evaluation OF BANK LENDING AND CREDIT MANAGEMENT IN NIGERIA
EVALUATION OF BANK LENDING AND CREDIT MANAGEMENT IN NIGERIA
1.0 CHAPTER ONE OF THE EVALUATION OF BANK LENDING AND CREDIT MANAGEMENT IN NIGERIA
Commercial banks exist to collect deposits from the general public. Keep some in trust for payment on demand. Banks play this duty by acting as a reservoir for surplus funds, lending a safe percentage of these assets to clients who have actual demands for them.
Banks bear a specific duty for the appropriate administration of the monies entrusted to them by depositors. According to Chester A Rude, the way finances are handled
“determines whether they are laying a sound foundation or creating future problems for either the borrower, themselves, or the economy.” If bankers withhold credit that is not necessary, businesses and the economy suffer.
Lending activities are prevalent throughout our economy, giving rise to loan management and credit administration. This credit research, paperwork, disbursements, and loan monitoring to ensure timely repayment of principal and interest becomes important.
One of the aims of credit extension is quick repayment on due dates, therefore loan management often entails credit appraisal and administration.
Lending accounts for a sizable component of commercial banks' resource exposure in Nigeria. As a result, a bank's potential to earn significant profit is largely determined by the successful and efficient administration of its lending portfolio. Nigerian banks are being monitored due to their trustee role and to protect depositors.
xi So many regulatory agencies guide their activities in order to avoid bad lending and liquidity concerns. The Central Bank of Nigeria's operations and prudential guidelines are always in effect.
Despite safeguards aimed at protecting depositors and other public interests, the incidence of bad and dubious debts stemming from lending activity in Nigerian commercial banks has been on the rise.
This is due to a conflict between the basic aims of extending credit and the profit motives of banks, necessitating an evaluation of current lending and credit management procedures.
1.1 STATEMENT OF THE PROBLEM
The majority of Nigerian commercial banks are currently threatened with a massive bad debt burden. This incident has destroyed industry confidence and, in most cases, shareholder funds.
Have BOFID (1993) and prudential standards contributed to the halting of these trends? The roles of the regulatory framework are examined in order to determine the level of help to the financial system.
1.2 OBJECTIVES OF THE STUDY
In light of commercial banks' credit policies in relation to regulatory requirements
Thus, the aims of this research endeavour are to analyse or appraise various strategies in the Administration of Bank lending from the point of disbursement to the point of recovery while also identifying causes of rising levels of bad debt profanation. The study also identified causes.
for bad debt provisioning and recommend appropriate measures for debt write-off.
The study also aims to determine credit evaluations and the impact of bad debt provisions on commercial bank earnings.
1.3 THE HYPOTHESIS:
1. In Nigerian commercial banks, there is a substantial association between lending and bad debt portfolio.
2. If credit policies and regulatory requirements are correctly applied, they can assist minimise problematic and questionable portfolios in Nigerian banks.
1.4 THE SIGNIFICANCE OF THE STUDY
The present wave of liquidity issues in the banking industry, as well as the distress syndrome, are the result of lending practises and bad credit management. This trend has resulted in massive losses of shareholder funds and depositors' hard-earned savings.
As a result, it appears that this research effort will be valuable to top-level managers who may find the recommendations and proposed solutions useful in managing credit portfolios.
Similarly, loan disbursement will be guided by branch and credit managers to guarantee rigorous adherence to lending criteria and economic analysis of the environment.
Bank shareholders would be able to learn about the negative impact of bad debts, which had hitherto been covered by management of their respective banks.
Students of finance will find this piece of academic work valuable in their academic endeavours once again.
1.5 OBJECTIVES OF THE STUDY
The research work is limited to one case study, FIRST BANK plc. The inquiry was carried out at the Branch level, and the researcher was given access to yearly report material.
The study concentrated on the loan process before and after disbursement, as well as the impacts, causes, and cures of bad debt.
The following are the research assumptions:
(i) That all commercial banks extend credit to deserving clients with the expectation of full repayment of principal and interest.
(ii) That, in addition to their internal policies, all commercial banks in Nigeria are bound by the same operational rules and professional behaviour as provided by the Central Bank of Nigeria.
The analysis is confined to facilities with payback terms ranging from one to five years.
1.6 DEFINITIONS OF TERMS
It is necessary to provide a clear and unambiguous explanation of words frequently used in the study in order to achieve a common knowledge and understanding between the research effort and the message sent to its intended beneficiaries. Although the words could have several interpretations, the one presented is the most common.
These terms should be interpreted as those used in this research work.
Some of the “words” are defined below.
i) LENDING: A process in which a Bank client is established for a specific purpose and for a specific period of time with the promise to repay the amount borrowed plus appropriate interest.
ii) CREDIT: This is the practise of delivering (receiving) goods or purchasing power now in exchange for a promise to receive or re-pay the goods or purchasing power hereafter. It is the exchange of existing products, services, or money claims for a promise to pay (typically money) in the future.
It provides the ability to repay both principal and interest in installments or in a lump payment in the future. BAD AND UNCERTAIN DEBT. This is a loan or debt that has become irrecoverable as of the maturity date.
A loan may be classified as bad or questionable if the borrower fails to return the loan in line with the terms and circumstances of the agreement.
iii) ANTICIPATORY DEFAULT: On the other hand, recognises the occurrence of certain occurrences that are conclusive proof of default whether or not the loan or interest has fallen due.”
(Vol. 5 of the Banking Digest and Finance).
iv) FINANCIAL INTERMEDIATION: This is defined as financial transactions that bring together savings surplus units and savings deficit units in order for savings to be redistributed to their most productive uses.
v) SECURITIES: This is something valuable that provides safety, freedom from danger or anxiety, such as a life insurance policy offered as a pledge for the return of a loan or fulfilment of a promise or undertaking.
vi) COLLATERAL SECURITY: This is any security deposited by a third party to secure the customer's indebtedness, with the advantage that the value of such securities may be overlooked in the evidence of dividend against the fail estate in the case of the borrower's bankruptcy or liquidation.