ABSTRACT
This research work critically examines credit management, its techniques and risks in Nigeria mortgage banks with Mayfresh Mortgage Bank LTD, Aba Branch as my précised reference point. The objectives of this study includes to x-ray the ways Mayfresh mortgage bank manage credit risk; the credit management techniques adopted by Mayfresh and the volume of loans and advances granted by the bank to its customers; the influence of credit management techniques employed, on the level of banking performance of Mayfresh Mortgage Banks; if Mayfresh mortgage bank strictly adhere to the use of appropriate credit management techniques; and the difficulties associated with the credit management techniques employed by Mayfresh Mortgage Bank Limited, Aba. In this study, literatures were empirically reviewed, primary and secondary data collated from a sample size of 56 staff (although only 51 staff responded). A total of five (5) hypotheses were formulated to guide the study and the data collated were critically tested and analyzed using “Correlation Model”, this was efficiently achieved with the aid of “SPSS Statistics 20 Software”. The result obtained unveils that Mayfresh mortgage bank is not aged biased, rather work experience is regarded best; they adopt appraisal techniques, they do not monitor or regulate the usage of the loan facility granted to their customers. Credit management techniques have positive and significant influence on the bank, they also establish credit limit, use credit insurance and ensure that the agreement terms are clear to and quite understood by the customers. It was also uncovered that the bank faces the problem of enacting effective and efficient credit management due to lack of objectivity, insider abuse, and bureaucracy. Having successfully concluded this research work, based on the findings the study recommended that if Mayfresh Mortgage Bank Aba, can strictly adhere to some credit management and limiting policies, most of the problems attached to credit management as they experience, would definitely be a thing of the past; the bank should give its credit management staff more orientation, oneself-discipline and adherence to professional ethics in order to make them more objective in the discharge of their credit management functions and duties thus, all activities linked with insider abuses should be discouraged. For effective management of credit given to customers, the bank is advised to imbibe the spirit of “after–sales–services”; they should always emphasize on collateral, the use of credit insurance policy and the litigation to minimize risks resulting from investing in vulnerable clients and maximize returns; bureaucracy in the organization should be reduced by decentralizing some functions and reduction of organizational levels; time to time orientation should be made available for credit management staff to avoid loses and align with the banks objectives with respect to credits; they should develop a standard process for handling overdue account of their debtors.
TABLE
OF CONTENTS
Cover
page i
Title
Page ii
Declaration iii
Certification iv
Dedication v
Acknowledgements vi
Table
of Contents vii
List
of Tables xi
Abstract xiii
CHAPTER 1
INTRODUCTION
1.1
Background of the Study 1
1.2
Statement of the Problem 3
1.3
Objectives of the Study 4
1.4
Research Questions 5
1.5
Research Hypotheses 5
1.6
Significance of the Study 6
1.7
Scope of the Study 7
1.8
Limitations of the Study 7
1.9
Profile of the Organization
under Study 7
1.10
Operational Definition of
Terms 9
CHAPTER 2
REVIEW OF RELATED LITERATURE
2.1
Conceptual Framework 10
2.1.1 Process of credit management 13
2.1.2 Types of bank Credit 14
2.1.3 Credit
policies and procedures 16
2.1.4 Credit
analysis 16
2.1.5 Credit
information 19
2.1.6 Credit
process 19
2.1.7 Lending
objectives and loan policies of bank 22
2.1.8 Types
of lending 24
2.1.9 Types
of loans and their features 25
2.1.10 Credit
management strategy 28
2.1.11 Compliance
with loan agreement 30
2.1.12 Contact 30
2.1.13 Operation
of account at various branches 31
2.1.14 Functions
of credit department 31
2.2 Theoretical
Framework 32
2.3 Empirical
Studies 34
2.4 Summary
of Review Related Literature 36
2.5 Gap
in Literature 36
CHAPTER 3
METHODOLOGY
3.1 Research
Design 37
3.2 Sources
of Data 37
3.3 Population
of the Study 38
3.4 Sample
Size Determination 38
3.5 Description
of the Research Instrument 38
3.6 Validity
of Research Instrument 39
3.7 Reliability
