PROBLEM AND PROSPECT OF CREDIT CREATION BY COMMERCIAL BANK (A CASE STUDY OF ZENITH BANK PLC)

TABLE OF CONTENTS

    PAGES

TITLE PAGE                                                                                     i

CERTIFICATION                                                                    ii

DEDICATION                                                                                   iii

ACKNOWLEDGEMENT                                                                   iv

TABLE OF CONTENTS                                                                    v

CHAPTER ONE: GENERAL INTRODUCTION

1.1 Introduction                                                                              1

1.2 Statement of the Research Problem                               3

1.3 Aim and Objectives of the Study                                              4

1.4 Scope and Limitations of the Study                                         5

1.5 Research Methodology                                                              6

1.6 Sources of Data                                                                         7

1.7 Significance or Justification of the study                                 8

1.8 Organization of the Study                                                         9

CHAPTER TWO: LITERATURE REVIEW

2.1 Literature Review                                                                      10

2.2 Functions of the Various Departments                                   14

2.3 Central Bank and Credit Creation of Commercial Banks      20

2.4 Procedures for Creating Credit Facility                                   22

2.5 Reason for Credit creation by the Commercial Banks           24

2.6 Credit Management in Commercial Banks                             24

2.7 Step in Credit Management                                                      25

2.8 Principle and Practice guiding Lending at Zenith Banks       25

2.9 Credit administration and Securities acceptance to

Zenith Bank Plc                                                                     27

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Brief Historical of The case Study                                            30

3.2 Restatement of the Research Question and Hypothesis         32

3.3 Procedure for Processing Collected Data                                41

3.4 Research Methodology                                                              43

CHAPTER FOUR: DATA ANALYSIS ANDTESTING OF HYPOTHESIS

4.1 A Brief Introduction of the Chapter                                         44

4.2 Presentation and Analysis of Data According

      to the Research Question                                                          45

4.3 Problems encountered by Zenith Bank of Nigeria Plc

      as regard credit created                                                            49

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Findings                                                                                     52

5.2 Observation                                                                               52

5.3 Summary                                                                                   53

5.4 Conclusion and Major Findings                                               54

      REFERENCES                                                                            56

CHAPTER ONE

GENERAL INTRODUCTION

1.1 INTRODUCTION

A commercial bank can be defined as an institution that accept deposits from customer and repay cash on demand. It can also be defined as financial institution that accepts deposits and other valuables from the public for safe keeping with the sole aim of making profit.

The idea of banking system was introduced in Nigeria 1892 with the establishment of an Africa banking co-operation. Another one was established in 1894 which was named British West Africa Bank. The British West Africa bank was later changed to chase merchant bank to become Standard Bank of Nigeria. In 1899, bank of 1917, Nigeria bank comes to existence but later, it was taken over bank of British West Africa in 1912. In 1917, it was the establishment of Nigeria Barclays bank.

The first indigenous bank came into existence in 1929, which was named Industrial and Commercial bank. Also, in 1931 witnessed the establishment of Nigeria Merchant Bank. Although, it was later closed down due to lack of funds, bad management coupled with large scale corruption.

Furthermore, the national bank of Nigeria was established on a sound footing but, due to greater post war activities, the bank was closed down. In addition between two survived bank which are; Africa Continental Bank (ACB) and Agbomogbe Bank which is now called Wema Bank Plc.

It was a booming era between 1957 and 1952 because eight banks were established but 1954, seven banks were closed down only Merchant bank survived. It was not long that the only surviving bank out of the seven that closed down in 1954 had its license withdrawn by the state government as a result of mismanagement, one misuse of government fund.

All banks in Nigeria were either owned by the state government or. federal government but this trend did not continue to the policy of privatization and commercialization embarked upon during Babangida’s Administration in 1989.

Commercial banks play very important roles in the allocation of fund to individuals and business organizations in the society.

One of the principal functions of commercial banks is the creation of credit facilities which is the process of distributing and disbursing of fund to potential user, at favourable terms and condition and making sure that the funds are effectively utilized to ensure the anticipation benefit to borrowing and lending banks.

Credit facilities are being enjoyed by the account holder i.e. individual and business organization respectively. It can be listed that traditional function of banks is financial intermediation i.e. their real is concerned with the monetary aspect of the economy which involve the mobilization of fund from savers scattered in the society and there are transfer as a credit to investors.

There are average business entrepreneurs who could not or were able to raise enough funds from their trade for expansion purpose or from other sources like through friends and others.

Their last result therefore, is to source for fund from the commercial bank which play little to the plight of the borrower.

