IMPACT OF EFFECTIVE CREDIT MANAGEMENT ON THE PROFITABILITY
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IMPACT OF EFFECTIVE CREDIT MANAGEMENT ON THE PROFITABILITY
Chapter one
INTRODUCTION
1.1 Background of the Study
Credit is commonly defined as loans and advances given directly by a creditor (lender) or a debtor (borrower) on the basis of varied payment terms. Banks, as lenders, extend credit to consumers by making funds available under agreed-upon payment terms and conditions.
The gain of credit to the bank is intended to be a large profit; yet, over the years, modern banks (especially First Banks) have recorded a large amount of bad debt provision, which increases with each successive year.
The term credit refers to the providing of money (loans) and advances to borrowers with the general assumption that they will meet their duty to repay the fund with or without interest when due.
Credit is the way by which we can acquire immediate advantages from products and services in exchange for a future payment. One of the primary reasons for acquiring credit is because money, our recognised unit of exchange, is kept in relatively low supply
and while we may have enough credit for products that we desire but cannot immediately purchase, these problems are not limited to people. Loans are one strategy utilised by banks to fulfil their goal of making money.
However, loans are only offered to people in whom they have complete confidence, and they frequently require some form of security. Lending money is thus motivated by profit rather than consumer benefit. Although we are unable to adopt such rigorous views, our motivations for awarding credit must be consistent.
It is disheartening to note, however, that this is despite the fact that the banks have an undeniable impact on the economy. When money is involved, there is always the possibility that it will not be received by the bank.
This (debt nonpayment) necessitated the focus of this research on credit management. The influence of excellent credit management as a process is particularly essential for banks since poor credit revaluation leads to poorly unstructured loans facilities that affect the profitability and liquidity of the banks.
First Bank of Nigeria Plc is a significant banking company in Nigeria with over a century of experience. It was formed on March 31, 1984, by Sir Alfred Jones, a shipping mogul from Liverpool.
It began as a small business bank in Lagos’ Elder Dampster and Co. office. Today, First Bank of Nigeria Plc has expanded into a diverse network of banking activities and services, including commercial, and has become an important contributor to the country’s development.
It was incorporated as a limited liability company in London, with its headquarters in Liverpool, under the corporate name “Bank of British West Africa” with a paid-up capital of £12,000. It began operations by absorbing its predecessors’ assets in African banking, establishing the bank’s dominant position in the banking market in Wet Africa.
Accra, Gold Coast (now Ghana), opened its first bank in 1896, followed by Freetown, Sierra Leone, in 1898. This was a watershed moment in banks’ purposeful banking operations, allowing them to legitimise their operational coverage in West Africa.
In 1990, the second branch in Nigeria was established in the old Calabar, and two years later, its services had expanded to Northern Nigeria, with a branch network of 291 dispersed throughout the federation in 1996, including London. The bank has the most branches in the banking business.
Banking has experienced spectacular growth over the years, beginning with a share capital of 55.6 million in 1980 and rising to N684 million in 1995. The bank’s total assets now stand at N69.82 million, supported by a deposit of N41.641 million.
When the bank first opened in 1894, it had a workforce of six people, three Europeans and three Africans. Today, the bank is almost entirely Nigerian.
This has, of course, been the outcome of deliberate responsiveness to the yearnings of the Nigerian people and government, as well as the bank’s commitment to connect with the country’s aspirations on its path to national progress.
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