Credit often refers to loans and advances provided directly by a creditor (lender) or a debtor (borrower) on the basis of varying payment terms. The banks, as lenders, provide credit facilities by making funds accessible to consumers under agreed-upon payment terms and conditions. The gain of credit to the bank is intended to represent a substantial profit; nevertheless, modern banks (especially First Banks) have been recording an increasing amount of bad debt provision year after year.
Credit refers to the providing of money (loan) and advances to borrowers with the general assumption that they will honor their responsibility to repay the funds or without interest when they are due.
Credit enables us to receive immediate benefits of products and services in exchange for a promise to pay in the future. One of the primary reasons for acquiring credit is that money, which is our standard unit of exchange, is kept in relatively short supply, despite the fact that we may have sufficient credit for products we need but cannot purchase immediately, and because these issues are not unique to individuals. A bank’s purpose is to generate profits, and loans are one of the means by which this is accomplished.
However, loans are granted only to individuals in whom the lender has the utmost confidence and they frequently need collateral. Therefore, the purpose of lending money is to generate profit for the lender, not to benefit the customer. Although we cannot adopt such strict views, our reasons for extending credit must be identical.
Nonetheless, it is disheartening to see that despite the level and breadth of the banks’ impact on the economy, which is unquestionably enormous in terms of its significance, the banks continue to struggle. There is always a risk of not receiving money from such consumers when they deposit funds. This (debt nonpayment) has necessitated that this study investigate the field of credit management. The importance of excellent credit management as a process for banks cannot be overstated, as ineffective credit reevaluation leads to poorly unstructured loan facilities, which impair the banks’ profitability and liquidity.
Sir Alfred Jones, a Liverpool-born shipping entrepreneur, created First Bank of Nigeria Plc on 31st March 1984, making it Nigeria’s premier financial institution with over a century of banking history. It began as a small business bank in the Lagos office of Elder Dampster & Co. Today, First Bank of Nigeria Plc has diversified into a vast network of banking activities and services, including commercial, and has become a significant contributor to the country’s development.
It was incorporated as a limited liability company in London, with its head office in Liverpool, under the name “Bank of British West Africa,” with twelve thousand pounds sterling put up (E12,000). It began operations after acquiring its predecessor’s assets in the African banking industry and assuming the preeminent position in the banking industry in Wet Africa.
In 1896, a bank was created in Accra, Gold Coast (now Ghana), and in 1898, another was founded in Freetown, Sierra Leone. This marked a turning point in banks’ deliberate banking operations, hence justifying its West African operational scope. The second branch in Nigeria was established in 1990 in the old city of Calabar. Two years later, its services had expanded to Northern Nigeria, and by 1996, the bank had 291 branches throughout the federation, including London. The bank has the most branches in the whole banking business.
With a share capital of 55.6 million in 1980, which increased to N684 million in 1995, and total assets of N69.82 million, which are supported by a deposit of N41.641 million, the banking industry has experienced amazing growth over the years.
In 1894, the bank had a workforce of six consisting of three Europeans and three Africans; currently, the bank is almost entirely Nigerianized. This is, of course, the result of planning responsiveness to the aspirations of the Nigerian people and government, as well as the banks’ resolve to identify with the country’s aspirations in its march toward national progress.
In order to comply with the bank of England’s regulatory requirement of the bank’s foreign partners, the standard chartered banks of Africa Plc have decreased their shareholding to 9.9% after offering 120,941,195 shares to the Nigerian people, raising Nigeria’s equity holdings to 90.1%.
The bank has retained its position as the colonial government’s financial leader over the long term. Today, the bank has a wide portfolio of loans to many economic sectors. The record of the bank’s rural banking operations is unblemished by army banks, while its agricultural credit facilities provide community farmers with significant access to the desperately needed bank credit.
In order to address the difficulties of the twenty-first century, First Bank of Nigeria Plc is devoted to putting a smile on every customer’s face.
1.2 PURPOSE OF THE STUDY
The extended essay’s objectives include the following:
I Examine the various issues and analyses pertaining to the influence of credit management for lending purposes in the major industries, particularly the First Banks.
ii) To assist practitioners in the banking industries in acquiring the high level of unperformed credits now held in their debt portfolios, and to promote sound and fair credit in an effort to reduce the incidence of bad debt.
iii) To recommend the portion of lending (i.e. advances and loans) that should be allocated to specific consumers.
iv) Determine, based on all available information, the lending structure of banks (First Banks) in Nigeria, with a focus on the nation’s selected banks.
v) To arouse or encourage the attention of potential students who may choose to pursue a career in the field or field of credit management.
vi) To serve as a good introductory tool or preparatory materials for further study in the field of credit management.
1.3 SIGNIFICANCE OF THE EVALUATION
This study is conducted with the intention of evaluating the credit management process, the consequent problems of nonperforming loans, and the rising incidence of bad debt. It is also hoped that it will serve as a useful tool (material to those who may wish to advance in the field or credit portfolio in banks with a view to or an attempt to identify those credit that are performing versus these credit with a high degree of default in order to improve debt management practices in the Nigerian banking environment.
The impact of credit management as a system or process is crucial for banks because poorly structured loan facilities result in bad debts and losses, which in turn reduce the profitability and liquidity of the banks. With this in mind, it is hoped that the findings of this study will aid practitioners in the banking industry in enhancing their knowledge of the impact of credit management.
1.4 RADIUS OF THE EXAMINATION
It also highlights the importance of banking services to the economic and commercial activity of a country. The research emphasized more in a way and method facilities to a customer. The maintaining of such loan by the bank officials. It also looks into the policies guiding or these policies made and review the steps followed by the bank to process a loan request.
1.5 LIMITATION OF THE STUDY
Until recently, the incidence of credit mismanagement in the financial sector had attracted neither notice nor discussion.
This economic malaise appears to have been necessitated by the severity of the financial system’s suffering, which appears to be mostly attributable to credit mismanagement and a few other forms of fraud.
The occurrence of enormous bad debt in the banking industry has attracted the attention of not only the monetary authorities but also the general public. There is a growing fear in these sectors of an increase potential for bank failures if the problems are not urgently addressed. However, this fear may be unfounded when viewed in light of recent developments in the industry.
The research will examine the ineffective credit management technique implemented by some banks, which is the cause of the occurrence of bad debts, consequently diminishing the banks’ liquidity ratio. The research aims to identify the cases and solutions for managing bad debts effectively and efficiently.