POST-REFORM APPRAISAL OF COMMERCIAL BANK INVESTMENT AND LENDING ACTIVITIES IN NIGERIA
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POST-REFORM APPRAISAL OF COMMERCIAL BANK INVESTMENT AND LENDING ACTIVITIES IN NIGERIA
This study used Diamond Bank Plc and Afribank Plc as case studies to evaluate the lending and investment activities of Nigerian commercial banks.
The primary goals were to determine the degree of alignment between the goal of profit maximisation and adequate liquidity, the relationship between deposit level and profit level, and the impact of monetary and fiscal policies on the ability of commercial banks to lend and invest.
Such topics as the nature of investment and lending, the necessity of bank lending and investment, Diamond Bank Plc., and Afribank’s investment and lending activities were highlighted in the literature research. Both primary and secondary data gathering techniques were employed to gather the pertinent data for this research.
Data were presented using a tabular format, analysed using percentages, the pertinent hypothesis was tested using chi-square, and the outcome was then interpreted in accordance with the given decision-making guidelines.
The work came to the conclusion that bank lending and investment are the highest earning assets and contribute to the bank’s profitability.
Based on the findings, practical recommendations were made, such as character, integrity, policy, and ability of the borrower should be the most important factor in lending instead of collateral provided, and that there is a need for a standard and computerised national identification card for Nigerian citizens.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Reform is the term used to describe making improvements in order to eliminate wrongdoing and abuse in the financial sector. That leads to reform, which is when banking businesses are compelled to give up their evil or wrong ways of doing things and adopt good ones.
Wikipedia claims that the evaluation of the financial climate led to reform. Banks had to turn to consolidation in order to meet the increased capital requirements set by the CBN for banks to function due to the changing features of the banking sector.
As a result of the capital base’s (paid-up share capital’s) increase from N5 billion to N25 billion, certain commercial banks had the option of consolidating in order to meet the requirements.
Due to consolidation, which was the only alternative left for the banks that had the financial muscle to fulfil the N25 billion new capital base criteria, the number of banks dropped from 89 to 24. In 2004, OJIUKO and NGWU (89).
However, risk and mediating between the surplus and deficit parts of the economy are the core characteristics of banking anywhere in the globe. Its primary line of business is maturity transformation, which is characterised as borrowing for a long time and repaying it quickly.
This made it possible for her to pay her debts as they became due or to handle their finances responsibly. OKEZIE and KANU (2005; 116)
To assure liquidity and maximise profit, their lending and investing activities are crucial to how they run their business. The highest-earning asset on bank balance sheets, lending makes a significant contribution to the bank’s achievement and satisfaction of the profitability target by offering a larger return than other financial assets.
Additionally, it aids management in achieving the legal and other regulatory goals of oversight bodies. It serves as a means through which bank management tries to meet the community’s credit needs in which they operate or provide services. NWANKWO (1990).
Even while lending activities are the most profitable for the bank, they are also the riskiest and least liquid.
In addition, effective lending is a crucial component of banking, and one of the tenets of traditional banking is to maximise profitability and maintain appropriate liquidity.
The bankers’ point of view, however, is at odds with the requirement of a developing environment, which states that bank lending goals should work together to support the growth of the environment in which they operate. In other words, acting as a cooperative citizen.
To create a favourable climate for banking operations and prevent crises, this conundrum that our rising economy’s banking sector faces must be overcome. KANU (2003:2).
They invest in various types of government, corporate, and cooperative securities in addition to other bank activities to boost economic activity in a particular economy and boost their profits.
Without a doubt, banks want to continue operating, turn a profit, and expand. Banks invest for the following reasons: to enhance the market value of their shares, generate a profit or obtain a return, and to ensure their survival.
In an effort to accomplish this goal, the bank must effectively manage its lending and investment activities in order to have enough on hand to fulfil the withdrawal needs of her depositors, contribute to the growth of their operating environment, and generate profit for their owners. KANU (2003:2)
STATEMENT OF THE PROBLEM
Banking lending and investment activities aim to balance liquidity and profitability while also advancing economic growth, particularly in a developing country like Nigeria. The loan and investment portfolio must be managed successfully and efficiently in order for this goal to be achieved.
The issue is whether credit management in our commercial banks can truly protect depositor interests and defend against financial crisis in Nigeria’s banking sector.
