AN APPRAISAL OF LENDING POLICIES IN COMMERCIAL BANKS IN NIGERIA

ABSTRACT

Lending is an important activity of a Bank Loans advances have long been accepted as the most important asset of the bank.

Unfortunately, as loans/advances constitute the most profitable asset of the bank, it is also the silkiest. Thus, when the asset in not properly managed, the bank may occur losses, which may lead ultimately, lead to us distress. Therefore, this study has evaluated the lending policies of commercial banks in Nigeria.

Almighty lending plugs a very important role in the economic development of a country, it is not without its problems especially if not properly managed. The incidence of poor credit analysis coupled with corrupt practices of some lending official has put many commercial banks in huge bad debt.

The Nigeria Commercial banks therefore, need to carefully and periodically review their lending policies, employ well trained staff and motivated credit staff and enhance the effectiveness of their practices of the value of leans as the highest including asset is to be fully realized while the danger of being the most risky asset is to be minimized. This is Central to addressing the problem of bank distress in the Country.

TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION

1.1    Background of the Study

1.2    Statement of Problem

1.3    Objectives of the Study

1.4    Significant of the Study

1.5    Research Question

1.6    Research Hypothesis

1.7    Methodology of the Study

1.8    Scope and Limitation

1.9    Organization of the Study

1.10 Definition of Term

CHAPTER TWO: LITERATURE REVIEW

2.1    Overview of the Nigeria Banking financial Environment Pre-Sap and Sap Era

2.2    Credit Management and Objective

2.3    Bank Lending .

2.4    Typology and Characteristic of Bank Loan

2.5    Central Bank of Nigeria Prudential Guidelines

2.6    Overview of Basic Lending Policy

2.7    The Lending Process

2.8    Identification and cause of problem Loans

2.9    Bad Debt Recovery

2.10 Securities Available to Bankers

CHAPTER THREE: RESEARCH METHODOLOG

3.1     Introduction

3.2     Restatement of research Question

3.3     Sources of Data

3.4     Nature of Data

3.5     Data Analysis Procedure

3.6     Limitation of the Methodology

CHAPTER FOUR: ANALYSIS OF DATA AND INTERPRETATION OF RESULTS

4.1    Introduction

4.2     Tabulation of Response into frequency Table

CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION

5.1     Summary of Findings

5.2     Implication of Findings and Recommendation

5.3     Conclusion

5.4     Questionnaire

5.5     Bibliography

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

The mechanism of lending dates to the Civilization of antiquity. The lending operations of Nigeria commercial banks began with the Introduction of these institutions in the 1890's. Commercial banks differ from many other financial intermediaries, most of who specialize in the particular .loans or deposit markets and in particular the commercial banks lending function is more diverse and the criteria for such lending are more complex.

Bank lending can be seen as an act of providing credit to customers for a definite purpose with the banks receiving a commission known as interest for their efforts. Lending is one of the most important and essential banking services of commercial banks because interests from lending activities constitute a major part of bank income.

As time passes by, it has been realized that there is a very close relationship between the lending activities of banks and economic growth and. development. These have also led to many formal arguments as to the role and contribution of commercial banking activities in the process of stimulating economic growth and development. Since Nigeria is a developing economy, which seeks for rapid economic growth and development, it provides adequate research materials opportunity for students and scholars in this area of study.

The basic principles behind lending activities include capital, collateral, character, connection, condition capital, capacity. They are neither independent nor evitable and it has to be followed rigidly but should serve only as a guide. For effective performance of the bank lending to be well-conceived and articulated, lending policies and guidelines have to be put in place. These policies have to be guided by the current central Bank of Nigeria prudential guidelines at any point in time.

Bank lending is also restriction due to the constraints, which include factors such as social-economic factors, competition, management policies and regulatory factors.

Lending is such a risky function of the banks, which the bank must ensure that before lending out money, all necessary control measures to be put in place for the customer or borrower to be able to repay bad the loan aspects of lending regulations and sections of the law that control the conduct of Banking business in Nigeria, which are Central Bank of Nigeria Decree No 25 of 1991 and the Banks and other Financial Institutions Decree (BoFID) No 25 of 1991 are also important in the study of bank lending in Nigeria Commercial banks.

There are various reasons why this study is based on the Appraisal lending policies in commercial banks in Nigeria. Among these reasons is the fact that commercial banks traditionally and will in the foreseeable future play a dominant role in the Nigerian financial sector. This is because they represent the core of the system. Furthermore, they account for a major part of the credit to the economy in general.

Another rationale behind the study is because lending is important because it helps to satisfy the credit needs of the society. It also contributes to the fulfillment of the banks goals of profitability as the most profitable assets. It is a key factor in creating deposits and developing other banker/customer relationship. It is also the biggest single asset of banks and a main cause of the bank distress via fraudulent lending and poor judgment lending to loss of funds, which do not belong to banks. With the above reasons, lending policies of commercial banks deserve a consistent and continuous study to ensure that lending practices do not deviate from written policies.

1.2      STATEMENT OF THE PROBLEM

A problem is recognized when doubt is raised, difficulty is created or dissatisfaction occurs and a solution is needed. This problem must be stated convincingly in such a way as not to leave the reader in any doubt about the necessarily for finding solution to the problems.

