ANALYSIS OF CREDIT MANAGEMENT TECHNIQUES IN THE NIGERIA COMMERCIAL BANKS
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ANALYSIS OF CREDIT MANAGEMENT TECHNIQUES IN THE NIGERIA COMMERCIAL BANKS
A SHORT ANALYSIS OF CREDIT MANAGEMENT TECHNIQUES USED BY THE COMMERCIAL BANKS IN NIGERIA
The primary goal of this study was to evaluate the credit management strategies used by Nigerian banks. Staff from the three selected banks in Imo State made up the study’s population; 45 of the study’s 60 staff members were chosen at random to serve as the study’s sample.
Two guiding hypotheses for the investigation were developed. A 19-item survey was created, validated, and assessed for dependability; the hypothesis was tested using chi-square at the 0.05 level of significance.
The main conclusions are: Poor credit analysis leads to bad debts; Poor supervision of credit officers leads to bad debts; Goodwill is the biggest element influencing banks’ lending practises to clients.
Based on the research, we came to the conclusion that the bank’s capacity to design practical credit management approaches and implement them in a thorough manner is what will enable it to effectively access credit mismanagement and its causes.
Introduction to Chapter One of the Analysis of Credit Management Techniques in Nigerian Commercial Banks
1.1 OVERVIEW OF THE STUDY IN GENERAL
A country like Nigeria’s economy has continued to thrive thanks in large part to the introduction of financial services. Due to the importance of these services and the need for constant attention, the bank offers both long-term and short-term loans and advances.
The government’s significant interest in establishing aggregate credit ceilings and sectoral allocations in the government credit guidelines contained in the monetary circulars can be attributed to the inevitable role that these services provided by the banks play in economic growth. Therefore, during any fiscal year, banks and other financial institutions must adhere to these requirements.
The ability of a bank to create credit depends on the sort of bank it is and the size of its deposit base in relation to the lending guidelines.
Banks must guard against loan defaults while heeding the urgent call to support global economic growth because doing so jeopardises their own financial situation because they borrow primarily from depositors, who may at any point demand their money back.
Therefore, banks must exercise caution when extending credit in order to prevent or at the very least reduce the incidence of loan default, which has recently led to the eventual failure of numerous banks.
This paper set out to do research on the management of bank loans to reduce the incidence of substandard, dubious, and lost loans in Nigerian banks in light of the apparent consequences a bank could experience if it became so mired in loan losses and bad debts.
Bank loans are categorised in the meanwhile based on performance. The active, substandard, doubtful, and lost loan categories are among them.
The loans that are still being repaid are those that were made with full consideration of the rules of good lending and without any indication of default.
The loans that are considered substandard are those that were made irregularly or that have already expired but have not been renewed and show signs of default.
The loans with questionable credit are those whose accounts have been inactive for a long time. Loss-making loans are those that have foiled all attempts at recovery, writing down the banks’ assets in the process.
As the most profitable assets for the use of bank capital, loans and advances make up the majority of a bank’s operating income. Banks risk losing both the principal and interest if the credit administration process is not strong, despite their goal to generate income from loans and advances through interest accruable to these facilities.
Banks set aside a sizable sum of money as provisions for lost and dubious loans since they are fully aware that some of their loans and advances will always appear bad despite the use of qualitative and quantitative approaches.
Despite all of these precautions, there are still substandard loans, and this is due to the nature of the borrowers and the credit officers’ backgrounds.
Having come this far, it is clear that the problem does not lie in designing a system that can completely halt the occurrence of loan default.
The key is to design a system from the start that can reduce the frequency of poor, dubious, and loan losses to an absolute minimum.
1.2 STATEMENT OF THE PROBLEM
The basis of the banking industry’s issues is the distinctive nature of the services it provides to the economy. It raises money from surplus units and distributes it to the deficit units so they can use it for profitable endeavours.
Therefore, managing credit is the most delicate and sensitive component of the banking business, and it faces issues like: – Bad and questionable debt, which is brought on by inadequate credit management and other exogenous variables
– Loan supervision by credit regulators and bad credit.
– Unqualified credit officers who are unfamiliar with the principles of responsible lending
– The aggressive actions of some dishonest business men who are seeking the financing also create a serious challenge for banks
– Another problems facing banks is the acceptance of irregular worthless and unperfected assets as a cushion for bank lending.
1.3 OBJECTIVES OF STUDY
The overall goal of this study is to evaluate banks’ loan administration practises, including how they handle loan repayment and interest charges.
– Drawdown: The act of taking money out of an account.
– Fake checks; non-performing checks
– Doubtful debts: a loan with all the outlined faults is characterised by collection issues.
– Letter of offer: A bank will send a customer a letter stating the terms of an offer after accepting a loan request.
– Loans that have been declared uncollectible are categorised as lost loans.
– Memorandum of association: A succinct description of the conditions governing a business transaction or operation.
– Perfect: this is how you place collateral credentials.
– Portfolios; investment list
Capital, character, ability, collateral, confidence, and consideration are the six pillars of credit.
– Substandard loans: Loans with clearly identified issues and flaws that may undermine a borrower’s capacity to repay.
Regarding the frequency of lost and poor loans in Nigerian banks. In order to: – Establish actual credit
administration – Establish whether banks actually suffer losses on loans and advances, we will examine how banks manage and administer credit.
– Banks’ recovery of established debt (lost loans)
– Determine whether improper credit analysis led to questionable and bad debts
– Determine whether credit analysis is important for approving creditworthy loans.
1.4 SIGNIFICANCE OF IGNIFICANCETHE STUDY
This study will be helpful in advancing effective credit management in Nigerian banks. This study would suggest potential remedies for banks’ high incidence of bank debts, which had caused many banks’ collapse and misery.
The study would also pinpoint issues with credit management and outline strategies for lubricating the workings of credit control to increase its effectiveness.
1.5 RESEARCH HYPOTHESES
1. HA1: Bad and questionable debts are the outcome of poor credit analysis.
2. HA2: Credit analysis is important for making wise lending decisions.
1.6 SCOPE OF THE STUDY
This study focuses on three Owerri-area banks and aims to determine the efficacy of credit-management practises in Nigerian banks with regard to active loans, sub-standard loans, and lost loans.
This analysis focuses on the five years between the election of the banks (2001–2006). These financial institutions are First Banks Plc, Oceanic Bank Plc, and Diamond Bank Plc.
LIMITATIONS OF THE RESEARCH
There are a few limitations that the researcher had to work under
Due to a lack of funding, the researcher was only able to conduct this investigation in the Owerri area instead of travelling to other parts of the nation.
Another significant issue that the researcher faced was a lack of time, which left little room for the researcher to conduct the research as it should be.
Another difficulty the researcher faced was a lack of standard data from the banks utilised as a case study and inadequate research facilities.
1.8 DEFINITION OF TERMS
– ACTIVE LOANS: Loans that are meeting their contractual obligations.
– Cannons of excellent lending: Prerequisites that must be met with careful adherence.
– Doubtful or lost loans also count as bad debts.
– Requirements: The borrower must satisfy these requirements in order to take withdrawals from his loan account.
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