THE LENDING CONSTRAINTS OF NIGERIAN COMMERCIAL BANKS
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THE LENDING CONSTRAINTS OF NIGERIAN COMMERCIAL BANKS
BACKGROUND OF THE STUDY CHAPTER ONE
Banking and lending can be traced back to the barter system and the usage of sold Smiths as deposit acceptors from the general people. Banking evolved from the Goldsmiths’ practise of depositing people’s gold and jewels for safekeeping. Initially, such institutions were merely houses.
Depositors placed gold for safekeeping and were granted receipts, which they presented to goldsmiths for their gold or valuables after paying a small fee. When the goldsmiths learned that not all gold depositors arrived at the same moment to receive their gold,
they began to issue receipts that indicated indebtedness and were transferable out of the gold placed. The goldsmiths began to lend out these services, which marked the beginning of lending in banking history.
The primary distinction between the goldsmiths’ banking system and today’s banking system is that when a depositor requests it, the value of what he placed, whether his own or that of others, is returned to him. When compared to the time of the goldsmiths, the banking system has advanced significantly.
Today, we operate several forms of banking, including development, merchant, and commercial banking, each with its own set of tasks and responsibilities. However, as the issue requires, we should concentrate mostly on commercial banking in the discussion.
Commercial banking in Nigeria began in 1892 with the founding of the African Banking Corporation. The first Nigerian bank, the Bank of British West Africa, was established in 1894, followed by the Barclays bank in 1917. The banks were established to serve the colonial administration and British business interests.
Prior to 1959, when the central bank of Nigeria (CBN) added a new chapter in the growth of commercial banking in Nigeria, the national bank of Nigeria came in to score. By forcing all banks to be formally incorporated, the 1969 banking decree fully established commercial banking in the country.
The government’s goal was partly to discourage monopoly of monetary transaction by the two established expatriate banks and to liberalise credit facilities for Nigerian, Nigerian enterprises that had been established prior to that time. This is the region that I am most interested in. As a result, banks have been urged to adopt a more flexible credit strategy.
While deploying their finances primarily in loans and advances, Nigerian commercial banks face difficulties in credit advances. It is more often than not the rule than the exception that money advanced to most indigenous clients is seen as “our money or my own share of the Ori Boom” and is not intended to be repaid. In the books of the majority of our domestic commercial banks.
A backlog of bad debts exists. It’s no surprise that, while the greatest security for an advance is the customer’s personal integrity, our environmental constraints have forced us to make a rather unique contribution to the world’s banking practise by insisting on valuable security as a necessary condition for an advance.
These banks’ lending policies revealed that loans were made to customers near lower-income corridors with insufficient collateral. The average Nigerian has always grumbled about his difficulty to obtain securities.
The customer also complained about how the very stringent conditions for obtaining loans and overdrafts have crystallised the burdens on this way to secure bank credit; he has always believed that only highly placed and influential customers can obtain loans and advances with little or no form of security.
This resulted in setbacks in the growth and development of these banks, requiring more funds to be injected to neutralise the situation or restructuring and streamlining the boards of management, resulting in the establishment of state-owned banks such as the Bank of the North, the New Nigerian Bank, and Progress Bank, among others.
One factor dominated the early indigenous banks’ development. They were all established to assist indigenous businessmen. To some extent, banking services were widely available to Nigerians. Despite the difficulties, most state governments consider the development of state banks as a panacea for the economic survival of their individual states.
More state banks have been founded in recent years in conjunction with private sector partners as a means of enhancing the respective state government’s revenue base and, as a result, encouraging the state’s economic development in particular.
Following the enactment of the indigenization decrees of 197 and 1977, it also expanded its participating role in business, entering the banking sector by acquiring a 60% stake in all established expatriate commercial banks.
As a result, all commercial banks are now indigenous, and these commercial banks provide a wide range of services to consumers. These services include lending, and the issues that these banks face when providing this service are what they wish to talk about.
Effective depositor protection entails more than just robust safeguards against unforeseeable bank losses. As a result, many instruments were utilised for this, and it is these instruments that cause complications for commercial banks when lending.
These instruments will be examined more in later chapters of this book, as will the ways in which they pose challenges for commercial bank lending.
Commercial banks offer two sorts of credit to their customers: overdrafts and loans. However, the researchers are focusing on loans, even though overdraft increases and different types of loans are mentioned. This issue thus reflects the financial sector’s extraordinary development in achieving proficiency and recognising its social and economic relevance,
as well as highlighting the majority of the difficulties that the sector’s success has brought with it. All commercial banks’ performance, growth, and profitability are dependent on the quality of services they provide and the trust clients place in them.
1.2 STATEMENT OF THE PROBLEM
Lending is a critical service provided by commercial banks. The researchers will critically evaluate the credit risks that impede bank lending in Nigeria, as well as the central bank of Nigeria’s (CBN) credit guidelines and lending directions for sectarian allocation.
Furthermore, the securities demanded of clients as a constraint to bank lending will be examined. The impact of security or collateral provisions on loan disbursement and repayment will also be examined and addressed.
Furthermore, we will bring to light the impact of society and the general economy on commercial bank loan disbursement and repayment, as well as viable solutions.
1.3 PURPOSE AND OBJECTIVE OF THE STUDY
The goal of this study is to critically investigate the challenges that commercial banks encountered in loan lending and repayment, as well as how this loan disbursement has contributed to economic most other corporate activities; lending is vulnerable to two types of risks, which are commonly referred to as dynamic and pure hazards.
The examination of commercial banks’ loan disbursement difficulties and prospects is critical, particularly during current period of economic downturn.
Given that financing is the driving force behind every venture, researching the ultimate source of this funding is critical. Aside from that, the rationale for this study can be supported now that Nigeria is increasing in terms of banking.
1.4 THE SIGNIFICANCE OF THE STUDY
This study provides an answer to an essential subject, and the research is centred on the difficulties and possibilities of commercial banks. This work is extremely important because it provides such guidance to all in the business profession,
particularly the financial, banks, and businessmen. The recommendations provided are of enormous help to bank management in correcting some of the problems inherent in the system, ensuring a more reliable and efficient banking system.
In terms of organisational procedures, this work reflects the financial sector’s tremendous growth towards competency and acknowledgement of its social and economic significance.
Finally, the success, expansion, and profitability of all commercial banks are dependent on the quality of services provided to consumers and the trust they place in them. The reason for this is because the most crucial part of the bank-customer relationship is confidentiality. The question of this confidence is one that deserves careful consideration.
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