In a contemporary economy, there is a division between surplus and deficit economic units, which results in a separation of the saving and investing mechanisms. This has required the establishment of financial institutions whose primary function is to transmit funds from sales to investors.
A commercial bank is one such institution. Banks’ intermediating roles put them in the position of trustees of the widely dispersed excess economic unit, as well as determinants of the rate and direction of economic development. The approaches used by banks in this intermediation job should give them with a complete understanding of the outcome of a lending so that money can be allocated to investments with a high possibility of full payback.
However, in actuality, no such instruments can be discovered in the lending bank’s decision. Almost all lending decisions are made in an uncertain environment. Lending decisions are fraught with risk and uncertainty. The situation is so dire that lending bankers must utilize risk and risk analysis principles to support informed decision making and judgment.
The rising trend of provisioning for bad and doubtful debts in most commercial banks is a major source of concern not only for management but also for shareholders, who are becoming increasingly conscious of the risk posed by these debts.
Bad debt destroys a portion of a bank’s earning assets, such as loans and advances, which have been regarded as the main source of revenue and also determines a bank’s liquidity and solvency. In other words, bad debt in commercial banks causes two primary issues: profitability and liquidity. Bankers are emotionally affected by bad debt. Because they represent bank losses. There are numerous reasons for bad debt and the impact it has on financial operations.
Reasons OF BAD DEBT: The causes of bad debt can be grouped into four categories. They are listed below. Borrowers/Customers
Factors related to nature
IGNORANCE: Customers are unaware that banks, like other commercial endeavors, are in business to earn a profit by selling their product (loan); instead, they perceive it to be a location where the government and other well-to-do people store their money.
As a result, they consider any sum borrowed to be “national case” them as a purchase that must be paid for on the part of our etiles in white they gratuity that should not be reimbursed. Again, some customers/borrowers overinvest in infrastructure to the detriment of the original objective. This creates a scenario factor, which leads to bad indebtedness.
This is about effective disbursement and amortization.
Make a bank schedule. This relates to poor customer evaluation; The first point that comes to mind for this bad debt is poor consumer evaluation by supervision before lending to them. The following conditions must be met before a loan can be granted.
CHARACTER: The possibility that the consumer will endeavor to fulfill the contract.
CAPACITY: A subjective assessment of a customer’s ability to pay.
COLLATERAL: assets that a consumer may present as collateral in order to acquire credit.
Impact on a general or specialized economic trend.
(ii)High interest rates charged by banks occasionally resulted in a
a terrible debt scenario since interest increases the amount must be repaid
(iii) The absence of a platform for enlightenment instruction by the bank.
Customers as a result of a bar to procedure on report submission for joint solution
(iv)Inadequate profit evaluation by the bank: a circumstance in which
The project’s funding has run out. This has an impact on loans, resulting in bad debt.
3. GOVERNMENT (POLITICAL INCONSISTENCE)
Political instability indirectly adds to bad debt in the banking industry by refusing to be abandoned by a new government. The termination of numerous projects in an attempt to revitalize our economy renders contractors insolvent and has an impact on debt payments.
FACTORS RELATED TO NATURE: (NATURAL HABARDS)
Nature has a role in the formation of bad loans in our banking industry.
Fine enqulting the factory is an example of a natural hazard.
whereby the loan is put to use The only proprietor who borrowed the debt died. In the case of agriculture, poor rainfall and pests may result in a low crop, leaving the farmer unable to repay the debt.
1.2 THE PROBLEM’S STATEMENT
The goal for this study is to evaluate the lending and credit management and policies of a typical commercial bank, Union Bank of Nigeria Plc, in order to determine the cause and consequences of bad debt in Nigerian banks.
Year after year, banks suffer greatly from a portion of the total loan given that is rendered irrecoverable for one cause or another. When the government abandoned the project assigned to the contractor by the Civilian government, many banks incurred a large amount of bad debt.
These contractors borrowed money to complete the project but were unable to obtain an economy loan due to government action to revitalize the economy, forcing them to quit the project. Again, experience with lapses on the part of bank credit officials may occur.
THE STUDY’S OBJECTIVE
The following are the study’s objectives.
1. To assess the lending and credit management policies and practices of a typical commercial bank, Union Bank of Nigeria Plc, in order to identify the causes and consequences of bad debt in Nigerian banks.
2. To evaluate the extent to which poor project evaluation affects credit management and the incidence of bad debt in Nigerian commercial banks, using Union Bank of Nigeria plc as a case study.
3. Determine the extent to which government engagement in Nigeria Commercial Bank has influenced credit management and the incidence of bad debt.
4. Suggestions for Solutions
1.4 QUESTION FOR RESEARCH
1. What causes the occurrence of bad debt in commercial banks?
2. What are the banking institution’s lending standards, and
what are the three fundamental principles that should govern bank lending?
3. List some of the factors that may lead to bad dubious debts.
4. What are the issues with financial statements?
5. Why do borrowers frequently fail to repay loans provided to them?
1.5 HYPOTHESIS OF RESEARCH
The researcher tested the following during the course of her investigation.
1. H0: Nigerian government of bad debt A commercial bank
not very high
2. H0: interference of the government in lending policy
Union Bank of India is not influenced by any commercial bank.
Nigeria Plc has a bad debt.
3. H0: In Union Bank, improper project evolution has no substantial relationship with bad debt.
3. Hello, incorrect project appraisal is directly related to bad debt in Union Bank of Nigeria plc.
1.6 THE STUDY’S SIGNIFICANCE
It is not an exaggeration to say that proper administration of bank loan advances is the difference between success and failure in the banking business. Effective loan management is critical for asset protection and adequate investment.
Though considerable work abounds in the literature of lending strategy, securing such financing, and hazards that keep the unwary banker. In comparison, it appears that there is very little written on the issue of loan administration and recovery. A study of the topic would thus be a welcome contribution to the existing body of bank literature.
Effective loan management recognizes that, in addition to using solid banking principles whenever a loan is issued, there is a need for urgency in comprehending the point at which a loan begins to seem doubtful in order to arrive at a conclusion as to the right action.
This will allow the bank to collect full repayment, including accrued interest, or, at the very least, limit the inevitable capital loss. In the face of rising competition among banks, future profits are anticipated to be harder to come by, and because bad debt is a change against profit, the proportions and margins of lending to bad and dubious debt are significant to bankers.
The study will benefit the economy as a whole because as bad debt is reduced, bankers will be left with more profit to make the expected contribution to the economy’s development.
The study will also educate the general public about the prevalence of bad debt and credit management by commercial banks, as well as serve as a springboard for future research on the subject.
1.7 STUDY SCOPE AND LIMITATIONS
Because banking is the business of credit,
Most of the time, things go wrong. Borrowers frequently refuse to return loans that have been provided to them, although commercial banks are interested in loan repayment.
To that purpose, the researcher intends to investigate how commercial banks may effectively manage loans. And will also determine if banks’ carnonsposals are enough, as well as whether adequate controls and supervision are in place to ensure that loans do not become bad and irrecoverable.
1.8 TERM DEFINITION
1. DEBT: This is the amount of money owed to another individual.
2. LOAN: A loan is a credit arrangement or financial transfer from one economic entity to another in which a security is pledged and must be repaid with interest over a certain time period.
3. OVERDRAFT: A bank’s credit arrangement with a customer in which the consumer pulls money in excess of what is in his/her account.
4. DEFAULT: Failure to pay one’s debt in credit extended that has become due.
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