POST REFORM APPRAISAL OF COMMERCIAL BANK INVESTMENT AND LENDING ACTIVITIES IN NIGERIA A Case Study Of Diamond Bank And Afribank Plc 2005 2009
ABSTRACT
This research project was centered on appraising the investment and lending activities of commercial banks in Nigeria, in using Diamond
bank plc and Afribank Plc as a case study.
The overriding objectives were to ascertain the level of reconciliation between profit
maximization objective and adequate liquidity, the relationship that exist between deposit level and profit level and the effect of monetary
and fiscal policies on the investment and lending ability of the commercial banks. In the literature review, such issues were in the highlights –
nature of investment and lending, the need for bank lending and investment, Diamond bank Plc and Afribank investment and lending
activities.
Primary and secondary methods of data collection were used in obtaining relevant information used in writing this project.
Tabular presentation was used in presentation of data, analysis of data was done using percentages, chi-square was used in testing the
relevant hypothesis and the result was interpreted based on the decision rules stated.
The work concluded that bank lending and
investment are the highest earning assets and contributes to the profitability of bank and practical recommendations were made based on
the findings such as character, integrity, policy and ability of the borrower should be the most important factor in lending and not collateral
provided and that there is need for standard and computerized national identification card for Nigerian citizenry.
TABLE OF CONTENTS
Title Page
Approval Page
Dedication
Acknowledgement
Abstract
Table Of Contents
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background Of The Study
1.2 Statement Of The Problem
1.3 Objectives Of The Study
1.4 Research Questions
1.5 Statement Of Hypothesis
1.6 Significance Of The Study
1.7 Scope Of The Study
1.8 Limitation Of The Study
1.9 Definition Of Terms
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
2.2 Nature Of Investment And Lending In Nigerian Bank
2.3 The Need For Bank Lending And Investment Activities In Nigeria
2.4 Investment And Lending Activities Of Afribank And Diamond Bank
2.5 Reforms Of The Commercial Banks
2.6 Analysis Of The Impact Of The Banking Sector Lending And Investment Activities In The Economy
2.7 Loan Administration And Management In Afribank And Diamond Bank
2.8 The Role Of Information Technology In The Lending And Investment Activities Of Afribank And Diamond Bank
2.9 Challenges Facing Nigerian Banks On Lending And Investment Activities
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Source Of Data
3.4 Population Of Study
3.5 Sampling Design
3.6 Data Collection Method/Techniques
3.7 Procedure For Processing And Analysis Of Data
CHAPTER FOUR
4.0 PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation Of Data
4.2 Analysis Of Data
4.3 Testing Of Hypothesis
CHAPTER FIVE
5.0 SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
5.2 Summary Of Findings
5.3 Conclusion
5.4 Recommendation
References
Bibliography
Appendix
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
Reform which refers to making changes for improvement in order to remove abuse and injustices in the banking industry. Reform is what
that brings, lead or force banking industries to abandon a wrong or evil course of life, conduct and adopt a right one. According to Wikipedia
Reform resulted from the appraisal of the financial environment. Due to the changing characteristics in the banking industry, there was a
need for banks to resort to consolidation to meet the new capital requirement by CBN for bank to operate.
The increase in the capital base (paid up share capital) from N5 billion to 25 billion naira, le an option from some commercial bank to
consolidate in other to meet up the requirements. The number of banks decreased from 89 banks to 24 banks due to consolidation as the
only option le from those banks without the need of financial muscle to meet N25billion new capital base requirements.
OJIUKO and
NGWU (2004; 89)
However, banking all over the world has a fundamental nature which is risk and inter-mediation between the surplus and deficit unit of the
economy. Its main business is maturity transformation which is defined as borrowing long and length short, which is a cardinal rule of
financial management. This enable meet her financial obligation as the fall due or as the manage their affairs prudently.
KANU and OKEZIE
(2005; 116)
Management of their affairs is centrally based on management of their lending and investment activities to ensure liquidity and maximized
profit. Lending is the highest earning asset bank balance sheets that contribute materially to the bank achievement and fulfillment of the
objective of profitability by providing a higher return than other financial assets.
It also helps management to satisfy the legal and other regulatory objectives of monitory authorities. It is a vehicle through which banks
management attempt to satisfy the credit needs of the community in which they operate or serve. NWANKWO (1990:112)
Lending activities although being the highest earning to the bank is also the liquid and most risky of bank operations.
Apart from this, lending is an important aspect of banking and of the cardinal principles of classical banking is to ensure effective lending,
which is to maximize profitability and ensure adequate liquidity.
However, the bankers view runs contrary to the demand of a developing environment which demands that bank lending objective should in
cooperate contributions to the development of the environment in which they operate. That is, operating as a co-operate citizen.
This dilemma facing banking activities in developing economy like ours, needs to be resolved to ensure a conducive environment for the
banking operations as well as to avoid crises. KANU (2003:2)
In addition to other segments of bank activities they invest in all forms of government, private and co-operate securities so as to increase
the level of economic activities in a given economy and to increase their profit.
