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Lending is the primary purpose of commercial banks, and lending institutions try to provide the credit demands of the economy while also increasing profitability. Effective lending is one of the cardinal principles of classical banking.

Lending is the primary product of all commercial banking activities, and it also accounts for the majority of the bank’s profit. Banks in Nigeria have discovered that it is necessary to increase their lending capacity

while also increasing policies to establish the direction and use of funds from shareholders, depositors, and creditors in order to control the composition and size of the loan portfolio and to determine the general circumstances under which it is appropriate to make and advance loans.

Many elements will impact a banker’s decision. Some of these variables include the borrower’s character, the risk involved in the transaction’s profitability to the bank, the government’s lending policy, and the best interests of the borrower and the community as a whole.

The ideal advance or lending will be both safe and rewarding. “It will serve a useful purpose.” These conditions will, of course, not always be present at the same time, and the banker will consequently seek an acceptable compromise.”

Lending is regarded effective if it successfully reconciles the bank’s goal of maximum income to the bank’s shareholders and maximum liquidity to meet the transaction and precautionary demands of the bank’s customers and investing public.

However, for obvious reasons, this theory cannot be considered totally suitable in a rising economy such as ours (Nigeria), because we have a large number of new generation banks, resulting in a conflict (serious conflict) between the profitability and liquidity demands of banks.

Against this backdrop, “effective lending in a developing economy may be defined as the quantum of lending that maximises the bank’s liquidity and profitability objectives as well as the economic objectives of development.” This is due to the fact that highly profitable lending that also ensures liquidity is not always successful.

“For example, lending for commerce may be effective in terms of profitability and liquidity, but may be ineffective in terms of maximum contribution to economic development,” similarly, lending for agriculture, road construction, or housing may be very effective in terms of development.

Thus, effective lending in a developing economy must integrate the classical and modern perspectives.” It is therefore critical to underline that lending should not be viewed as a game of hide and seek by the two parties involved, bankers and borrowing customers, but as a collaborative effort. The baker must advertise his product effectively and profitably.

The loan should be adequate and repayable at maturity, including interest. The loan should be suitably secured to cover any liabilities if the borrower defaults or the facility fails. Security is similar to insurance.

The true security is the borrower’s unsecured borrowing in the form of a balance sheet, that is, advances to large established limited firms may account for roughly half of all bank lending in any given year.

These advances are frequently less bothersome than secured advances, which need a certain amount of effort before the advance is taken, to ensure that the security is perfected and that the bank has control over it.


There are numerous significant issues concerning the problems and prospects of commercial banks issuing credit facilities to their clients and the investing public for investment purposes. Banks do not lend to consumers simply because they need it. Certain aspects should be taken into account.

Commercial banks, as we all know, are by definition short-term in terms of deposit liabilities. They did not participate in the supply of long-term credit until recently, when commercial banks were permitted to purchase shares in small and medium-sized industries and agricultural enterprises under Section 21 of the Banks and Other Financial Directive (BOFID) No. 25 of 1991.

Commercial banks alter (as collateral security) on their clients’ most easily marketable securities, such as raw material stock, finished goods, and credit to customers. Collateral security may also include fixed assets such as landed property with valid tithe documents and financial assets such as common stock and insurance policies.

According to banking sector experience, most bank borrowers, particularly those who fall into the category of small and medium-sized entrepreneurs, do not know why they are acquiring the loan.

As a result, they are unaware that the aim of getting the loan must coincide with the quantity and type of loan. This element raises the banks’ exposure to default risk.

Concretionary monetary policies and rigorous oversight by the Central Bank of Nigeria, on the other hand, make it extremely difficult for banks to lend for the purpose of investment. This leads in discretionary bank lending and slow banking practises.

In addition to the problems listed above, the following issues must be addressed:

i. How much does the borrower wish to borrow?

ii. What is its purpose?

iii. How long does he intend to borrow?

iv. Where will the money come from?

