CREDIT ADMINISTRATION IN NIGERIAN BANKS
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CREDIT ADMINISTRATION IN NIGERIAN BANKS
ABSTRACT
This study provides an understanding of the challenges commercial banks experience in recovering money lent to consumers as well as the causes of loan default.
The study begins by looking at the common perception of credit as well as the significance of solid credit management in any commercial bank. Problems with the study, First Bank Nigeria Plc’s relevance, breadth, and brief history are also emphasised.
The importance of credit to the economy is discussed in chapter two, along with methods for preventing fraud and reducing non-performing loans.
In chapter three, the methodology chosen for data analysis is explicitly outlined, along with the steps and techniques employed.
Chapter 4 is devoted to It is done to present, analyse, and interpret data. As a result, depending on the results of the investigation, the research questions specified in chapter one are completed using the relevant statistical methodologies.
Finally, chapter five had some advice that, in my opinion, will be quite helpful to anyone who comes into contact, directly or indirectly, with this project work at any time.
CHAPITER 1
1.1 Introduction
In Nigeria, banks are crucial to the growth of the nation’s economy. Under the current system, no economy can prosper without banks and other financial institutions. The Nigerian Banks are well-known for offering a variety of connected services to:
As financial intermediaries, individuals, governments, for-profit and nonprofit organisations offer ways for money to be raised and mobilised through loans and advances.
Through the Nigerian financial system, banks are more active in short-term loans, obtaining overdrafts, and trading foreign exchange, with little impact on the real economy.
This effort intends to provide a workable, secure, and portion of a financial system that would set Nigerians on the path of sustainable growth and where confidence reigns in order to facilitate effective credit administration. The purpose of financial intermediaries is most obviously to attract higher-level investments.
1.2 BACKGROUND OF THE STUDY
In business and finance, credit refers to the promise of repayment, typically at a predetermined period; as a result, the transferor becomes a creditor and the transferee, a debtor. Credit is therefore just another way of saying the same thing from the opposing perspective.
In developing nations like Nigeria, it is not uncommon for a credit to need a third party guarantee to cover the debt should the debtor default.
Alternatively, the debtor may be required to provide collateral securities by assigning them to the creditor in the case of default, with a value equal to the loan.
The seller in possession may keep the goals until the last payment is made when government borrowing takes the form of the issuance of government bonds and stocks that are sold under a higher purchase plan or with deferred payment.
The money is deposited for loans and investments, and the bank is obligated by law to pay back the money just like any other debtor would.
1.2.1 The Economy and Creditors
A country’s credit position at any given time is a useful indicator of the state of the economy; expanding credit reflects a period of business prosperity,
while contracting credit will reflect a period of declining economic activity or depression; variations in the supply of credit can also have an impact on inflation and increases in credit circulation, which can tempt businesses to raise their prices.
Depending on the urgency or necessity of the measures, the government, most likely the CBN, is deserving of either increasing or contracting credit. They carry out these actions through Open Market Operation (OMO), Moral Suasion, etc.
1.3 STATEMENT OF THE PROBLEM
This study is being conducted to gain insight into the challenges commercial banks experience in recovering the money they loaned to its numerous clients as loans, as well as the causes of these loans’ failure to be repaid.
The study began by looking at the general idea of credit as well as the significance of good credit management in any commercial bank.
Additionally, the significance, range, and description of the hypothesis, as well as a strategy for preventing fraud and lowering non-performing loans.
1.4 OBJECTIVE OF THE STUDY
Many people have seen their businesses close for a variety of reasons, ranging from a lack of resources to inadequate knowledge of the numerous services that may be provided from commercial banks.
The methods for obtaining loans from commercial banks will therefore be clarified by this study, which will also help borrowers identify potential challenges they may face when applying for a loan from a bank and how to handle them.
The study will also highlight the factors that contribute to commercial banks’ loans defaulting, including the issue of an excessive reliance on collateral securities.
The final consideration should be the objective of the advances, closely followed by the relevance of the study or subject and our connection with economic development. The knowledge of business, the borrower’s capacity, and personal integrity are also crucial considerations.
When it is felt that lending and credit administration are not accomplishing the set aims, helpful ideas and recommendations must be made.
Additionally, suggestions will be offered for reducing the many factors that influence the rate of loan default.
And this research should be able to do the following at its conclusion:
1. To evaluate the credit management strategies used by First Bank of Nigeria Plc and banks in general.
2. Make recommendations for enhancing the calibre of decisions made in bank lending
3. Demonstrating how efficient credit management helps to increase bank credit.
1.5 SIGNIFICANCE OF THE STUDY
In addition to offering potential ideas on how to achieve a significant degree of understanding among the focused parties, this work will offer probable explanations for the numerous challenges associated with credit administration in Nigerian commercial banks.