Without doubt, banks have as their objective the desire to survive, to make profit and to grow. Banks invests for the following reasons: for
survival, growth, make profit or receive return and to increase the market value of their shares. In attempt to achieve this objective, the
bank has to manage its lending and investment activities well to have adequate at hand to meet the withdrawal need of her depositors,
contribute to the development of the environment in which the operate and as well make profit to their owners. KANU (2003:2)
1.2 STATEMENT OF THE PROBLEM
Banking lending and investment activities intend to enhance the development of the economy especially in a developing nation like
Nigeria) and also achieve a trade of between liquidity and profitability. This objective can only be realized if the loan and investment
portfolio are effectively and efficiently managed.
But the problem is – can credit management in our commercial banks actually safeguard the banking system in Nigeria against distress and
protect the interest of depositors?
How best can they access their customers to guard against the result of default in repayment of loans and advances?
Have banks been able to reconcile the dual conflicting objectives (liquidity and profitability objective) through credit and investment
management?
1.3 OBJECTIVES OF THE STUDY
Commercial banks promote economic growth and development through their lending and investment activities.
This study intends to review the extent to which the Nigerian Commercial banks have contributed to the economic growth through lending
and investment.
To ascertain how effective their lending activities has been in regards to reconciling the dual objective.
To investigate the lending procedure of Afrik Bank and Diamond Bank and then identify the nature of investment they undertake.
To review the extent to which deposit nature affects lending activities in Diamond and Afrik Bank.
To ascertain the effect of monetary policy on banks’ lending ability.
1.4 RESEARCH QUESTIONS
Does Afrik bank and Diamond bank grant loan?
Which sector of the economy is mostly favored with the loan granted?
What factors influence your bank mode of advancing loan to customers?
Does deposit nature and position affect your bank investment and lending activities?
Does change in monetary policies affect investment and lending activities of your bank?
1.5 STATEMENT OF HYPOTHESIS
HA: There is a significant relationship between the level of deposits lending and profitability.
HA: Changes in monetary policies leads to change in investment and lending activities of commercial banks.
1.6 SIGNIFICANCE OF THE STUDY
It is hoped that when this study is completed, the findings and results from it will add to the existing stock of knowledge on the subject
matter. It will also help borrowers to understand the effect of overdraw and the interest charge, commitments fee, appraisal fees, prime rate
etc on loan accounts.
The study will be available for those who will be future researchers and most importantly, in partial fulfillment for the award of the Higher
National Diploma (HND) in banking and finance.
1.7 SCOPE OF THE STUDY
This study research will cover or concern the lending activities of Afrik Bank and Diamond bank and the influence of Central Bank of Nigeria
Monetary Policy On their lending activities.
It will grow further to ascertain the effects and nature of deposits and level of withdrawal on lending and investment activities of Afrik bank
and Diamond Bank.
1.8 LIMITATIONS OF THE STUDY
In the course of carrying out the research, I was faced with the time constraint. Insufficient money was also a limiting factor. Difficulty in
assessing, the banks summary and having access to the banks information required of the work was also a hindrance to the completion of
this project. These and other economic factors beyond my control limited my study.
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1.9 DEFINITION OF TERMSDUAL CONFLICTING OBJECTIVE- These refers to two objectives of an organization that varies to each other’s expectations on a
compromise grounds. For this work, this work refers to “profitability and liquidity objectives” of the bank.
INVESTMENT-This is the commitment of financial resources in acquisition of asset with the expectation of future benefits.
LENDING-This is the transfer of resources of the bank to various economic units of the economy through loan, overdraw, discounting of
trade bills etc.
NATURE OF DEPOSITS- This refers to the structure of deposits which include demand deposits that is unstable, savings and time deposits
that is more stable than demand deposits.
COMMERCIAL BANKS-Are financial institutes established by law to perform some functions which includes: deposits acceptance, agency
service, executor-ships functions, developmental functions, fund lending and transfer etc.
REFORM-This is the improvement of amendment of what is wrong corrupt, unsatisfactory and conduct. It is a change for the better
SECURITY-It is the right or interest in property which is given to a leader creditor (creditor) by the borrower for the purpose of providing
cushion on which the leader fall back on in case the borrower default is required
MERGE- this implies a combination or fusion of two or more formally independent bank into an organization (bank) with common
ownership and management.
ACQUISITION- This is the act of getting possession of an organization by which the ownership and management of the independent
operate properties and businesses are brought under the control of a single management.
CARMEL PARAMMETER This is a measure introduced by (CBN) to secure blank capital base. It is a measure to strengthen and give
qualities to bank for them to have secure capital base. This fall meaning of camel include: capital, adequacy, asset, management, earning
and liquidity
COLLATERAL- This is a secondary method of repayment which only pay a roll on the occurrence of unexpected in the condition of the
ban
CREDIT-this is a loan of money given to a borrower on an agreement credit term and its maturity period varies
DEPOSIT- this is the is a transaction involving a transfer of fund to another part for safe keeping
14 DEPOSIT ACCOUNT-This is a savings account in which the deposit is held for a fixed term or in which withdrawal can be mad after giving
notice or with loss of interest
POST REFORM APPRAISAL OF COMMERCIAL BANK INVESTMENT AND LENDING ACTIVITIES IN NIGERIA A Case Study Of Diamond Bank And Afribank Plc 2005 2009
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