of Research Instrument 39
3.8 Method
of Data Analysis 40
CHAPTER 4
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Return
Rate of Questionnaire 41
4.2 Data
Presentation 41
4.3 Test
of Hypotheses 47
4.4 Result
Discussion 51
CHAPTER 5
SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings 54
5.2 Conclusion 55
5.3 Recommendations 55
5.4 Area
for Further Studies 57
REFERENCE
APPENDICES
LIST
OF TABLES
4.1: Questionnaire
Distribution and Returns 41
4.2:
Sex of Correspondent 41
4.3:
Respondents Qualification 42
4.4: Job
Experience 42
4.5:
Which Department are you currently Employed in Mayfresh
Mortgage Bank, Aba. 42
4.6:
What is your position in Mayfresh mortgage bank, aba 43
4.7: Are
you involved in credit management? 43
4.8:
Does your bank Strictly Adhere to the use of Appropriate Credit Management? 43
4.9: What
type of Credit Facility do you extend to your customers? 44
4.10: Who are your Major
Customers/Credit Beneficiaries? 44
4.11: What Credit
Management Techniques does your bank adopt in
Managing Credits? 45
4.12: Is there any
relationship between Credit Management Techniques
Adopted and the Volume of
Deposit Mobilized by your bank? 45
4.13: What are the
Difficulties Associated with Credit Management
Techniques and Facilities
granted in your bank? 46
4.14: What is the Influence of Credit Management Techniques on the
Bank
Level of Performance? 46
4.15: What are the ways that your bank Manages Credit Risk? 47
4.16: Correlation
on ways of Managing Credit Risk in
Mayfresh Mortgage Bank 48
4.17: Correlation
on Credit Management Techniques Adopted in
Mayfresh Mortgage Bank 49
4.18: Correlation
on the Influence of Credit Management Techniques on the level of
Bank Performance 50
4.19: Correlation
on if the bank Strictly Adhere to the use of Appropriate
Credit Management Techniques 51
4.20:
Correlation
on the Difficulties Associated with the Credit Management
Techniques
adopted by Mayfresh Mortgage Bank Aba. 52
CHAPTER
1
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY
One of the most pressing problems facing
the mortgage banks in Nigeria today is the best credit management techniques to
be employed so as to ensure that credits lent out to their customers are repaid
as at when due. The banking industry has been known for its intermediary role
in providing financial assistance to individuals and cooperate bodies so as to
enhance the economy of a nation. According to Driga (2012) “Bank” is defined as
a profit-making organization that perform as an intermediaries, connecting
borrowers and lenders by providing temporarily available resources for
businesses and individual customers as well as loans for those in need of
financial support. These financial mediations are carried out in so many ways
which includes, granting of credit loans and advances to customers (this
constitutes the major part of bank lending), bond issued by banks for and on
behalf of their customers. Banks extends credits to
their customers in the form of loans, overdraft and advances, the sum of these
credits forms the debts or credit portfolio of the financial institutions.
Debts are presented as liabilities to the customers as they are under an obligation
to pay interest and principal upon maturity (Edwin, 2005). The outstanding
problem in lending is that some customers fail to pay the interest and
principal as agreed in the loan contract as at when due. This constitutes a
major risk element to the Banks, shareholders and the financial system as a
whole.
Similarly,
in 2005, Adeyemi observed that as at June 2004, non-performing assets (i.e. bad
debts) constitutes 19.5% of the total loans and advances granted by Banks in Nigeria.
Situation as reported here hinders the performance of many Banks in the country
and causes distress in the system. Hence, Banks require effective and efficient
credit management in order to cope with the demands and behaviors of the
society. Personal observations over the years indicated that most banks in the
midst of all these problems still perform above average. This implies that,
such performing banks must have adopted more effective and efficient techniques
of credit management, which gives them competitive advantage over the less
performing ones. One of the most pressing problems in the Nigerian banks today,
is to ascertain the best credit management technique to be employed so as to
ensure that money lent out to their customers are fully recovered without being
involved in any risk.
