THE incidence OF BAD DEBTS AND CREDIT MANAGEMENT IN NIGERIA commercial BANKS
THE INCIDENCE OF BAD DEBTS AND CREDIT MANAGEMENT IN NIGERIA COMMERCIAL BANKS
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
In a contemporary economy, there is a split between surplus and deficit economic units, as well as a separation of the saving and investing mechanisms. This has prompted the establishment of financial institutions, the primary function of which is to move funds from savers to investors. The commercial bank is one such institution.
Commercial banks are considered banks because they generate money. They accomplish this by opening chequing accounts for their consumers, into which they deposit demand and pay out cash on demand.
Traditionally, one of the most important characteristics of a commercial bank is the service it provides to its numerous customers. These services primarily comprise deposit stabilisation, credit management, money transfer, and consultancy services, among others. However, credit is their most important role and has a significant impact on the economy as a whole.
The primary role of a commercial bank is to extend credit to deserving borrowers.
Commercial banks provide excellent financial services. Their actions enhance output, extend capital investments, and result in a greater level of living.
Furthermore, these tasks are critical in that they distinguish banks from all other financial institutions and provide a very unique position to manage the quantity and volume of demand deposits by limiting borrowing.
Credit extension management is one of the most complex functions that banks conduct. This is because the loan portfolio is the most risky aspect of banking activity.
As a result, if due care and prudence are not performed, bad debts may result. Bad debts are a standard business expense that must be accounted for when determining the period's profit and loss.
Furthermore, business, on the other hand, cannot survive without debt. It is now difficult to achieve anything as an individual or as a group of people without incurring some sort of debt. Debt appears to be widely accepted in the business world.
1.2 STATEMENT OF THE problem
The number and value of bank loans that have been categorised have continued to rise at a higher rate than bank lending. This has a negative impact on banks since it affects their cash flow and reduces their profitability. Most debts are thought to default due to banks' inadequate loan management and recovery procedures.
The goal of this study is to evaluate the lending and credit management strategies of a typical commercial bank, Union Bank of Nigeria Plc, in order to determine the causes and consequences of bad debts in banks.
1.3 OBJECTIVES OF THE STUDY
The primary goal of this study is to evaluate the lending procedure and loan management of banks using Union Bank of Nigeria Plc as a test case in order to highlight the effectiveness and adequacy or otherwise of Nigeria Banks' credit management policy in reducing the occurrence and consequences of bad debts.
1.4 THE SIGNIFICANCE OF THE STUDY
The difference between success and failure in the banking industry is in the effective management of the banks loan and advance; efficient loan management is critical to the protection of assets and the achievement of adequate return on investments on the technique of lending, the methods of securing such lending,
and the traps that await the unwary banker; by comparison, there appears to be very little imprint on the subject of loan management and recovery. A research on this topic would thus be an excellent contribution to the existing body of banking literature.
Effective loan management recognises that, in addition to using sand banking principles everytime a loan is made, there is a need for haste in appreciating the moment at which the loan begins to appear questionable, arriving at a judgement on the required action, and implementing that action. This will allow the bank to seek full repayment, including accrued interest, at the very least.
Because bad debts constitute a charge against profit, future profits are expected to be tougher to come by in the face of increased competition among banks. It is appropriate to examine the procedures, proportions, and margins of lending to bad and questionable debtors.
As a result, this study is important to bankers. Furthermore, bankers will value an assessment of their lending and control mechanisms now that they are expected to lend under tight monetary conditions, which will have a detrimental impact on investment outcomes.
The study will benefit the economy as a whole because if the level of bad loans is lowered, banks will be left with more earnings to make the expected contribution to the economy's development.
1.5 SCOPE AND LIMITATIONS OF THE STUDY
This research is written to address a broad and reasonable range of topics. This breadth of coverage will aid us in properly comprehending the concept of credit management. To emphasise this point, efforts were made to include such areas, as doing so will make the work more meaningful.
In light of this, the research relied on information gleaned from accounting and finance textbooks, as well as some pertinent journals and magazines. These were thoroughly investigated by taking into account the ideas presented in the article.
1.6 DEFINITIONS OF TERMS
Bad debt: Loans that borrowers are unwilling or unable to repay for one reason or another.
Credit management includes money transmission and consultancy services, among other things.
Commercial Banks: A bank is any organisation that has been incorporated and licenced by the Central Bank of Nigeria to conduct banking operations.
THE ROLE OF COMMERCIAL BANKS
Acceptance of Deposits
Services provided by the agency
Order on a continuing basis
Foreign Exchange Services
Reporting on Status