This research study is intended to address these and other comparable issues.


Most commercial banks had typically been favourable to the extension of short-term loans during the 1960s and early 1970s. This is mostly owing to the liquidity it provides to banks, as well as the fact that, by definition, the loan must be repaid within one year.

However, banks’ propensity for short-term loans has long been overtaken by events, and banks have shifted to long-term lending. Some of the factors mentioned above are not limited to the following:

i. Increased lending capacity of banks: Banks’ lending capacity has recently increased. Because banks have extra liquidity, they must look for advantageous investment opportunities for their funds in order to increase their profits.

ii. The formation of the Nigerian Deposit Insurance Corporation (NDIC): This Corporation was established to protect depositors by insuring depositors’ funds up to N50,000 in the case of a bank’s failure.

Since the NDIC’s formation has significantly improved banks’ liquidity concerns, banks have felt that they cannot extend loans with longer maturities to boost their revenues.

iii. Annual Policies: – In recent years, annual policies of the Federal Ministry of Finance through the Central Bank of Nigeria have ensured that commercial banks supply essential financing to small and medium-sized companies to help them improve their current situation.

This development has caused liquidity and profitability problems in the banking system, as the limit on sectoral credit allocation exposes banks to a higher risk of default.

As a result, the study seeks to determine the desirability of securities for lending in Nigerian commercial banks, and the findings will aid in making recommendations for future improvement.


This study will be extremely beneficial to potential borrowers. It will give them an understanding of the available opportunities in commercial banks for seeking financial assistance through loans and other financial services provided by banks. It will also assist them in determining the types of loans that they will be able to obtain from commercial banks.

It will also assist practising bankers in identifying possible problems that the banks have not yet identified. This is because, in some circumstances, clients do not have enough time to address their problems with their bankers;

as a result, they may withhold certain facts, which will be detrimental to the bank. The study may potentially present on identifying some difficulties, opening up another route for future investigation.


Despite the fact that this is a case study that requires visiting to banks for direct examination. The researcher has found it necessary to enhance this method with a hypothesis statement.

The goal of this research is to determine the degree of desirability of securities for commercial bank loan. As a result, the hypothesis is:

Ho: Securities have an impact on bank lending.

Hi: Securities have little effect on bank lending.

Ho: Bank lending securities have not lowered the rate of fraudulent misconduct in Nigerian commercial banks.

Hi: Bank lending securities have lowered the rate of fraudulent misconduct in Nigerian commercial banks.


This study’s scope is limited to commercial banks in Enugu, Enugu state. It is applicable to Afribank Plc Enugu. Some limiting limitations to this scope of inquiry include the uncooperative attitude of many of those in positions to distribute materials that will be valuable for this effort. This is because many of them microstructure the study’s purpose.

The paucity of textbooks, journals, and bulletins on this topic also contributed to a limited examination of related material, therefore this was not done thoroughly.


This study’s data will be gathered from both primary and secondary sources. The specimens will be visited for primary data in order to employ authentic records for verification of the previously indicated hypotheses. As a result, essential data will be collected from operational records, yearly reports, and bank records.

Other published materials and literature, such as textbooks, periodicals, financial and business publications, and newspapers, will be used to gather secondary data for the study.


Some words are specified here to help readers better comprehend the study effort. These terms include:

a. Collateral: Any tangible asset pledged by a customer in exchange for credit.

b. Afribank Plc was used as a case study.

c. Investment: Loans, overdrafts, and advances that create interest and revenue for the bank.

d. Project: The research project

e. The books: – The bank’s financial books, including the profit and loss account, balance sheet, and auditors’ reports.

f. Credit: Any form of public borrowing that must be repaid.

g. Monetary Authorities: – The Federal Ministry of Finance and the Nigerian Central Bank.

h. Bank Deposits: There are three types of bank deposits: demand deposits, short deposits, and savings deposits.

i. Loan: a sum of money borrowed with interest.

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