1.2   STATEMENT OF THE RESEARCH PROBLEM

The commercial banks in credit creation face some difficulties due to high level of illiteracy, which lead to many losses of funds. There is thus, a continued deterioration of the cua1ity of risk assets held by them. Commercial banks are generally the life wire and cornerstone of all economic and any nation and no economy within this present dispensation can survive without commercial bank.

The major factors that led to failure and distress of many commercial banks in Nigeria of recent is government frequent interventions. Despite the huge and various policies of the government on credit creation, the Nigeria economy seems not to have shown any meaningful development in terms of credit utilization.

The research work is there after embarked upon to address the various problems associated with credit creation in commercial banks and how those banks can reduce the incidence of bad debts and poor management of credit facilities. If this situation is not  properly addressed, the ability of the commercial banks in meeting their customers financial needs and contribute to economic growth may not be achieved.

1.3   AIMS AND OBJECTIVES OF THE STUDY

The aims of this research are to know the purpose of creating credit by the commercial banks which include the following:

i.        Increasing the purchasing power of the people.

ii.       Increasing the volume of money in circulation.

iii.      It enhances industrial expansions.

iv.      It helps a business man in his day to day activities.

v.       It helps in development of agricultural sectors.

vi.      It helps in financing both foreign and home trade.

1.4   SCOPE AND LIMITATION

This study will be concerned with the procedure of creating credit facilities, the administration and problems encountered by commercial bank on credit creation and also with collection procedure.

Zenith Bank Plc as a case study, the bank was established in 1917 and since its establishment in 1917, the bank has stood out strongly as a resilient institution which has served as variable in the financial intermediation process in Nigeria Financial System. So, Zenith Bank was visited to collect the necessary material and interview a cross section of their customers.

The cost of writing material aid other stationeries are also one of the constraints, facing the researcher.

Another limitation was sufficient for collection of data in writing the project work and combining it with academic work. Also the, reluctance of some respondents to let out certain “secret’ about the organization is reason for limitation to case study.

1.5   RESEARCH METHODOLOGY

Research methodology is processes of finding out a solution to a problem through a research work problems are identified and recommendations are suggested.

According to Osuala (1982) ‘Research is the process of arriving at dependable solution to problems through the planned and systematic collection analysis, and interpretation of data”.

Data is information often in numerical form which has been collected for statistical purpose. In this study, the word data is used to refer to fact, figures or pieces of information pertaining to Zenith Bank of Nigeria Plc.

1.6   SOURCES OF DATA

The basic sources of data employed in carrying out the research work are both from primary and secondary data model to achieve the objectives of the study.

(i)       The Primary Data: This consists of data collected by the researcher through oral interview with the staff members of credit creation department of Zenith bank plc, Unity Ilorin branch. Personal interview is one of the primary data collection techniques used in research methodology.

Interview, enables direct contact between the researcher and the respondents.

(ii)      The Secondary Data: This is the main source of data collected for the purpose of the study. This include the review of the amount report at Zenith Bank of Nigeria, Plc.

The secondary data shows the numbers of credit created per annual, this was collected from the credit creation department of Zenith Bank Plc, Ilorin Unity branch. It shows a general upward increase in the number of numbers of credit creation.

1.7   SIGNIFICANT OR JUSTIFICATION OF THE STUDY

The significant of this study is to examine the impact of credit management. It intends to show the risk of return relationship that gives services through credit creation. This study will highlight the purpose of various types of credit which the commercial bank gives. Basically, through this study prospective credit user will understand the types of credit which commercials bank grant.

Zenith Bank of Plc, will examine with a view to provide way by which bad debts crisis can be minimized and lending structure strengthening and consequently show the macro-economic implication associated with credit creation management in commercial bank.

The recommendation of this study will be of immerse advantage to the banking industry in particular and the Nigeria economy as a whole. This study may also be referred to in the nearest future by researchers who may be willing to go into related study in which it can be used as a source in the literature review.

1.8   ORGANIZATION OF THE STUDY

This simply gives the use of a clue to know how the researcher report will be arranged for easy and proper organization; the research will be segmented into five chapters as follows:

Chapter one contains the background of the study, statement of the problem, justification of the study, scope of the study, research methodology, source of data and organization of the study.

Chapter two centers on related Literature having direct bearing to the study by different authors. This will be reviewed with emphasis on theoretical background of the study and the state of knowledge and research on the topic.

Chapter three which is the methodology, focuses on the data collected and statistical tool used in analyzing the data.

Chapter four presents the result of this study based on the result, the test of hypothesis and the interpretation. It also reveals the analysis of data collected.

Chapters five contains the summary of. the work and concludes this study and make recommendations for further research.

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