In the course of this research work, the statement of problem includes the following.

        i.            Ineffectiveness of lending policy management.

      ii.            Incompetence in applying sound macro-economic ideas to the nation's economic crisis.

    iii.            Lack of naira purchasing power.

    iv.            Inability of economic weapons to deal with the parallel legitimacy.

      v.            Deficiencies in lending policies regime, past and present.

    vi.            Inadequate provision of lending policy rate to the economy.

  vii.            Lack of economic and political stability.

viii.           Incompatibility of CBN policies and the commercial bank rate level.

     ix.           Improper appraisal of different lending rate systems or method before application.

1.3      OBJECTIVE OF THE STUDY

The objective of this study is to appraise lending policies on commercial banks in Nigeria. The study will investigate to what extent commercial banks lending practices conform to written policies and how these activities can be utilized efficiently in bringing about rapidly economic growth and development in Nigeria.

1.4      SIGNIFICANT OF THE STUDY

Lending is no doubt, very important not only to the bank but also to its various publics. The significance of bank lending/credit lies in its function, which have been highlighted by various authors (Kwankwo; 1991, Koch; 1992, Baba Ahmed; 1995) are as follows.

A.       Lending ensure creation and management of risk assets

B.        It is the highest earning asset in the bank balance sheet.

C.        It enables the bank to satisfy its obligations of maximum profitability -to the shareholders.

D.       Lending also enables the banks to satisfy the legal and other regulatory objectives of the monetary authorities especially in terms of quality of loan and sectorial allocation of credit.

E.        Lending is a key element in the creation and maintenance of depositor relationship. A depositor will eventually look up to the bank to give loans towards achieving some business objectives.

F.         Finally, lending is a vehicle through which the bank management trust to satisfy the credit needs to the community or the market it serves by so doing, the bank contributes to the community development objectives.

1.5      RESEARCH QUESTION

Arising from the expositions in the objective stated above, the following research questions emanate;

1.               To what extent does commercial bank conforms to lending policies in Nigeria?

2.               What are commercial banks perceptions to credit analysis?

3.               To what extent does commercial bank in Nigeria perfect financial securities?

4.               Does commercial bank in Nigeria conforms to CBN rates and Regulation?

5.               What are commercial banks in Nigeria perception to a non-performing loan?

6.               To what extent has commercial banks in Nigeria contributed to the economic growth / development of the country?

1.6      RESEARCH HYPOTHESIS

1.                   Ho: Lending policies is not a necessary factor for economic growth and development.

H1: Lending policies is a necessary factor for economic growth and development.

2.                   Ho: Lending policies is not properly managed in a developing economy.

H1: Lending policies is properly managed in a developing economy.

3.                   Ho: Lending policies has not encouraged industrialization in Nigeria.

H1: Lending policies has encouraged industrialization in Nigeria.

1.7      METHODOLOGY OF THE STUDY

The Widespread incidence of bad loan was one of the major factors that brought about the distress of banking industry as it led to serious depletion of banks, capital. The problem of bad loan is in turn due largely to defective banks lending as staked by Umoh (1994). For instance, Nwankwo (1991) stated that bank lending which narrowly defined consists of bank's loan and advances are a critical activity of banks, Merchant or commercial. Infact, bank lending is of a paramount importance, that is not only the banks highest earning assets, it is also the most illegal and most risky. Thus, while lending contributes significantly to bank's profitability, it is not only a critical factor. In the banks liquidly problems and ultimate insolvency and collapse of the banks. Furthermore, lending is very important being a key element in the creation and maintenance of depositors' relationship as well as promoting commonly development through provision of credits for various development projects.

Without any gain saying, bank credits have great impact on the economy of a nation in many ways, for instance, it facilitates economic activities by providing funds for the needy sector, it has implications on the monetary stability and domestic inflation my rate and the financial stability of the economy. It also helps to satisfy the credit needs of the society.

In view of the foregoing importance of lending, it is essential that every bank put in place lending policies and practices that will ensure "effective banking" in the sense that lending should ensure the realization of the banks objective and obligation of maximizing profitability shareholder wealth liquidity and national development. In other words, the banks lending policies and practices should guarantee maximum profit, minimum risk, adequate liquidity and acceptable level of development in the community it serves.

1.8      SCOPE AND LIMITATION

This research is an empirical study of "an appraisal of bank lending policies in Nigeria commercial Banks", however, the study is not intended to cover all commercial banks, rather the scope will be limited to sample of some of the currently existing commercial banks.

Thus, while the study undertakes questionnaire survey of good number of commercial banks, it relies heavily on the published available records.

Nevertheless, it is believed that the finding will have effect to the country's commercial banks in general. Like any research work, the study is not without limitations, there is the problem of inadequate data. The concept of secrecy as practiced by banks where all the information given is not 100% correct, also stand as a constraint.

1.9      ORGANIZATION OF THE STUDY

The study consists of five chapters, which are stated as follows.

CHAPTER ONE: Consists of the introduction aspect of the study "An Appraisal of lending policies in commercial banks in Nigeria.”

CHAPTER TWO: Consists of the theoretical Background and literature review of the study.

CHAPTER THREE: This has to do with the methodology of the study.

CHAPTER FOUR: Is the analysis of data and interpretation of results.

CHAPTER FIVE: Consists of the summary of findings, recommendation and conclusion.

1.10    DEFINITION OF TERMS

EVOLUTION: The term is employed with no historical bases to mean the origin of lending policies in commercial Banks.

INFLATION: This can be described as an increase in the price of money or a general rise in price level.

DEREGULATION OF CURRENCY: This is a general slacking of currency rules and policies aimed at boosting trade activities.

FOREIGN EXCHANGE: Any foreign currency required to carry out commercial and service exchange between countries