How can they get in touch with their clients to prevent the effects of loan and advance repayment default?
Have banks been able to use credit and investment management to resolve the two competing aims (liquidity and profitability objective)?
1.3 OBJECTIVES OF THE STUDY
Commercial banks encourage economic development and progress by lending money and making investments.
This study aims to evaluate how much lending and investment by Nigerian commercial banks have boosted the country’s economy.
To evaluate the effectiveness of their lending efforts in balancing the two goals.
To look into how Afrik Bank and Diamond Bank handle loans before determining the type of investments they make.
To assess the degree to which Diamond and Afrik Bank’s lending practises are impacted by deposit nature.
To determine how monetary policy affects banks’ capacity to lend.
1.4 RESEARCH QUESTIONS
1. Do Diamond and Afrik banks offer loans?
2. Which economic sector is best favoured by the loans provided?
3. What variables affect the way your bank advances loans to customers?
4. Do deposit type and position have an impact on your bank’s lending and investing activities?
5. Do changes in monetary policy have an impact on your bank’s lending and investment activities?
1.5 HYPOTHESES
HA: Profitability and the volume of deposits lent out are significantly correlated.
HA: Modifications to monetary policy affect the lending and investing activities of commercial banks.
1.6 SIGNIFICANCE OF THE STUDY
When this study is finished, it is hoped that the findings and outcomes will increase the body of information already known about the topic.
Additionally, it will aid borrowers in comprehending how overdrafts affect loan accounts as well as the impact of interest fees, commitment fees, appraisal fees, prime rate, etc.
Future researchers will have access to the study, and more crucially, it will count towards the partial requirements for the Higher National Diploma (HND) in banking and finance.
1.7 SCOPE OF THE STUDY
The lending activities of Afrik Bank and Diamond Bank will be covered or addressed in this study inquiry, as well as the impact of the monetary policy of the Central Bank of Nigeria on such activities.
It will develop further when we learn more about how deposits and withdrawals affect the lending and investment activities of Diamond and Afrik banks, as well as their character and volume.
1.8 LIMITATIONS OF THE RESEARCH
I encountered the time restriction while conducting the research. Another constraint was a lack of funds. This project’s completion was further hampered by the difficulty of appraising, the banks’ summary, and having access to the banks’ information requirements. These and other uncontrollable economic considerations constrained my research.
1.9 DEFINITION OF TERMS
1. DUAL CONFLICTING OBJECTIVE – This refers to two organisational goals that differ from one another on a compromise basis. The term “profitability and liquidity objectives” of the bank is used in this studY.
2. INVESTMENT — This is the devoting of financial resources to the purchase of an item in the hope of gaining future advantages.
3. LENDING: This refers to the transfer of bank resources to different economic entities through loans, overdrafts, the discounting of trade bills, etc.
4. NATURE OF DEPOSITS- This relates to the composition of deposits, which includes unstable demand deposits and more stable savings and time deposits.
5. COMMERCIAL BANKS – Are financial institutions required by law to carry out certain tasks, such as accepting deposits, providing agency services, carrying out executorships, carrying out development tasks, lending and transferring funds, etc.
6. REFORM—This is the enhancement of amending what is improper, corrupt, and behaviour. A better change has occurred.
7. SECURITY—This is the right or interest in property that the borrower grants to a leader creditor (creditor) in order to give the leader a safety net to fall back on in the event that the borrower defaults.
8. MERGE—This refers to the joining or fusion of two or more formerly independent banks into a single organisation (bank) with shared ownership and management.
9. ACQUISITION – This is the act of acquiring ownership of a company so that ownership and management of independently operated properties and enterprises are placed under the direction of a single management.
CARMEL PARAMMETER 10. This is a step taken by the CBN to ensure a blank capital base. It is a measure to support and improve banks so they have a stable capital basis. Camel’s autumn definition includes capital, sufficiency, assets, management, income, and liquidity.
11. COLLATERAL – This is a supplementary form of payback that only makes payments when an unforeseen change in the terms of the ban occurs.
12. CREDIT—A loan of money made to a borrower under the terms of a credit agreement, with a variable maturity period—
13. DEPOSIT: This transaction involves transferring money to another party so that it can be kept in a secure location.
14 DEPOSIT ACCOUNT – This type of savings account allows withdrawals with a notice period or a loss of interest, but deposits are held for a set period of time.
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