With reference to Mortgage Banks in
Nigeria, credit management has become strategic in the conveyance of or lien
against property (as for securing a loan) that becomes void
upon payment or performance according to stipulated terms. Mortgage in Nigeria
is as old as the colonial era but today has been redefined by the CBN (Central
Bank of Nigeria) with operation jurisdiction given to each according to its
category. Sequel to a press release by the CBN on the 25th Feb,
2014, it was announced that the apex bank has approved seven (7) out of eighty
nine (89) firms as primary mortgage institutions. According to the source, the
firms include Sun Trust Savings and Loans, Mayfresh Mortgage, Jubilee Life,
Platinum Savings and Loans, Trust Bond, Kogi State Savings and Loans and Abbey
Building Society. Consequently, based on the mortgage bank consolidation in the
country as demanded by CBN in 2010, a compliance deadline of April, 2013 was set
and the aforementioned seven (7) met up with the minimum requirement of N5billion while thirty three (33) others
out of the remaining eighty two (82) complied with only the capitalization
requirement of N2.5billion, which
licensed them to operate only in a particular state of their choice in the
country. This categorized them into the secondary mortgage institution. Traditionally,
the key duties of Mayfresh Mortgage Bank LTD, ABA (my study reference), is to
increase capital investment, housing investment are also expanded and thus, an
improved standard of living is realized. But today they have extended their features
to granting different types of soft loans with lesser payback time. This extended
features lies on the capacity of the services they can render to their
customers and it basically includes rendering great financial services and the
extension of credits to worthy borrowers.
1.2
STATEMENT
OF THE PROBLEM
As previously stated, one of the
major functions of the bank is to grant credits (loans and advances) to
customers .These credits created are the prime source of income to the bank
which enables the financial institution to attain profitability with its
shareholders, achieving wealth maximization objective. Credit management
techniques employed therefore varies from bank to bank; this is due to the
challenges faced by these banks as a result of the inability of their borrowers
to repay their credits as at when due, making it quite difficult to single out
an adequate/effective credit management type. Naturally, banking is a risky
business especially as it involves lending. The credit policies and management
techniques of these banks reflects on the risky nature of the business and that
is why credits are given to justified customers upon agreement on certain terms
and conditions which are generally referred to as the “Canons of Lending”. These
conditions often include;
1. How
much does the customer want to borrow?
2. Why
does the customer want the loan?
3. Duration
of the loan?
4. How
does he intend to repay?
5. How
consistent and reliable can his means of repayment be?
6. Is
the customer’s business financially strong enough to manage any set back on his
repayment plan?
7. Evidence
of past performance?
According to Mr. Uche Maduabum, the
head of credit department in Mayfresh Mortgage bank, who stated that despite adherence
to these canons, Mayfresh Mortgage Banks still suffers huge portfolios of
overdue debts most of which are bad and doubtful. Thus, the mammoth question
lies on whether these canons of lending are not adequate to stern the tide of
defaulters in loan repayments? Or is it that the problem is due to the recalcitrant
nature of Nigerians? This research x-rays and unveils whether Mayfresh mortgage
bank credits are adequately collateralized or if the credits are given based on
nepotism and cronies of staff of the bank as to warrant the high rate of credit
defaults being experienced by the bank.
1.3
OBJECTIVES
OF THE STUDY
The main objective of this study is
to generally ascertain and evaluate the credit management techniques in Nigeria
Mortgage banks with Mayfresh Mortgage Bank Limited Aba, as a reference point, and
the specific objectives are to;
1. Examine the ways Mayfresh mortgage
bank manage credit risk.
2. Examine the credit management
techniques adopted by Mayfresh and the volume of loans and advance granted by
the bank to its customers
3. Examine the influence of credit
management techniques employed, on the level of banking performance of Mayfresh
Mortgage Banks.
4. Examine whether Mayfresh
mortgage bank strictly adhere to the use of appropriate credit management techniques.
5. Examine the difficulties
associated with the credit management techniques employed
by Mayfresh Mortgage Bank Limited, Aba.
1.4
RESEARCH
QUESTIONS
In this study, the following research
questions were puzzled upon:
1. What are the ways of credit risk
management in Mayfresh Mortgage Bank?
2. What are the credit management
techniques adopted by Mayfresh Mortgage Bank LTD, Aba and the volume of loans
and advance granted by the bank to its customers?
3. What is the influence of credit
management techniques employed, on the level of your bank performance?
4. Does Mayfresh Bank strictly adhere to the use
of appropriate credit management techniques?
5. What are the difficulties associated
with credit management techniques as employed by Mayfresh Mortgage Bank LTD,
Aba?
1.5
RESEARCH
HYPOTHESES
The following research hypothesis articulated
and tested in the study:
Ho1: There is no significant relationship
between credit risk and the way it is been managed in Mayfresh Mortgage Bank
LTD, Aba.
Ho2: There is no significant relationship
between credit management techniques employed by Mayfresh Mortgage Bank LTD,
Aba and the volume of loans and advance granted by the bank to its customers.
Ho3: There is no significant relationship
between credit management techniques employed and the bank level of
performance.
