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Chapter One: Introduction to an Evaluation of Credit Management and the Incidence of Bad Debt in Nigerian Commercial Banks.

The study provides a comprehensive overview of the background information relevant to the research being conducted.

In contemporary economies, a clear differentiation exists between surplus economic units and deficit economic units, resulting in the segregation of the saving and investing mechanism. The presence of financial institutions has become necessary in order to facilitate the transfer of funds from sales to investors.

An example of such an entity is the commercial bank. The banks assume intermediary positions, positioning themselves as trustees of the savings of various dispersed surplus economic units. Additionally, they play a crucial role in determining the rate and form of economic development.

The methodologies utilised by banks in their intermediation function should provide them with a comprehensive understanding of the potential outcomes of lending, ensuring that money are allocated towards investments with a high possibility of full payback.

Nevertheless, it is important to note that the decision-making process of lending institutions does not typically incorporate the utilisation of such instruments. The vast majority of lending decisions are made under situations characterised by a lack of certainty. Lending decisions have inherent risks and uncertainties.

The current circumstances are of such significance that lending bankers must utilise the principles of risk and risk analysis to support prudent decision-making and assessment.

The escalating pattern of allocating resources for bad and dubious debts in commercial banks is a significant cause for apprehension, not only for management but also for shareholders who are increasingly cognizant of the detrimental impact these debts can have.

The presence of bad debt has the potential to negatively impact the earning assets of banks, specifically loans and advances, which are widely recognised as the primary revenue generators for banks. Additionally, the existence of bad debt plays a crucial role in determining the liquidity and solvency of banks.

In other words, the presence of bad debt in commercial banks gives rise to two significant issues, namely those related to profitability. Negative debt terminology in the context of banking.

The reason for their significance is in their representation of financial losses incurred by banks. There exist multiple factors contributing to the incidence of bad debt and its impact on banking operations.

CAUSES OF BAD DEBT: The causes of bad debt can be attributed to four primary defined causal factors. The following entities are as follows. The individuals who obtain loans or engage in transactions with financial institutions.

Financial institutions, commonly referred to as banks, play a crucial role in the global economy.

The term “government” refers to the system or organisation that exercises authority and control over a

Factors related to nature

The individuals who obtain loans or purchase goods or services from a business.

IGNORANCE: Customers exhibit a lack of awareness of the profit-driven nature of banks, perceiving them erroneously as mere repositories for individuals of means and government entities to save their funds, rather than recognising them as commercial enterprises primarily engaged in the sale of financial products such as loans.

As a result, they consider any borrowed sum to be a “national matter,” akin to acquiring goods that necessitate repayment on the part of our citizens, while also perceiving it as a gratuity that should not be reimbursed.

Once again, a client or borrower has excessively allocated the allowed loan for infrastructure towards improving the intended purpose. This gives rise to a situational component, resulting in the occurrence of bad debts.


This pertains to the effective allocation and gradual repayment.

The timetable of the bank is as follows. This pertains to the inadequate assessment of consumers. The primary factor that immediately comes to mind for this occurrence of unpaid debts is the insufficient evaluation of customers by the supervisory body prior to granting them loans. The prerequisite for disbursing a loan is contingent upon the evaluation of the following factors.

CHARACTER: The probability of customers exhibiting a willingness to fulfil their obligations.

Capacity refers to the evaluative perception of a customer’s financial capability to fulfil payment obligations.

Collateral refers to assets that a customer may present as security in order to get credit.

Topic: The Influence of Conditions on General or specialised Economic Trends. The subject at hand pertains to the effect that conditions have on either general or specialised economic trends.

High interest charges imposed by banks can occasionally result in

The occurrence of bad debt arises when the accumulation of interest contributes to the augmentation of the total repayment amount.

(iii) Lack of a platform provided by banks for the purpose of disseminating educational information

Customers are resorting to the bar in order to initiate the process of reporting their joint solution.

The improper estimate of profit by a bank refers to a scenario in which

The available funds have proven to be insufficient to support the project. This phenomenon has an impact on loans, leading to the accumulation of delinquent debt.

Political instability refers to the condition in which a government experiences a lack of stability and faces challenges in maintaining its authority and control over a given territory.

Political instability can have an indirect impact on the accumulation of bad debt within the banking industry, as it increases the likelihood of loans being rejected or abandoned by a subsequent government.

The decision to discontinue numerous projects in an effort to rejuvenate our economy has resulted in the contractors’ incapacitation and has had an adverse impact on the repayment of the borrowed debt.

4. Factors pertaining to nature: Natural hazards.

The natural environment plays a role in the generation of non-performing loans within the banking sector.

A natural hazard encompasses events such as the release of tiny particles into the atmosphere due to the operation of a manufacturing.

The loan is allocated for investment purposes. The demise of the individual proprietor who had obtained the debt. Insufficient precipitation and pest infestation can lead to diminished agricultural yields, hence impeding the farmer’s ability to generate adequate revenue for debt repayment.

1.2 Statement Of the Problem

The objective of this study is to assess the lending and credit management policies of Union Bank of Nigeria Plc, a representative commercial bank, in order to identify the underlying factors and outcomes associated with non-performing loans in the Nigerian banking sector.

