IMPORTANCE OF BANK LENDING TO THE DEVELOPMENT OF THE NIGERIA ECONOMY
The term “bank” simply refers to a financial entity that deals with money by taking surplus funds from the general public and dispersing them to others who need funding for projects. The extra bank deposits are subsequently lent to deserving individuals, organisations, and commercial clients in the form of loans, advances, and overdrafts.
This demonstrates the assertion that banks serve as a key mediator between the supply sector (those who contribute the funds that banks lend to such investors) and the demand sector (those who require credit to finance their projects).
According to Ogboghro (2006), one of a bank's fundamental roles is to lend out excess funds to people who wish to borrow money. For the majority of clients, both personal and business, the bank represents one of the most affordable and adaptable sources of credit, especially for small businesses.
The most common forms of credit facilities (lending) are loans, advances, bills discounting, bonds, and overdrafts. One of the most complex services provided by banks is lending.
While maintaining sufficient reserves and cash, the banking policies must operate in compliance with the directives of the central bank of Nigeria (CBN) and other monetary regulations.
It is undeniable that loans and advances are significant asset items on the balance sheet of commercial and merchant banks, today known as universal banks. There are some good reasons why these things are reported.
From the standpoint of the bank, loans and overdrafts are the main source of income. According to Onyia and Olute (2000), prudential credit or lending guidelines are directives issued yearly by the central bank of Nigeria on their lending activities in a given year.
Before granting such facilities, there are a few requirements that customers must meet. These are commonly referred to as the CANONS OF GOOD LENDING and include the safety of the loan, its amount, its purpose, its duration, its profitability, and its security. One of the primary considerations for good financing is safety.
What are the “5 C's” of lending, or the character, connection, capacity, capacity of the collateral security to cover the loan, the state of the sector of the company to which the borrower belongs, and who the customers (borrowers) are, are taken into account when evaluating the safety of lending? (Character, what was their history with the bank?).
These factors affect the borrower's moral character, whoever that may be. Some borrowers have the means to pay but choose not to do so because they lack morality. Therefore, the lender should actually ensure that the borrower's integrity is unquestionable.
The majority of problematic loans stem from a lack of knowledge about the potential borrower. Banks are required to make sufficient enquiries about the borrower in order to collect the necessary information to help them make informed decisions.
1.1 BACKGROUND OF THE study
Bank lending has significantly aided in the growth of the Nigerian economy. Due to the fact that it is a significant source of funding, it is extremely important to every sector of the economy, both public and private. In this concept, banks include both commercial banks,
which primarily offer short-term loan options, and development banks, which offer medium- and long-term credit options. The Nigerian Agricultural Corporative and Rural Development Bank (UDB), the Nigeria Export and Import Bank (NEXIM), and the merchant banks are later included.
According to Clement J.H. and DYER Ltd. (1977), however, large company clients have recently needed more banking and financing, which has led to the development of term loans.
With the country's economy going through a difficult period and government pressure and directives on banks to reduce lending, corporate bodies have not been able to plan ahead in the knowledge that the finance they required will be available at the right time.
As a result, some businesses have asked banks to commit to giving them term loans that cannot be repaid immediately, and banks have found a method to do so.
Agriculture was referred to as our economy's backbone in the 1970s. The fact is that since the federal government started the agric credit guarantee plan, which is also known as credit facilities, every farmerâcommercial and subsistence alikeâhas been working harder in their fields.
Structures are changing rapidly in the commercial and industrial sectors right now, and this is true across the entire nation. Nowadays, commercial activities are the norm.
To raise funds for their business endeavours, traders can readily obtain loans and overdrafts. So, through bank lending, the issue of a lack of funding for the completion of private and public projects has been meteoritized.
1.2 STATEMENT OF THE RESEARCH PROBLEM
Lending has been one of banks' most significant major objectives ever since banks and banking operations first emerged. To control bank lending, specific Acts and Ordinances have been created and changed.
But the question is: Has bank lending, which is one of its goals and ways to earn money through charged interest, helped the Nigerian economy grow?
Some claim it has aided in the growth of the economy, while others claim it hasn't made much of a difference in the development of the nation. According to a member of the management team at the bank used in the case study (Unity Bank Ozoro), bank lending has helped the country develop,
although at a very slow and occasionally dormant rate. If this is actually the case, does this suggest that customers are deterred from applying for loans? Is the interest rate (high interest rate) the source of their discouragement, or what?
