and concretize their ideas from the above this
group is referred to as the ultimate users of funds. Ti must be noted that one
of the basic objectives of any bank is the generation of profit, which is
realized through the banks ability to attract new deposits while retaining the
old ones and putting them into profitable use. Such deposits funds in the
opinion of the management is not immediately required for everyday working
needs of the depositors and so it must be channeled appropriately to places
where they are needed for economic development.
However, for any bank
to achieve its objectives it must be able to manage or control its credit
portfolio effectively. If the spate of bad debt now engulfing the banking
industry is to be abted, these speculative tendencies on the part of the
customers and passive approach by lending officers towards credit control like
administration process require a process of action, analysis and follow
up.
1.2
BRIEF HISTORICAL BACKGROUND OF FIRST BANK OF
NIGERIA PLC
First bank of Nigeria
plc was founded by Alfred Jones, a shipping magnate form live pool, who started
the business of banking in Lagos
with emerging of the African banking corporation (ABC) established in 1891. it
was first incorporated with the name. Bank of British west African (BBWA) as a
limited liability company in London on March 31st 1894 having its
head office in Liverpool, started business of banking with a paid – up capital
of twelve thousand pounds stipulated ($12,000) in 1957, the name was changed
form Bank of Nigeria Ltd.
In 1979 and 1991, the
bank of Nigeria changed to first Bank of Nigeria Ltd, and first Bank of Nigeria
Ltd, and first Bank of Nigeria Plc” respectively. First Bank is having the
largest network of branches in Nigeria.
Today it has one of the largest portfolios of diversified loans and credit
facilities to various sectors of the economy in the country. Lending is the
main business of first Bank of Nigeria plc, in this process of lending money is
created in a way of loans and advances usually disbursed to customers with
interest and a sties pulsated terms of repayment
1.3
STATEMENT OF THE PROBLEM
There are some problems
faced by some banks today, which a manager or credit officer must lay more
emphasis on. The research will take a look into the ways by which the problem
of lending and credit control can be eradicated in banking ( if this is a
reality in the banking sector) what are the problems of leaning in banks? What
problems does the credit control manager
en manager encounter, in problems in granting, monitoring,
supervising and
recovering of loans? All of these form a basis for this research work.
1.4 PURPOSE OR OBJECTIVES OF THE
STUDY
The objectives of the research work are as follows
1. To examine the credit allocation and the credit
control policies which are required by the work.
2. To know the general performances of the bank on
credit control.
3. To examine the security pattern of the bank in
advances and loans and in what form?
4. To examine the basic principles employed by the
bank managers in granting, monitoring, supervising and recovering of loan.
5. To know the role of the central bank in the
management of credits by commercial and
merchant bank.
1.5
SCOPE AND DELIMITATION
This research has a
special emphasis on first Bank of Nigeria plc, Yakubu Gowon way branch, Kaduna and it focuses on
the control of advances on credit in the banking industry with special effort
made at discovering if the procedure of credit control is still in existence or
complied with in banks. Due to the nature of the organization and the inherent secrecy associated with it, the
researcher and problem of getting the necessary records that should have been
of great assistance in the course of the research area of study.
1.6
RESEARCH QUESTIONS
These research
questions constitute the areas the researcher intends to examine, which are as
follows
1. Is an effective credit control system important to
the progress and development of a banking business?
2. Should collateral securities be presented for the
managers when making prepositions.
3. Does the procedure for monitoring, supervision and
repayment of loans vary from manager to manager?
4. Are there major procedures for following up of loan
repayment?
5. Is the procedure of credit central still in
existence
6. Is the credit control procedure effective?
7. What are the requirements for loans to customers?
1.7
DEFINITION OF TERMS
LOAN: it
simply means that the bank lends, usually with interest and at a stipulated
time and terms of payment.
ADVANCE; it can
be called overdraft, it is usually on a continuous basis with fluctuation
balances within a given limit.
COLLATERAL: it is insurance evaluate: at the background to make or substitute at the
borrowing that the bank wants to make if the unexpected happens there by
jeopardizing the safety of the lending. It will therefore minimize the risk of
defaulting in the repayment of the credit on maturity.
CREDIT: an avenue in which loan able fund is made
available to a prospective borrower, which is to be repaid in a determinable
future date. The bank control the loanble fund.
RISK: a
measurable uncertainty involved in any decision making, be it granting of loans
or an advances
BANK: A
bank is a financial institution which collects and from dividends or
organization, safeguard them and undertakes to surrender them to their owners
which required but also at a certain time, lends some of these funds to those
who needs to borrow it and pay back with interest.
CONTROL:
Performance evaluation that provides feed back of the result.
SECTOR; it is a branch of the banking industry or
area within the banking sector for the purpose of controlling operation.
AGRO-ALLIED INDUSTRIES: These are industries that use agricultural procedures to produce with
order identity dependents on others
AGRO-BASED
INDUSTRIES: They are the industries that have their by – products used
specifically in the agriculture sectors.
AGRO-CHEMICALS:
These are industries that produce chemicals e.g insecticides in the agriculture
sector.
DIRECTIVES: These are instructions given by the governments so as to control
ministries in the affairs of different sector.
PREFERRED SECTOR: this is sector to which government allocates either finance as other
resources more than the remaining sectors. Hence, their sector that needs
attention by government.
FINANCIAL INSTITUIONS: these are institutions that deal with finance as the name implies. They
are concerned with receiving and disbursement of funds or money.
FINANCIAL INTERMEDIARIES; These are people that go in better the lenders and the borrowers or
they act as people that go between the
financial institutions and those that want to transact business with the
institutions.
EFFICIENCY: The degree to which inputs are used in relation to a given level of
output.
PROFIT:
Revenue minus cost
ECONOMY: The
management of an administration of the material resources of a country.