Year after year, banks experience significant losses due to the portion of loans given that, for various reasons, become irrecoverable. Numerous financial institutions saw significant levels of nonperforming loans following the termination of a government-contracted project by the civilian administration.

The aforementioned contractors obtained a loan in order to carry out the project that was assigned to them. However, they were unable to repay the loan due to government interventions aimed at revitalising the economy,

which subsequently led to the abandonment of the project. Instances of experience can potentially emerge in relation to deficiencies exhibited by bank credit officers.

The objective of this study is to determine the main goal or purpose of the research being conducted.

The study’s objectives are as follows.

The objective of this study is to assess the lending and credit management policies employed by Union Bank of Nigeria plc, a representative commercial bank, in order to identify the factors contributing to and outcomes resulting from non-performing loans within the Nigerian banking sector.

The objective of this study is to examine the impact of inadequate project evaluation on credit management and the occurrence of bad debt in the Nigerian commercial banking sector, with a specific focus on Union Bank of Nigeria Plc as a case study.

The objective of this study is to determine the impact of government involvement on credit management and the occurrence of bad debt in Nigerian commercial banks.

4. Proposed Solutions

1.4 Research Questions

What are the factors contributing to the incidence of bad debt in commercial banks?

What are the conditions for lending in a financial institution?

What are the three fundamental principles that should govern bank lending?

3. This inquiry seeks to identify various factors that may contribute to the emergence of unfavourable dubious debts.

What are the issues or challenges commonly linked with financial statements?

What are the common reasons for borrowers to decline repayment of loans that have been granted to them?

1.5 Research Hypothesis

The researcher conducted tests on the following variables as part of the research study.

The null hypothesis (H0) posits that the Nigerian government is not effectively managing bad debt. A commercial bank is a financial institution that provides a range of services to individuals, businesses, and other organisations, including accepting deposits, granting loans, and facilitating other financial transactions

The individual does not possess a heightened level of cognitive functioning.

2. The null hypothesis (H0) posits that there is no significant impact of government action on lending practises.

The commercial bank does not exert any influence over the Union bank.

The issue of bad debt in Nigeria’s public limited companies (plc) is a matter of concern.

The null hypothesis (H0) posits that there is no statistically significant association between improper project evolution and bad debt in Union Bank.

Greetings, The correlation between inadequate project review and the occurrence of bad debt inside Union Bank of Nigeria Plc is evident.

1.6 Significance of the Research

It is not an overstatement to assert that the appropriate administration of bank loan advances plays a crucial role in determining the outcome of success or failure within the banking business. The implementation of efficient loan management practises plays a crucial role in safeguarding assets and attaining satisfactory investment outcomes.

While there is a significant body of literature on lending techniques, there is a dearth of research on the methods of obtaining such funding and the potential traps that can hinder inexperienced bankers.

In contrast, there is a dearth of literature available on the topic of loan administration and recovery. Consequently, the inclusion of a research on this subject would be a valuable contribution to the current body of literature on banking.

The importance of effective loan management lies in the acknowledgement that, in addition to adhering to solid banking standards during the loan origination process, it is crucial to promptly recognise when a loan starts to exhibit signs of uncertainty and to determine the most suitable course of action.

This will allow the bank to potentially recover the entire loan amount along with accumulated interest, or at the very least, minimise the potential loss of capital. Given the escalating rivalry within the banking industry, it is anticipated that future profitability will become more challenging to attain.

As bad debts pose a threat to profits, the ratios and margins associated with lending to risky and uncertain debts become crucial considerations for bankers. Therefore, this study holds substantial importance for banking professionals.

The study will have a positive impact on the whole economy by reducing the level of bad debt. This reduction in bad debt will result in increased profits for bankers, allowing them to make the anticipated contributions to the economic development.

The study aims to enhance public awareness of the prevalence of bad debt and credit management practises within commercial banks. Additionally, it will provide a foundation for future research endeavours in this area.

1.7 Scope and Limitations of the Study

The banking industry primarily revolves around the provision of credit services.

The field of management. A commercial bank refers to a financial institution that offers a wide range of banking services to individuals, businesses, and other organisations. These The credit system in Nigeria experiences significant challenges.

The issue of frequent spoilage. Borrowers frequently exhibit a reluctance to fulfil their loan repayment obligations, but commercial banks demonstrate a keen interest in ensuring loan repayment.

With the objective of examining successful credit management by commercial banks, the researcher aims to investigate this matter. This study aims to determine the extent to which banks adhere to carbon proposals and implement appropriate controls and supervision measures to mitigate the risk of non-performing and unrecoverable loans.

1.8 Definition of Terms

Debt refers to the financial obligation that one individual incurs towards another individual.

2. A loan can be defined as a financial transaction in which one economic entity provides funds to another, with the borrower pledging a security and agreeing to repay the borrowed amount together with interest within a predetermined timeframe.

3. Overdraft refers to a credit facility provided by a bank to its customers, allowing them to withdraw funds above the available balance in their account.

DEFAULTY refers to the act of failing to fulfil one’s financial obligation to repay a debt that has reached its maturity in a credit agreement.

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