ABSTRACT
The
aim of this study is to examine the pattern of credit risk management and the
consequential effect of bad, doubtful and uncollectible debts. In most banks,
colossal debt burden has continued to mount pressure on their ability to
balance liquidity in value asset and liabilities. Accordingly, a survey of 40
respondents made up of CBN regulator, NDIC supervisor and UBA operator was
carried out, simple percentage frequency tabulated were used as the statistical
test of analysis. The study revealed that while CBN and NDIC rated the risk
management of asset and mounting debt profile low, UBA Plc rated itself
effectively high. The study recommends periodic review of credit profile and
monitoring the debt portfolio to prevent banks distress.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background of Study
1.2 Statement of Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypothesis
1.6 Scope and Limitation of the Study
1.7 Significance of the Study
1.8 Definition of Terms
1.9 Study Outlines
CHAPTER TWO: LITERATURE REVIEW
2.1
Origin of Banking
2.2 Evolution and Structure of the Nigeria
Banking System
2.2.1
Non Regulated Banking Period
2.2 Commercial Bank Credits and the Economy
2.3 The Role of Financial Institution in the Saving
Investment Process
2.4 The Role in Capital Formation
2.5 Credits and Credit Risk Management
2.5.1 What is Credit?
2.5.2
What are Credit Risks
2.5.3
Sources of Credit Risk
2.5.4
Handling of Credit Risk
2.5.5
Credit Risk Management
2.6 Application of 1988 Basle Standard by Nigerian
Banks
2.7 Application of Guidelines to Bank Capital
Requirement
2.8 Risk Asset Management Process
2.9 Target Market/Risk Asset Acceptance
Criteria
2.9.1
General
2.9.2
Survey
2.9.3
Industry Studies/Externally Induced
Risks
2.9.4
Business Risk-Internally Induced Risk
2.9.5
Risk Asset Acceptance Criteria (RAAC)
2.9.6
Product Risk Asset Acceptance Criteria
(PRAAC)
2.9.7
Prospect Lines
2.9.8
Reporting
2.9.9 Target Market Update
2.10.10Housekeeping
Controls
2.10
Credit Initiation and Analysis
2.10.1 Credit Initiation
2.10.2
Customer Solicitation
2.10.3
Negotiation
2.11
Credit Committee Review Approval
2.11.1
Control and Reporting Requirements
2.12 Documentation and Disbursement
2.13
Conceptual Issues in Distress
Management
2.14 Extent and Implications of Distress
2.14.1
Extent of Distress
2.14.2 Implications of Distress for an Economy
2.1.5
Causes of Bank Distress
2.15.1
Adverse Economic Conditions
2.15.2
Capital Inadequacy
2.15.3
Inept Management
2.16
Ownership Structure Interference in the
Management of Banks
2.17 Distress Management in the Nigerian Banking
Industry
2.18
Moral Suasion
2.19 Imposition of Holding Actions
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research Design
3.2 Restatement of Hypothesis
3.3 Population of Study
3.4 Sample and Sampling Technique
3.5 Determination of Sample Size
3.6 Research Instrument
3.7 Method of Data Collection
3.8 Validity and Reliability of Instrument
3.9 Method of Data Analysis
CHAPTER FOUR: DATA PRESENTATION AND
ANALYSIS
4.0 Introduction
4.1 Testing of Hypothesis
4.2 Definition of Variables
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of Findings
5.2 Conclusion
5.3
Recommendations
Bibliography
Appendix
CHAPTER
ONE
INTRODUCTION
1.1 Background of Study
The recent upsurge of concern by retail
and wholesale bankers for the enthronement of credit risk management into their
operational process had been adjudged by credit analysis as timely and
relevant. Financial institutions are exposed to risk taking of which credit
risk is probably the most important. The risk problem usually emanates from
undue delays in. collection or from a signal of a potential loss which cause a
lot of complications in management. Banks in developing economies like Nigeria
face intense challenges in the management of credit risk management. Government
controls frequent instability in the business environment and most importantly
the legal environment undermine the financial condition of the borrower.
It thus becomes clear that risk management
as a disciple should pursue the goal of protecting the assets and profit of an
organization. This can only be achieved by arresting the potential for loss
before it occurs. In a financial world where there is dearth of information
which interestingly is fragile in nature, both the allocation of and the use of
credit are more vulnerable to disturbances. The Nigerian financial industry has
suffered from the adverse effects of these disturbances resulting in distress
of some institutions. Despite the fact that borrowers themselves absorb a
disproportionate share of risk, the failure of the financial sector to manage
their risk reduces not only the financial systems ability to allocate capital
effectively but also erodes public confidence in the financial sector.
In other to bridge the risk profit gap, a
macroeconomic framework for meditation is therefore required for depositors and
lenders. Although lending is an integral and fascinating aspect of banking
business, its complexity underlines its importance as the highest most
profitable aspect of a bank’s operation. Lending is therefore something that
must be done with minimum loss. The quality of bank loan portfolio will
ultimately improve profitability and corporate survival.
Banks today continually face the problem
of how to maintain asset quality in an asset generating environment. It has
therefore become imperative for financial institution to sustain the discipline
attain these past few years and stay focused on the fundamentals of credit as
standard measure to improve the quality of loan portfolio. Lenders need to
assess lending risk and device an effective way to hedge against risk related
to the borrowers’ industry management and operation.
