IMPACT OF EFFECTIVE CREDIT DOCUMENTATION IN COMMERCIAL BANK
IMPACT OF EFFECTIVE CREDIT DOCUMENTATION IN COMMERCIAL BANK
1.0 introduction TO CHAPTER ONE
Credit generally refers to loans and advances made directly or indirectly by a creditor (lender) to a debtor (borrower) on the basis of different payment principles. As a lender, banks provide credit facilities by making funds accessible to customers under agreed-upon terms and conditions of payment.
The profit from this loan to the bank is meant to be substantial, but over the year, modern banks (especially commercial banks) have been recording huge amounts of bad debt provision, which increases with each subsequent year.
The term credit refers to the providing of money (loans) and advances to borrowers with the common assumption that they will honour their duty to repay the fund when due, with or without interest.
Credit is the technique by which we can gain immediate advantage from products and services in exchange for the promise of payment at a later period.
One of the primary reasons for acquiring credit is because money, our recognised unit of exchange, is kept in relatively short supply, and while we may have enough credit for those products that we desire but cannot purchase right away, these problems are not limited to individuals. A bank's goal is to make money, and one method of doing so is through loans.
However, loans are only offered to people in whom they have complete confidence, and they frequently require some form of security. The motivation for borrowing money is thus to make a profit for themselves rather than to benefit the consumer. We may not be able to adopt such rigorous views, but our motivations for awarding credit must be the same.
It is, however, disheartening to see that, despite the amount and magnitude of impact that banks have on the economy, which is undeniably enormous. When it comes to money, there is always the possibility of not receiving it back from such customers. This (debt nonpayment) has necessitated the expansion of this research into the field of credit management.
The influence of effective credit management as a process is critical for banks since poor credit revaluation results in poorly structured lending facilities, which lower the bank's profitability and liquidity.
1.1 The Historical Background Of The Study
First Bank of Nigeria Plc is a significant banking organisation in Nigeria with over a century of banking expertise. It was formed on March 31, 1894 by Sir Alfred Jones, a shipping magnate from Liverpool. It began as a small business bank in the Lagos office of Elder Dampster and Co.
Today, First Bank of Nigeria Plc has expanded its banking activities and services to include commercial, merchant, and international banking. And has become an important factor in the country's development.
It was incorporated as a limited liability company in London, with its head office in Liverpool, under the corporate name “Bank of British West Africa; with a paid up capital of twelve thousand pounds sterling (Â£12,000),
it commenced business after absorbing it's predecessor's assets in the African banking of the pre-eminent position which the bank established in the ban king industry in west Africa.
In its early years, the bank expanded fast, working closely with the colonial government to fulfil the typical functions of a central bank.
A branch was created in Accra, Gold Coast (now Ghana) in 1896, and another in Freetown, Sierra Leone, in 1898. This represented a watershed moment in the bank's foreign banking operations, thereby operationally justifying its west African coverage.
In 1900, the second branch in Nigeria opened in old Calabar, and two years later, its services had expanded to Northern Nigeria, with a branch network of 291 branches dispersed throughout the nation, including London. The bank has the most branches in the banking business.
With a share capital of 55.6 million in 1980, which climbed to N68.4 million in 1995, the bank's total assets today stand at N69.82 million, supported by a deposit base of N41.641 million.
When the bank first opened its doors in 1894, it had a workforce of six people, three Europeans and three Africans. Today, the bank is almost entirely Nigerian.
This is, of course, the result of planned responsiveness to the aspirations of the Nigerian people and government, as well as the banks determination to identify with the country's vision in its march towards national progress.
As a result of corporate policy to diversify its portfolio of non-core activities and to meet the Bank of England's regulatory requirements, the bank's foreign partners,
Standard Chartered Banks of Africa Plc, reduced their shareholding to 9.9% following the offer of 120.941.195 shares to the Nigerian public, bringing Nigerian equity holdings to 90.1%.
The bank has retained its lead in long-term financial loans to the colonial authority. Banks now claim a diverse loan portfolio to many sectors of the economy.
Army Bank's rural banking record is unblemished, while its agricultural credit facilities through community farming loan schemes have provided the ordinary man and farmers with unprecedented access to much-needed bank credit.
In meeting the difficulties of the twenty-first century, First Bank of Nigeria Plc. is committed to putting a smile on every customer's face.
1.2 statement of the General Problem
Until recently, the occurrence of “credit mismanagement” in the financial system has not received the attention and discussion it deserved.
The severity of the financial system's suffering, which could be traced back to credit mismanagement and a few other types of fraud, seems to have prompted the need to confront this economic malaise.
The occurrence of massive bad debt in the banking industry has piqued the interest of not only monetary authorities, but also of the general people.
There is rising worry in these industries about the increased risk of back failure if the concerns are not addressed quickly. When compared to current industrial developments, the anxiety may not be out of place.
The central bank of Nigeria gained authority of Nigeria, which was created in 1933 by the now-defunct western region, in January 1991.
This study will examine the “inefficient credit management” process used by some banks, which is the source of bad debts, lowering the bank's liquidity ratio.
The study aims to identify situations and solutions to such challenges as “Bad debts for effective and efficient management.”
1.3 OBJECTIVE OF THE STUDY
i. To investigate and analyse the many factors and analyses in the influence of credit management for lending purposes in the major sectors, particularly commercial banks.
ii. To aid practitioners in the banking industry in acquiring the high percentage of unperforming credits now carried in their debt portfolios, as well as to assist in sound and fair credit targeted at minimising the incidence of bad debt.
iii. To recommend the portion of lending (i.e. advances and loans) that should be allocated to individual clients.
iv. Determine the lending structure of banks (commercial banks) in Nigeria using all available data, with a focus on the selected banks located in Nations.
v. To arouse or inspire interest in this topic among potential students who may aspire to pursue a career in the area or field of credit management.
vi. To act as preliminary paraphernalia (tool) or materials for further research in the subject of credit management.
1.4 Significance of the Research
This study is made in the intention of evaluating the credit management process and the ensuing difficulties of non-performing loans and the increasing incidence of bad debt.
It is also hoped that it will be a useful tool (material) for those who wish to advance in the field or credit portfolio in banks in order to identify those credit that are “performing” against those with a high degree of default in order to improve debt management practises in the Nigerian banking environment.
The influence of credit management as a system or process is critical for banks since badly organised loan facilities result in bad debts and losses, reducing the banks' profitability and liquidity.
Taking into consideration the preceding relevance, it is hoped that the material produced as a result of this research will aid practitioners in the banking industry in promoting their abilities on the impact of credit management.