THE METHOD OF CREDIT CONTROL IN COMMERCIAL BANKS
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THE METHOD OF CREDIT CONTROL IN COMMERCIAL BANKS
CHAPTER ONE
1.0 INTRODUCTION
The banking system is an important sector of the economy because it functions as an agent for mobilising funds from those who want to deposit money and allocating them to those who want to borrow, so supporting the effective operation of commercial and manufacturing operations.
The bank and other financial institutions, in particular, development activities, require credit allocation and control rules. Controlling advances is usually aimed at eliminating wasteful spending and increasing industry in order to improve the economy by creating jobs and promoting development.
The government issues an order by establishing a control forum for banks to reclaim all loan advances disbursed on a reduced basis, allowing funds to be channelled to more desired sectors, notably agro-based, agro-alhed, agro-chemicals businesses, and exports.
Most of the time, credit control at the head office and branch levels are virtually the same. On the same lines. The only difference is that the head office and regional administration are completely removed from the scene,
and this allows them to take a more realistic approach in appraising proposals with limited and defined power, whereas a branch frequently makes a hurried assessment,
which in most cases is completely full of sentiment, pressure, and influences. As previously indicated, the banking and financial industry serves as an intermediary.
The sector raises funds from small and large savers who have no immediate need for such funds and distributes them to users who are primarily company entrepreneurs and investors who require such funds.
These surplus fund owners may invest their savings in the banking industry, and they are commonly referred to as ultimate savers of funds.
The users, on the other hand, are the business owners and individuals who have brilliant ideas about how to increase wealth in the economy but lack the necessary capital to carry out their plans and concretize their ideas.
This group is referred to as the ultimate users of funds. It should be emphasised that one of the primary goals of any bank is to generate profit,
which is accomplished through the bank’s capacity to attract new deposits while maintaining and putting old ones to profitable use.
Such deposits money, in the opinion of management, are not immediately necessary for the depositors’ everyday working demands, and hence must be channelled suitably to places where they are needed for economic development.
However, in order for a bank to achieve its goals, it must be able to successfully manage or regulate its loan portfolio. If the current wave of bad debt is to be avoided, these speculative tendencies on the side of consumers,
as well as lending officers’ passive approach to credit supervision and administration, necessitate a process of action, analysis, and follow up.
1.2 BRIEF HISTORICAL BACKGROUND OF FIRST BANK OF NIGERIA PLC
Alfred Jones, a shipping mogul from Lagos, launched the first bank of Nigeria plc in 1891 with the establishment of the African Banking Corporation (ABC). It was initially combined with the name.
On March 31, 1894, the Bank of British West African (BBWA) was established as a limited liability company in London, with its headquarters in Liverpool, and began banking operations with a paid-up capital of twelve thousand pounds ($12,000). In 1957, the name was changed to Bank of Nigeria Ltd.
The bank of Nigeria was renamed “First Bank of Nigeria Ltd,” “First Bank of Nigeria Ltd,” and “First Bank of Nigeria Plc” in 1979 and 1991, respectively. First Bank has the largest branch network in Nigeria.
Today, it has one of the country’s largest portfolios of diverse loans and credit facilities to many sectors of the economy. Lending is the primary business of First Bank of Nigeria Plc.
During the lending process, money is created in the form of loans and advances, which are normally delivered to customers with interest and a set payback schedule.
1.3 STATEMENT OF THE PROBLEM
Some banks are now dealing with issues that require the attention of a manager or credit officer. The research will look into how the problem of lending and credit control in banking can be eliminated (if this is a reality in the banking industry) and what the challenges of lending in banks are. What issues does the credit control manager and manager face in terms of granting, monitoring, and reporting?
loan supervision and recovery? All of these serve as the foundation for our study project.
1.4 PURPOSE OR OBJECTIVES OF THE STUDY
The following are the research work’s objectives:
1. To investigate the credit allocation and credit control policies required by the job.
2. To learn about the bank’s overall credit control performance.
3. To investigate the bank’s security pattern in advances and loans, and in what form?
4. To investigate the fundamental principles used by bank managers in loan giving, monitoring, supervising, and recovery.
5. Understand the role of the central bank in credit control by commercial and merchant banks.
1.5 SCOPE AND LIMITATIONS
This research focuses on the control of advances on credit in the banking business, with a special effort made to find if the technique of credit control is still in existence or followed with in banks, with a special emphasis on the first Bank of Nigeria plc, Yakubu Gowon way branch, Kaduna.
Because of the organization’s nature and the inherent secrecy linked with it, the researcher and the challenge of obtaining the essential records that should have been of considerable aid in the course of the research area of study.
1.6 RESEARCH QUESTIONS
These study questions represent the areas that the researcher plans to investigate, which are as follows:
1. Is an effective credit control system critical to the growth and success of a banking business?
2. Should managers be presented with collateral securities when making prepositions?
3. Does the procedure for loan monitoring, supervision, and repayment differ from one manager to the next?
4. Are there any key procedures in place to monitor loan repayment?
5. Is the credit central procedure still in use?
6. How effective is the credit control procedure?
7. What are the prerequisites for customer loans?
1.7 DEFINITIONS OF TERMS
LOAN: simply put, it means that the bank lends money, usually with interest and at a set time and length of repayment.
ADVANCE; sometimes known as overdraft, it is frequently made on a continuing basis with fluctuating amounts within a set limit.
COLLATERAL: it is an insurance evaluation: in the background to make or substitute at the borrowing that the bank wishes to create if the unexpected occurs, jeopardising the lending’s safety. As a result, the risk of default in repayment of the credit at maturity is reduced.
CREDIT: a channel through which a prospective borrower can obtain a loanable fund that must be repaid at some point in the future. The loanble fund is managed by the bank.
RISK: a measured uncertainty in any decision-making process, such as the granting of loans or advances.
BANK: A bank is a financial institution that collects and safeguards dividends or organisation and agrees to surrender them to their owners as necessary, but also lends some of these funds to people who need to borrow it and pay it back with interest.
CONTROL: An evaluation of performance that provides feedback on the outcome.
SECTOR; a banking industry branch or area within the banking sector for the purpose of regulating operations.
AGRO-ALLIED INDUSTRIES: These are industries that produce with order identity dependent on others using agricultural techniques.
AGRO-BASED INDUSTRIES: These are the industries whose by-products are used specifically in agriculture.
AGRO-CHEMICALS: These are industries that manufacture chemicals, such as insecticides, for use in agriculture.
DIRECTIVES: These are directives issued by governments in order to control ministries in various sectors.
PREFERRED SECTOR: This is the sector to which the government devotes more financial and other resources than the other sectors. As a result, their sector requires government attention.
FINANCIAL INSTITUTIONS: As the name implies, these are financial institutions. They are concerned with the receipt and distribution of monies or money.
FINANCIAL INTERMEDIARIES; These are those who work as go-betweens for lenders and borrowers, or as go-betweens for financial institutions and those who want to do business with the institutions.
EFFICIENCY: The proportion of inputs utilised in relation to a particular level of output.
PROFIT: Revenue less expenses
ECONOMY: The management and administration of a country’s material resources.
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