1.2 Statement of Problem
The changes that have taken place in the
Nigerian financial system over the past two decades have been traumatic and
revolutionary with disturbing news of shrinking spread on loans, erosion of
demand deposits, disintermediation of banks or in most cases by the capital
market and the concentration of oligopolistic practices in few core banks with
series of threats to the Nigerian money market.
Credit risk management system incorporates
the processing of credit transactions from the receipt of credit facility
request from customers, through credit risk analysis and approval, monitoring
of credit exposures to credit payoff or delinquency management in event of
decline in credit quality. The management of loans and advances does not
require any special skill, although, technical knowledge is essential. Previous
experiences can also assist but the ability to think objectively to deal and
communicate with a broad range of accounts and customers of different back
experience, approach and ability is more important. As the challenges posed by
the difficult economic environment increases, financial institutions are
subsequently exposed to increasing risk. The most important of these is credit
risk, that is the possibility that a borrower will not repay the loan when if
falls due or that he may even fail outright to repay. This credit risk has the
effect of exposing banks to problem loans when they crystallize. Advance
problems arise immediately customer makes his request for the manager to take a
decision. This is further compounded when repayment by customer is not met and
debt irrecoverable, except through realization of security (where possible).
Where a large chunk of banking system credit is unpaid, the process of
intermediation is impeded, fresh funds are unavailable to deserving new
projects and the consequences of this for national productivity and employment
can be serious. Because of these problems, loans which are increasingly
becoming a threat to the financial stability of the banking industry, the
Regulatory/Supervisory Authority (CBN and NDIC) introduced the prudential
guidelines in November 1990 and always release credit policy guidelines
annually for financial institutions comply with so as to minimize this credit
risk. But the question is, are these banks really complying with the guidelines
so as to safeguard customers’ deposit and owners’ funds? This question is what
the research seeks to answer using UBA Plc as a case study.
1.3 Objectives of the Study
The objectives of the study are:
- To show
the extent of compliance of UBA Plc with the prudential and credit guidelines
so as to minimize credit risk
- To
establish the pattern of relationship between loans and advances in UBA Plc and
bad loans (i.e. non performing loans)
- To make
appropriate recommendations for control of advances and minimizing bad debt
arising from bad lending.
1.4 Research Questions
- To
what extend has UBA Plc been managing its credit?
- Has UBA
Plc been complying with the CBN prescribed guidelines?
- What are
some of the problems and challenges militating against the enthronement of
efficient credit risk management in UBA Plc?
- What
are your recommendations for the removal?
1.5 Research Hypothesis
For this study, one research hypothesis is
considered. This is:
H0: There is no significant relationship between
loans and advances (credit) and bad loans (non-performing loans)
H1: There is significant relationship between
loans and advances (credit) and bad loans (non-performing loans).
1.6 Scope and Limitation of the Study
The scope of the study shall be limited to
credit risk management in commercial banks. it shall be within the frame of
population size which comprises of all commercial banks in Nigeria.
However, the sample size of the study is
restricted to. UBA Plc. Focus will be on the risk management department of UBA
Plc coupled with information from CBN and NDIC.
A research work of this nature is fraught
with many limitations. An obvious limitation of this study is non-availability
of textbooks on credit. Most of the materials available are in form of seminar
papers, workshop papers and credit review extracts etc. Time constraint is another limitation since the researcher is a
part time student who has to combine this project with regular office work. In
spite of all these limitations, justice is done with the available information
and materials collected.
1.7 Significance of the Study
This study becomes important because of
the volume of bad debts, which has mounted in banks over the years. The
magnitude of non performing credits in the banking system is a cause for
concern to different stakeholders including bank management which granted the
credit, bank director some of whom took the credit, depositors whose funds have
been misappropriated, bank supervisors, government responsible for protecting
the banking system and the society at large. These concerns arise not only
because of the potential losses to depositors but because of the likely loss of
confidence in the banking system arising from a systematic distress. When
credit is not paid, the banking system would be unable to play its
intermediating role. It thus becomes obvious that this is a problem that
everyone has a role to pay in finding solution.
1.8 Definition of Terms
Risk: Is
a state in which losses are possible.
Loss: Consists
of disappearance or reduction in value.
Risk Management:
Is an organized method for dealing with the pure risks (and sometimes
speculative risks) to which an individual, family, firm or other organization
is exposed.
Employees: Are
those who work in an organization.
Loss Prevention: An
effort that reduces the probability of a loss.
Loss Reduction: An
effort that reduces the severity of loss.
Risk Transfer: A technique such as insurance or a
hold-harmless agreement whereby financial aspects of a potential loss are
shifted to another party.
1.9 Study Outlines
This study shall be divided into five
chapters. Chapter one shall contain the study background, statement of problem,
objectives of the study, research questions and hypothesis, scope and
limitation of study, significance of study, definition of terms and study
outlines.
Chapter Two
shall contain literature review. My emphasis is to review relevant literature
on the study using UBA Plc as my case study.
Chapter Three
discusses the various techniques and procedures used in collecting data and the
analytical treatment of the data collected in the study. It, among other
things, discussed the research design; population; sample and sampling
procedure; research instrument; method of data collection and data analysis.
Chapter four
is devoted to explain how the data collected and arranged in tables to facilitate
clear and proper analysis.
Chapter five
presents a summary of this study and the conclusions that could be drawn from
it. Following this conclusion, some recommendations are made.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment