PROBLEMS ASSOCIATED WITH LOAN RECOVERY IN NIGERIA COMMERCIAL BANKS
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PROBLEMS ASSOCIATED WITH LOAN RECOVERY IN NIGERIA COMMERCIAL BANKS
ABSTRACT
The first chapter addresses the challenges associated with Nigerian commercial banks, which serves as an introduction to the problems related with loan recovery, and it also provides a history of commercial banks in Nigeria.
Chapter two focuses on the loan, its genesis and deification, and how loans play an important part in economic development and money production in our society. Both the lender and borrower have a duty to per form, in order for efficient and effective lending to take place.
The chapter emphasised the standards that commercial banks must meet before making loans to customers. Three of these are functional. Despite the safeguards taken by commercial banks, they continue to face a slew of issues when it comes to loan recovery from their consumers. Non-repayment of loans, unwillingness to repay, and so on are examples.
Loan recovery issues have a negative impact on finance availability since consumers are unwilling to repay what they have borrowed when it is due (i.e. at maturity). These issues have a significant impact on commercial banks,
as one of their functions is to make loans to customers. The consequences of consumer loan non-payment will not be emphasised. All of these, however, have some remedies/solutions.
CHAPTER ONE
1.1 INTRODUCTION
Loan recovery issues have been one of the most pressing issues confronting Nigerian commercial banks in recent years. Those issues have been the primary focus of policy initiatives for many years, albeit at times they have been pushed back as they become more important and critical. Nigeria’s position has now gotten quite bad and appears to be intractable.
In the pigovain sense, loan recovery problems refer to a situation in which there is a major breakdown in the repayment agreement, resulting in an on-time delay in recovery or collection, and it appears that legal action may be required to effect recovery for which there appears to be a potential loss. As a result, if the loan is to be recovered in whole within a reasonable period of time following maturity, the lender must pay special attention to it.
A truism in a commercial bank lending situation is that unless the commercial bank assesses lending risk and devises an effective method of lending against risk related to the borrowers, industry, management, or operation, the loan portfolio may survive an increase in past due debt, non accruals, and charged off loans.
Thus, even if the borrowers have not met the initial requirements for a good borrowing customer through interviews and credit investigations, the borrowers’ financial statements (especially in the case of a commercial entity) are the focus of credit risk analysis.
The latter helps the lender decide if the company’s operations will generate enough cash flow to repay loans and whether its assets will be accessible as security. Of course, the degree of reliance on financial statement analysis is directly connected to how they are created. As a result, conclusions about credit risk levels drawn from the research must be tempered with additional information from the borrower.
The lending goals of commercial banks are to issue loans that can be repaid. While limiting her exposure to low-credit-quality loans. However, every lending institution encounters loans from time to time where the risk of loss is larger than anticipated at the time the loan was made,
or where the risk is greater than a lender would typically gladly accept. This is because there are two categories of borrowers in the lending environment: good and bad. It is the category of debtors who are at risk of loan repayment default.
HISTORICAL DEVELOPMENT OF COMMERCIAL BANKS IN NIGERIA
A commercial bank is defined as an institution that recovers money and collects draughts from customers in exchange for the duty to honour cheques drawn on them from time to time by customers up to the amount available on their current account. According to this definition, the commercial bank performs the following functions:
Acceptance of the deposit
Making loans and overdrafts available
The drawing of cheques
Money exchange
Commercial banking in Nigeria began in 1892 with the creation of the African Banking Corporation (ABC) by Elder Dempster and co, a shipping concern centred on the River Niger. The bank did not exist after 1893 due to initial difficulties. C.N. Asuzu, Elements of banks with the establishment of an industrial and commercial bank, was incorporated in London in 1894 and launched a branch in Lagos the same year.
The creation of this bank was prompted by nationalist discontent with existing foreign banks that discriminated against Nigerians in loan granting. However, the indigenous banking era had certain shortcomings in the sense that most commercial banks founded at the time folded due to indiscriminate loaning to Nigerians
The first indigenous bank survived due of help from the regional government (western administration). Agbomagbe, another successful indigenous bank, was created in 1945.
The third expatriate bank, the British and French bank (currently) (UBA), was established in 1949, joining the two other expatriate banks to dominate the banking business in Nigeria. The expatriate banks continue to ignore indigenous entrepreneurs and focus on international trade and dealing with the government.
Since the initial banking legislation, there has been additional banking legislation, such as the banking legislation of 1952, which gave the financial secretary jurisdiction over banking. Other examples include the 1958 banking ordinance and subsequent amendments in 1961, 1962, and 1964, as well as the banking statute of 1990.
According to Mr. C.N Asuzu’s book, The Element of Banking in Nigeria, the first bank established in Nigeria was the British Bank of West Africa in 1894, now known as the First Bank of Nigeria, followed by Bardays Bank Dco 1917, now known as the Union of Nigeria, and so on.
1.2 STATEMENT OF THE PROBLEMS
The problem of loan recovery is not limited to commercial banks; all banks are unable to repay loans on time.
True, before a loan is issued to a customer, particularly a bank customer, collateral is supposed to be present; nevertheless, the collateral supplied may or may not be able to pay back the loan that has been collected from the banks.
Again, certain managers are overly trusted, because customers always put or deposit a large sum of money in their bank, and they may not come to ask for collateral, resulting in the loss of the entire sum.
1.3 OBJECTIVES OF THE STUDY
The goals are to determine the root cause of the problem that is causing the loan to be granted and to alleviate any concerns about collateral.
1.4 THE SIGNIFICANCE
The significance is that any consumer should be asked to submit collateral before being granted a loan, and the collateral should not be burdensome. Collateral should be supplied regardless of whether the individual is your child, wife, or mother.
1.6 DEFINITION OF TERMS
BANKS: A financial institution where individuals or businesses can keep their money. Banks also provide services such as lending, exchanging, or transferring money, as well as granting consumers overdrafts.
CUSTOMERS: An individual or family who purchases a certain product for personal, domestic, or industrial use.
COLLATERAL: Money or property used as a guarantee that someone will repay a loan.
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