LOAN SYNDICATION AS A MEANS OF PROJECT FINANCE IN NIGERIA
The research looked at the success of loan syndication as a method of project financing in Nigeria, with a special focus on Assess Bank of Nigeria plc in Benin City. The study investigates the extent to which loan syndication has aided Nigerian firm performance.
Data was gathered through the distribution of sixty (60) questionnaires, forty (40) of which were answered and returned. The data for the research study is derived from the responses to the returned questionnaire. This data was analysed using basic percentages, and the chi-square test was used to test the hypothesis.
According to the report, loan syndication has boosted the performance of the Nigerian enterprise. It has not been widely applied on the basis of the findings.
It was suggested that banks that participate in the loan syndication business establish a distinct department or section with a good management structure capable of dealing with cooperating borrowers seeking syndication loans,
and that banks participate in a variety of innovative programmes that will increase their deposit base in order to completely eliminate the fear of a possible liquidation that may arise from making syndication loans, of which one major
1.1 Background Of The Study
Nigeria's general economic expansion, both in terms of industrialization and the provision of social services, has raised the requirement for large sums of money to be borrowed from financial institutions for its implementation.
The early 1970s boom resulted in a shift in the economy's structure towards greater industrialisation. As a result of monetary authorities' deregulation and to avoid putting all of their eggs in one basket, lenders would choose to make a large loan for the financing of economic and social initiatives through loan syndication.
Loan syndication (also known as consortium lending) is the practise and art of a group of financial institutions providing loans to a borrower under a shared agreement, terms, and conditions in simplified loan documentation.
The main characteristics of syndicated loans are that they are often very large (several millions), and there are at least two lenders (a variety of institutions) and one borrower participating. The magnitude of the finance or loan will determine whether a bank or consortium of banks will fund a project.
Borrowers are typically large or medium-sized corporations, governments, or parastatals with significant technical and managerial competence.
In loan syndication, one or two lender banks co-ordinate and administer the lending, while one or more of the lending banks acts as the level/agent bank for each administration of such loan.
Loan syndication has increased due to the rapid expansion of the economy's efficacy of the Foreign Exchange Market (FEM), which reduces the value of the naira while inversely boosting total production and project expenses.
1.2 Statement of the Problem
Loan syndication is caused by the following fundamental causes:
a. Funding pooling
b. Risk allocation
There are various problems that are likely to be encountered in the process of meeting the two primary causes of loan syndication, and these challenges include;
Delay in packaging and establishing credit prior to distribution to the borrower. Some of the banks asked by the lead bank to join in a syndication may decline, citing reasons such as loan growth limits, liquidity issues, and so on. Some syndicate loans might take up to two years to complete once the loan is disbursed.
Borrowers' unwillingness to comply with the terms and conditions of the loan agreement.
Payment of interest and principle when due causes various issues.
The borrower may be experiencing liquidity issues, low sales turnover, and diversion of working capital into the acquisition of fixed assets, among other issues that, if not addressed appropriately, may result in the loan being rescheduled, restructured, and refinanced.
Because interest rates are controlled rather than deregulated, banks may find it difficult to obtain funds from depositors in order to lend to clients. All of these failures make loan syndication management challenging for banks.
However, the project's topic is structured because of the following;
Is loan syndication possible in Nigeria?
Who are the people who benefit from loan syndication?
What administrative issues does the arrangement raise, and how are they addressed?
Is there anything structurally wrong with determining security in the arrangement?
What are the arrangement's risk factors or levels?
What legal issues might occur, and how are they resolved?
1.3 Research Questions
1. To what extent have Nigerian firms used syndicated loans for project financing?
2. How adequate are bank syndicated loans to Nigerian industrialists?
3. What are the impacts of the long-term nature of syndicated loans on the liquidity situation of Nigerian banks?
4. How do loan syndication possibilities seem in Nigeria?
5. Can it be argued that syndicated loans generate appropriate capital for project financing in Nigeria?
1.4 Objectives of The Study
The following are the study's formal objectives:
To determine the extent to which loan syndication has been used in project financing by Nigerian firms.
To investigate the extent to which loan syndication has aided the performance of Nigerian businesses.
To assess the sufficiency of syndicated loans made available by banks to industry.
To ascertain the impact of syndicated loans' long-term nature on the liquidity position of Nigerian banks.
To highlight the possibility of loan syndication to both loan recipients and banks that extend credit.
1.5 Hypothesis Statement
The First Hypothesis
HO: A syndicated loan has not been used in place of another medium/long-term financing option.
HI: As a medium/long term financing option, a syndicated loan was used instead of another one.
Hypothesis No. 2
HO: A syndicated loan has no effect on our national economy.
Hello: A syndicated loan has an impact on our national economy.
HO: Syndicated loans have little impact on our national economy.
Hello: A syndicated loan has a significant impact on our national economy.
1.6 significance of the Research
The study will be extremely beneficial to bank management and regulatory bodies such as the cbn, NDIC, and the general public. “To whom much is given, much is expected,” as the saying goes.
The purpose of banks lending money is for them to get their money back with interest, and if they want to lend a huge amount of money, they will need more capital, thus the bank will need to call more banks in order to lend a large amount of money.
To the general public, granting a loan promotes market efficiency, which benefits individuals and raises their standard of living, hence increasing the growth and development of that particular economy.
Other researchers can use this work as a reference, obtaining more information to what would have been acquired.
1.7 Scope of The Study
The study's goal is to determine the extent of loan syndication in Nigeria. This research will investigate how effective loan syndication has increased the enterprise's corporate and social responsibility.
It is also necessary to assess how banks have been able to pool capital to aid business firms and how risks have been shared among those banks.
1.8 Limitations of The Study
The constraint caused by restricted financial resources and time available to carry out the research is one area of limitation. Similarly, the lack of sufficient data from banks constituted a significant challenge, as did the bank officials' unwillingness to provide some of the confidential files that would aid the research effort.
1.9 Definition of Terms
The following are definitions of terminology used in the study:
Loan: A loan is a credit facility offered to a customer that is repayable in installments over a set period of time.
Loan Syndication: According to Anyanwokoro (1999), loan syndication is an arrangement in which multiple banks or financial institutions collaborate to provide a substantial loan to a customer.
A project is an endeavour conducted with the goal of maximising project and reducing or minimising loss.
Project Financing: Project financing refers to the provision of funds or a facility required for the efficient and effective execution of a project.
Syndicate: A group of investors, industrialists, or a backing consortium formed to carry out large industrial projects.
Long Term Loan: A type of debt that is paid off over a period of time that surpasses one year.
A medium-term loan is one with repayments spread out over a period of one to five years.
A short-term loan is one that is due to be returned in less than a year.
Repayment Period: The act of repaying money borrowed from a lender. A lump sum with interest at maturity is a frequent method of repayment.
Financial Market: A market in which people trade financial securities and valuable commodities at a low transaction cost.
Borrower: A person who has applied for, satisfied the requirements for, and accepted a monetary loan from a lender.
Lender: A private, public, or institutional entity that makes funds accessible for borrowing to others.
A financial institution is a company that offers financial services to its customers or members.
Financial Services: These are economic services supplied by the finance industry, which includes a wide range of businesses.
Lead Bank: The bank of the borrower's choosing that agrees to raise the requisite amount on a best effort or written obligation basis.
Agent Bank: This is a loan administrator.