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THE IMPACT OF EFFECTIVE CREDIT DOCUMENTATION IN COMMERCIAL
BANK
ABSTRACT
The Impact of effective credit Documentation in commercial
banks. The level and Magnitude of credit Mis-management has continued to
increase in the financial system at an alarming rate, and very soon, the banks
capacity to perform it’s traditional function of financial intermediation will
be impaired and obviously, the real section of the economy will be adversely affected. It is in view of this fact that the need for
this research exercise arose, taking a through look into the scene of
“portfolio management problems in commercial Banks” with first bank Plc Kaduna
branch as case stitches. The research exercise states from chapter one with the
statement of general problems, objectives, significant, scope limitation and
delimitations, definition of terms, historical background of first bank and
it’s organizational structure. Chapter two being the literature review dealt with
issues like functions/debt management concept, etc. the central banks
production guide lines for license banks also outline. chapter three (research methodology) discussed
research methods with particular emphasis on the method employed for this research
exercise these methods employed were also justified. Chapter four data
presentation and methodology presents some adverse effect of credit
mis-management, also the analysis of response gotten from the respondents
sampled out for the purpose of this research exercise. Lastly, chapter five
shows the whole event in summary form then concluded by mentioning the various
recommendations on how to improve on credit management in commercial banks
TABLE OF CONTENTS
Title Page -
- - -
- - -
- - -
i
Declaration Page
- - -
- - -
- - ii
Approval Page - -
- - - -
- - -
iii
Dedication
- - -
- - -
- - -
iv
Acknowledgement
- - -
- - -
- - v
Abstract -
- - -
- - -
- - -
vi
Table of content
- - -
- - -
- - vii
CHAPTER ONE Introduction
1.0
Introduction - - -
- - - - 1
1.1 Historical
background of the case study - -
- - 3
1.2 Statement of
General Problems - -
- - -
6
1.3 Objectives of
the study - -
- - -
- 8
1.4 Significance
of the Study - -
- - -
- 9
CHAPTER TWO - Literature Reviews
2.0 Introduction
- - -
- - -
- - -
11
2.1 The concept of
credit Management in Commercial banks
12
2.2 The Impact of
Effective Credit Management on
Commercial
bank - - -
- - -
- - 13
2.3 Credit Risk
Management Strategy in Commercial Banks
15
2.4 The qualitative
Procedures for Evaluating Commercial
Loan Proposal
- - -
- -
- - -
- 18
2.11 Summary of the
Chapter- - -
- - -
24
CHAPTER THREE - Research Methodology
3.0
Introduction - -
- - -
- - -
26
3.1 Research
Methodology - -
- - -
- 26
3.2 Area of the
Study- - -
- - -
- - 26
3.3 Population of
the study - -
- -
- - 27
3.4 Sample Size and
Sample Technique - - -
27
3.5 Sampling
Technique and Justification - - -
- 27
3.6 Research
Instrument- - - - -
- 27
3.6 Administration of
Research Instrument- - -
- 28
3.8 Validity and
Reliability - - -
- - -
- 28
CHAPTER FOUR - Presentation and Analysis of data
4.0
Introduction - -
- - -
- - -
36
4.1 Presentation
of Data - -
- - -
- 36
4.2 Major
Findings- - -
- - -
- - 40
4.3 Discussion
and Summary of Findings- - -
- 41
CHAPTER FIVE - Summary, conclusion and Recommendation
5.0
Introduction- - -
- - -
- - -
43
5.1 Summary
- - -
- - -
- - -
43
5.2
Conclusion - -
- - -
- - -
45
5.3
Recommendations- - -
- - -
- - 45
Bibliography - - -
- - -
- - -
47
Appendix -
- - -
- - -
- - 48
CHAPTER ONE
1.0 Introduction
Credit generally denotes loans and advances made either
directly or indirectly by a creditor (lender) to a debtor (borrower) on the
principles of different payment. The banks as a lender, provides credit
facilities by making funds available to customers in agreed terms and condition
of payment. The gain of this credit to the bank is supposed to be huge profit
instead of this over the year, modern banks (particularly commercial banks)
have been recording huge amount of bad debt provision which increase with each
consecutive.
The term credit is the granting of money (loans) and advances
to borrowers with the general expectation that they would honour their
obligation to repay the fund with or without interest when due.
Credit is the means by which we are able to obtain immediate
benefit of goods and services upon the promise of payment at a future date.
One of the main reasons for obtaining credit is that money
which is our recognized unit of exchange is kept in relative short supply and
although we may have enough credit for those items which we require but can not
immediately afford and as these problems is not confined to individuals. A
banks objective is to make money and one of the methods used to achieve this is
by loans.
However, loans are only granted to those whom they have every
confidences in and then as often as not, demand some form of security. The
motive for leaning money is therefore to acquire profit for themselves and not
out of favour to the customer. Although, we are not able to adopt such
stringent attitudes, our motives for granting credit must be the same.
It is however, dishearten to note that not withstanding the
level and magnitude of impact that the banks have on economy in terms of
importance which is unarguably immense. Whenever money is always certainly a
risk of not getting it back from such customers. It is this (non-payment of
loan) that has made it necessary for this research to go into the area of
credit management.