On the other hand, the commercial banks can also contribute to the introduction of more effective strategies, policies, and other measures to prevent bank failure due to the distress mentioned in Section 1.4 above.
I believe that the people and organisations listed below will profit much from and find great value in my project work;
Researchers
individuals who may later do study in this project area.
Financial and governmental authorities
This paper may be especially pertinent to the CBN’s future credit policies.
Bank employee
It will then allow you to learn how to examine credit proposals using quantitative methods in order to make wise decisions.
the general public and students
The majority of those who will benefit from this study are tertiary students, as well as the general public who may be starting a similar academic project in the future.
Financial analysts and economists
The study will shed light on how banks’ profits and their effects on the national economy may be impacted by their compliance—or lack thereof—with government legislation regarding commercial banks’ credit management.
Investors
The study will familiarise investors with governmental regulations and equip each investor group with the necessary knowledge on investment tactics.
1.6 RESEARCH QUESTIONS
The following questions are produced based on the information in the introduction and to examine the possible causes of default.
1. That relying solely on collateral to protect against loan failure is ineffective?
2. Does the amount of loans and advances given by commercial banks depend on the deposit value?
3. That most banks fail as a result of inadequate credit management and oversight?
4. That there is no discernible connection between the loan’s size and its default rate?
1.7 LIMITATIONS
The theme of my conversation is how to develop a topic and the necessity of thorough, error-free research. However, the following considerations prevented me from going any further than I had the urge to:
i. Difficulties in Obtaining Useful Data
Banks generally, and First Bank of Nigeria Plc in particular, are reluctant to provide information to students, especially when that information refers to their activities and accounts in addition to that which is lawfully and statutorily revealed.
ii. Time Restrictions
Due to the various academic activities that go along with this task, the time allocated for it is clearly insufficient given the scope of the research.
iii. Financial Restrictions
Because I didn’t have access to enough funding to cover the entire federation, I had to create an accurate and efficient sampling approach method to wrap up my work.
iv. Other Information
Inability to retrieve surveys sent to some people and secure, recent records obtained from banks.
1.8 DEFINITION OF TERMS
An establishment or financial institution that has been granted a licence by the CBN to keep money, valuables, and other items secure, receive deposits, and issue loans and advances is known as a bank.
Banking refers to the commercial and financial operations of banks.
Collateral Securities are valuable items pledged as security for the repayment of a loan or the performance of a promise.
Credit is the amount of money a bank lends to its legitimate clients in order to aid them financially. Likewise, money deposited into a bank account.
Guarantee against loss or damage; restitution for loss or harm.
Planning, organising, coordinating, and directing people and material resources are all parts of management.
The general level of price continuing to rise is referred to as inflation.
An arrangement between two or more institutions to grant a borrower credit in order to finance a sizable project is known as loan syndication.
Risk: Uncertainty that could arise during the loan and credit administration process between the bank and its borrower.
Mortgage: A written contract under which a bank lends money to a person so they can buy a home.
Savings Deposit rate: This is the sum that banks pay for money that can be withdrawn with seven days’ notice. However, this restriction is uncommon, or rarely.
Maximum Lending Rate: This is the interest rate that banks charge to customers who have bad credit.
Maximum Rediscount Rate: This is the fee levied by the Central Bank of Nigeria while acting as a lender of last resort and lending money to banks.
1.9 DISTRIBUTION OF THE STUDY
The First Bank of Nigeria PLC is mentioned in the overview of my research.
The First Bank of Nigeria, which was actually the first, was established in 1894 by Sir Alfred Jones, a shipping mogul from Loverpool.
The company was first known as the Bank of British West Africa (BBWA), and its paid-up capital was 12,000 pounds sterling. In order to defend its presence in West Africa, a branch was established in Accra, Gold Coast (now Ghana) in 1896. Later, the bank has 250 branches dispersed around the country.
The bank has grown extraordinarily over the years; for instance, in 2005, its total deposit increased by 30% to N332.2 billion from N255.5 billion.
Increase in loans and advances, the bank’s most profitable but extremely risky investment channel, increased from N83.5 billion in 2004 to N123.7 billion in 2005, a jump of nearly 48.2% for the institution.
The bank has also done well, as evidenced by the fact that as of 2005, the bank group’s gross earnings are N57.2 billion, compared to the N11.billion net profit on N51.3 billion in group gross earnings in 2004 (Financial Standard, August 15, 2005).
In March 1971, First Bank of Nigeria registered on the Nigeria Stock Exchange (NSE), where it has since won nine times for the best financial report in the banking industry.
Based on a number of metrics, including the number of branches, expansion of the deposit base, asset size, and amount of loans and advances, the bank has significantly improved.
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