Ho4: There is no significant relationship
between credit management techniques and the bank strictly adherence to its
uses.
Ho5: There is no significant relationship
between the difficulties associated with the credit management techniques employed
by Mayfresh Mortgage Bank LTD, Aba.
1.6
SIGNIFICANCE
OF THE STUDY
It is rarely an exaggeration that the
difference between success and failure in the banking industry is in effective
management of the bank loan and advances. Effective credit management (mostly
in banks) is vital to the protection of assets and achievement of profitable
investments. Consequently, this study is significant in the following
perspectives.
· It
provides information and inputs that could be useful in improving debts/credit
management efficiency in the bank and other banks or financial institutes.
· The work stipulates crucial
information and strategies capable of minimizing credit/debts risk in the Nigerian
banking sector, enhance good business relationship and maximize profit.
· The research provides additional put
to secondary data for further researches in the subject area or other related
topical issues.
Above
all, the work increases the researcher’s knowledge and understanding of credit management
techniques and its relevance in improving the performance of Nigeria mortgage Banks
and the Nigerian financial system at large.
1.7
SCOPE
OF THE STUDY
The issue of credit management is
quite embracive covering customer relationship and confidence, building loan
application appraisal, loan approval and disbursement schedules/systems, loan
supervision, loan recovery and bad debt management strategies, etc. in Mayfresh
bank Ltd, Aba. All these aspects are incorporated into the work.
1.8 LIMITATIONS OF THE STUDY
In a study of this nature, the
following limitations were encountered in the hunt for information such as:
1. Dearth of information
2. Uncooperative attitude of some
respondent.
Sequel to all these and other
constrains the research have so far been successful.
1.9
PROFILE
OF MAYFRESH MORTGAGE BANK
This Bank was incorporated in October
22, 1993 and license to commence mortgage banking by the Federal ministry of
Works and Housing on April 27, 1995 with its registered head office at No. 83
Aba-Owerri Road, Umungasi – Aba, Abia State. It was established with the aim of
becoming one of the foremost mortgage banks whose products and services creates
positive impacts on the lives of the citizenry especially the lower strata of
the society of which constitute a vast majority of the Nigeria populace, and at the same time, meet other corporate
responsibility such as offering appreciable returns to investors. It has the
vision of growing into a mega mortgage bank and carving out a niche for themselves
in the area of good market share through effective and efficient service
delivery using our network of branches so that we can be second to none in the
country. Today, Mayfresh Mortgage Bank has stood with 22 branches located in
different states (Lagos, Onitsha, Anambra, Enugu, Abakaliki, Abuja, Nassarawa,
etc.) of this country and thus, offers a wide range of banking services. This
includes the following:
· Gold
Deposit Account
· Saving
Account
· Mayfresh
Call Account
· Mayfresh
Target Account
· Children
Educational Saving Scheme
· Christmas
Savings Account
· Salary
Advance
· Shares
Acquisition Scheme
· Business
Advisory Services
· Mortgage
Current Account
· Loan
Facilities
· Residential
Housing Financing
· Credit
Facilities For Land Purchase and Mortgage
· Accessing
NHF Facilities
· Estate
Development Financing Scheme
· University
Hostel Development Financing Scheme
· Christmas
Incentives Scheme
· Mayfresh
Saving Extra
· Other
Banking Services – which concentrate more on mortgage financing and sometimes
extends to overdraft.
They also have some other promotion
products such as, Diamond Home Ownership Account, Mayfresh Top Cooperative
Home, Mayfresh Platinum House Savings, Target Account Promo, Mayfresh Easy Home
Ownership Account, Mayfresh silver Mortgage, Mayfresh Gold Home Savings Account,
Mayfresh University Grant (University Community Savings Promo).
1.10
OPERATIONAL
DEFINITION OF TERMS
· Credit:
– This is a financial assistance in the form of loans and advances granted by
banks to their customers.
· Credit Management:
– This is the skillful treatment, delicate contrivance or managing of sums of
money placed at a person or corporate body’s disposal by a bank or financial
institution.
· Credit Analysts:
– These are specialist, employed in the credit management department who are
responsible for scrutinizing each loan application.
· Collateral:
– It is assets the customers may offer as security to obtain credit in case of
bad debt.
· Bad And Doubtful Debts:
– This refers to all the non-performing credit facilities to reflect such
specification in the CBN prudential guidelines.
· Credit Policy:
– It is rules and regulations guiding banks in their lending.
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