The researcher has determined that it is appropriate to conduct this study and to offer a transportable and suitable solution to these challenges as a result of these compounding issues.
1.3 OBJECTIVES OF THE STUDY
The following is the goal of this study:
to assess the value of bank lending to the Nigerian economy.
To investigate the fundamental tenets of bank lending
To instruct pupils and others on bank lending
To eliminate the anxiety that people experience while applying for credit
To investigate the many categories of valid collateral securities.
To investigate how customers respond to loan repayment.
1.4 RESEARCH QUESTION
Has bank lending contributed to the growth of the economy?
Are the banks failing to meet the demand for their lending services that would result in a significant economic development?
Are bank loans having an impact on the nation's economic situation?
1.5 SIGNIFICANCE OF THE STUDY
The researcher is aware that the topic of this work will be advantageous to businesspeople, entrepreneurs, profit- and non-profit organisations, people, students, academics, and society at large. It is impossible to overstate the significance of this study because it decides whether or not lending practises adhere to the bank's declared policies.
Additionally, it makes an effort to lessen the challenges the bank faces when making loans. It will also make it easier for the general public to comprehend how the government may,
among other things, cut inflation by manipulating the liquidity and cash reserve ratio of different banks in order to guarantee a higher level of financing for the expansion of the economy.
Additionally, it gives the individual, businesses, industrialists, etc., the knowledge necessary to obtain the loans required for efficient performance in the field of business in which they are engaged.
1.6 SCOPE OF THE STUDY
This nation now boasts a wide variety of banks, including commercial banks, development banks, merchant banks, and community banks.
They take deposits, lend money for real estate and other purposes, trade currencies, manage portfolios and underwrite securities (Amuya D.E, 2005). Assuming that bank lending is a unique service provided by all of the banks indicated above and that it will cover the years 1996 to 2005
1.7 LIMITATIONS OF THE STUDY
Every time research is conducted, it has long been a habit for researchers to face challenges. Since the researcher is still a student, she ran into a number of standard problems, including money, transportation, time, and distance.
One of the biggest issues facing researchers has been finances. Due to the researcher's financial situation and the expense of obtaining the required data and materials, including textbooks, to complete the project work.
Time: The researcher was unable to complete the assignment due to the little time provided to it and the fact that it had to be written alongside other academic assignments.
iii. Distance: Given the great distance between the researcher's home and the location where the materials are located, not all the necessary information could be gathered. Due to this, the project's requirements were not met.
Level of Literacy: The researcher's lack of or limited familiarity with the project's work as a student. The researcher falls short of the supervisor's or other academic level experts' perfection. As a result, the little they have accomplished cannot be compared to the lecturer's.
Transportation: Because of the structure of our economy, there are few automobiles and other forms of transportation that apply to some locations where information might be acquired, which limits the researcher's ability to move around as needed.
18 DEFINITION OF TERMS
The terms that are related below are described so that a layperson or regular person can understand them.
Banking Lending: This is the providing of credit or advances of money to a customer by a bank for a certain purpose, tenor, and at an agreed-upon rate of interest, with a return to be made installment-by-installment over a given term or once after a specified period.
Economy Development: The broad patterns or method by which socioeconomic and political transformation are accomplished with little to no variation from previous substantial levels of technology advancement, economic expansion, and alterations.
iv. Credit Facilities: These include advances, loans, overdrafts, and discounts. They are given by banks to a variety of their clients.
Credit Guidelines: This is the CBN's yearly directive for commercial and merchant banksânow referred to as deposit money banksâregarding the types of credit that may be given to the various sectors and sub-sector of the economy.
Collateral Securities: In the event that the borrower defaults on the loan, the collateral serves as fallback protection for the lender.
Capital: This is the sum that potential borrowers are asking for, and it needs to be carefully evaluated to determine whether it is adequate or not for carrying out the project in issue.
vii. Mortgage: This is the sale or transfer of a property interest or other asset in exchange for a debt.
viii. Deposit Account: This is the money kept by those who actually have extra money but don't need to use it right away, and on which interest is paid. (2006) Vincent I. Ogboghoro.
Advances: These are given in the form of current account overdrafts or loans taken out against separate accounts. W. UGOVANY (2002:86).
Capital Expenditure: The cost of the land, its development, buildings, and site facilities, as well as the cost of machinery and equipment, including installation fees, are all included in this cost.
Account: According to bookkeeping standards, statements of dealings conveyed in words are numbers (Etuk-D.O., 1975). It consists of investments that fluctuate in value over the course of business operations.