The impact of effective credit management as a process is very
essential for banks because poor credit revaluation leads to poorly
unstructured loans facilities that reduce the profitability and liquidity of
the bank.
1.1 Historical
Background of the Case Study
First bank of Nigeria Plc is a leading banking institution in
Nigeria with over a hundred years of banking experience, founded in 31st
march1894 by a shipping magnate from Liverpool, sir Alfred Jones. It commenced
as a small business bank in the office of elder Dampster and co. in Lagos.
Today, first bank of Nigeria Plc has diversified into a wide range of network
of banking activities and services including commercial, merchant and
international banking. And has become
appetent factor in the development of the country.
It was incorporated as Limited Liability company in London,
with it’s head office in Liverpool under the corporate name “Bank of British
West Africa; with a paid up of twelve Thousand Pounds sterling (£12,000) it
commenced business after it had absorbed it’s predecessors assets in the
African banking of the pre-eminent position which the bank was established in
the ban king industry in west Africa.
The bank in it’s early years grew rapidly working in close
corporation with the colonial government in performing the traditional roles of
a central bank.
In 1896, a branch was opened in Accra, Gold coast (now Ghana)
while another was established in Freetown sierra Leone in 1898. This marked a
milestone in bank’s internationally banking operations thereby justifying it’s
west African coverage operationally.
The second branch in Nigeria was situated in the old Calabar
in 1900 and two year later, it’s services had extend to Northern Nigeria with a
branch network of 291 in 1996 spread throughout the federation, including
London. The bank has the highest number of branches in the banking industry.
The banking has experience a phenomenal growth over years
with a share capital of 55.6 million in 1980, which rose to N68.4 million in
1995, the bank’s total assets currently stand at N69.82 million, supported with
a deposit based of N41.641 million.
When the bank began operation in 1894, it has a staff of six
composing of 3 Europeans and 3 African today, the bank is virtually fully
Nigerianlized. This of course has been the result of planning responsiveness of
the yearning of the Nigeria people and government as well as the banks
determination to identify with the aspiration of the country in it’s march
towards national development.
As a result of corporate policy to divas it’s portfolio of
non-core activities and in order to meet the bank of England’s regulatory
requirement the banks foreign partners, the standard chattered banks of Africa
Plc, have reduced their shareholding to
9.9% following the offer of 120.941.195 share to the Nigerian public, thus
bringing the equity holdings by Nigerian to 90.1%.
The bank has maintained its leadership in financial long-term
loan to the colonial government. To day, the banks boast of a diversified loan
portfolio to various sectors of the economy. The banks rural banking record is
unmarked by army bank’s while its agricultural credit facilities through the
community farming loan schemes have given the common man and farmers a
tremendous access to the much needed bank credit.
In meeting the challenges of the second century the First
Bank of Nigeria Plc. Is committed to put a smile on the face of every customer.
1.2 Statement of
General Problem
The incidence of credit mis-management” in the financial
system has not Luther to attract due attention and discussion until recently.
The depth of distress in financial system which could be essentially traceable
to credit mis-management as well as a few other forms of frauds appeared to
have brought to the need to address this economic malaise.
The incidence of huge bad debt in the banking industry has
not only attracted the attention of the monetary authorizes but the public at
large.
There is a growing concern in these sectors of increased
potential for back failures if the problems is not urgently address. The fear
may not be out of place when viewed against recent development in the industry.
In January 1991, the central bank of Nigeria took over control of Nigeria which
was established in 1933 by the defunct western region.
This research is going to optically analyze the “inefficient
credit management” procedure adopted by some banks which is the initiator of
bad debts incidence thereby reducing it’s liquidity ratio.
The research is aimed at finding the cases and solution to
such problems a “Bad debts for effective and efficient management
1.3 OBJECTIVE OF
THE STUDY
i. To examine the various
considerations and analysis in the impact of credit management for lending
purposes in the principal industries especially the commercial banks.
ii. To assist practitioners in
the banking industries to acquire the high decree of unperforming credits as
presently carried in their debt portfolios and to assist in sound and
reasonable credit aimed at minimizing the incident of bad debt.
iii. To suggest the portion of
lending (i.e advances and loans) that should be allotted to individuals
customers.
iv. To find out from all
available data the lending structure of banks (commercial banks) in
Nigeria with particular emphasis on the
selected banks located in Nations.
v. To stir or stimulate interest
in this area for prospective students who may wish to develop their career in
the area or field of credit management.
vi. To serve as a useful
preliminary paraphernalia (tool) or materials for further study in the field of
credit management.
1.4 Significance
of the Study
It is the hope to evaluate credit management process and the
subsequent problems of un-performing loans and the increasing incidence of bad
debt that this study is made. It is also hoped that it will serve as a useful
tool (material) to those who may wish to further in the field or credit
portfolio in Banks with view to or in an attempt to identify those credit that
are “performing” against these credit with a high degree of default in order to
enhance debt management practices in the Nigerian banking environment
The impact of credit management as a system or a process is
very essential for banks, because poorly structured loan facilities result in
bad debts and losses which in-turn goes to reduce the profitability and the
liquidity of the Banks.
Taking into cognizance the above significance it use hope
that the material as a product of this research shall assist the practitioner
in the banking industry to promote their skills on the impact of credit
management.
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