ABSTRACT
This
project studied the management of bad and doubtful debts by Nigeria
commercial banks. It noted problems associated with the wide spread development
of bad account by banks as being occasioned by so many changes that are
unfolding as a result of the deregulation of the Nigerian Financial System. It
viewed the incidences of bad debts as one of the greatest problems facing both
old and new generations of banks today with adverse consequences on their
profitability level.
This
project traced the origin of bad accounts to a number of factors some which may
be internal, external or by act of God. e.g. the death of the owner of
business. It was help that an account becomes bad the very day the facility is
granted. Carelessness on the part of lending officers and his inability to
interpret and respond promptly to warning signals may cause an untold loss in
addition collusion by lending officers with the borrowers and absence a clearly
defined lending guideless by banks may be responsible for high loan default. It
is even difficult to identify control once a facility has been agreed by
management.
The
most effective way of limiting one’s losses however is to stop paying out but
trading margins are particularly important.
TABLE OF CONTENT
TITLE PAGE i
CERTIFICATION ii
DECLARATION iii
DEDICATION iv
ACKNOWLEDGEMENT v
ABSTRACT vii
TABLE OF CONTENTS
CHAPTER ONE
1.0 Introduction 1
1.1 Background of the Study 1
1.2 problems of the Study 4
1.3 Objective of the Study 4
1.4 Significance of the Study 6
1.5 Research of the Study 8
1.6 Plan of the Study 9
CHAPTER TWO
2.0 Literature Review 10
2.1 Meaning of Bad Debt 10
2.2 Management Of Bad Debt 11
2.3 Effects of Bad and Doubtfully Debts 18
2.4 Risk Analysis 22
CHAPTER THREE
3.0 Research
Methodology 25
3.1 Historical Background of First Bank 25
3.2 Sample and Population of the Study 26
3.3 Population 28
3.4 Method of Data Analysis 29
3.5 Validity of Instrument 31
3.6 Administration of Instrument 32
3.7 Observed Problem 33
3.8 Limitation of the Study 36
CHAPTER FOUR
4.0 Data Presentation and Analysis 38
4.1 Data Presentation 38
4.2 Data Analysis 41
4.3 Test of Hypothesis 47
4.4 Findings 49
CHAPTER FIVE
5.0 Summary, Conclusion and Recommendations 51
5.1 Summary 51
5.2 Conclusion 55
5.3 Recommendation for Improved
Management
of Bad
Loan 57
REFERENCES 59
CHAPTER
ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Among the industrial sectors in Nigeria today
banking sector arouses the public interest most it is the most visible and of
the fastest growing section in the economy a past from the fact that the
monetary of every policy guideline document issued by the central bank of
Nigeria in January of every year regulates the activities of the entire economy
the banking sectors is responsible for carrying out most of the policy issue
contained there in the sectors is also subjected to frequent controls and reputations.
In popular jargon, the banking sectors has become one of the most critical
sectors and commanding heights of the economy with wide implications on the
level and direction of economic growth and transformation and such sensitive
issues as the rates of unemployment and inflation which directly affect the
lives of people the banking sector is without doubt of the fastest growing
industries in the country today from total of 26 in 1980 the number of
commercial and merchant banks in the country growing steadily to 40 in 1985
where it stabilized until it increased to about 49 in 1987 beginning from 1987
and following the introduction of structural Adjustment programme (SAP) in 1986
there had bean a rapid growth in the number of bank increased by 15 i.e. 30% to
reach 66 and additional 15 joined it in 1989 which 1998 witnessed 21 new
enchants to bring the total number of commercial and merchant bank to 102. Before
the government placed temporary ban on the opening of banks in 1991 there was
not less than 125 banks operating in the country. From N12million and N20million
for merchant and commercial bank respectively paid up capital increased to N40million and N50million one notable implication from the development is the sudden
rise in the volume of bad doubtful account which bank are compelled to carry in
their books the increasing number of this problem loans had been on grated
challenges facing in particular the old generation of bank usually referred to
as the “Big three. The First Bank of Nigeria Plc. The Union Bank of Africa Plc
The problem posed by
carrying large volume of bad loans or non-performing accounts was not fully
recognized until in November 1990 when the central bank introduced the
prudential guidelines in line with the general standard all over the world to
make the s in the country assess themselves fully thereby determine how healthy
or prudent they are in their loan credit management.
Most bankers cannot unequivocally declare that they
have been introduced by problem loan. Certainly, it is a way of life in those
tumultuous times of banking that virtually every one of them is faced problem
or so-called work out loans.
Another important reason is to decline in the
economic fortune which gripped the Nigerian economy.
1.2 PROBLEMS
OF THE STUDY
With many banks in large proportion given out loans
and overdraft to their customers. The bank is therefore, taking the risk some
of the customers may never pay back the loans or overdraft given to them.
This is normal business
risk and such bad debts are normal business or running expenses.
The researcher therefore will like to find reasonable solution to the
following question.
i. What is the causes of bad
debt
ii. Why provision for bad
debt are made
iii. How bad debt are written
off.
iv. How banks as financial
institutions managing bad debts.
v. How banks estimate
provision for bad debt.
1.3 OBJECTIVE
OF THE STUDY
The broadax objectives of the study is to analysis
the effects of rising machine of bad debts on banks operation since 1986 when
the federal government adopted SAP. The focus is largely on the credit policy
on the credit policy of banks and how to manage SAP. The focus on how to manage
loans and reclaim the collateral assets securing them. In specific terms the
study will inquire into the rising waves of bad doubtful account in our banks
in general and first bank Nigeria plc in particular. The aim is to determine
the share of the major actors or factor in granting a loan.
a. Other customer
b. The banks and
c. The government or the
economic environment.
Secondly, the study will examine impact of the
prudential guidelines on the management of loans by banks since 1990 when the
guidelines came into effect. What impact it has produced on the reporting
system of banks. The study will vigorously interpret the profit reporting
system of bank before and after prudential guideline and finally draw some
policy lessons and predictions for the future.
Finally, the study will aspire to provide the essential
strategies that may be used for loan recovery once a debtor enters bankruptcy.
1.4 SIGNIFICANCE
OF THE STUDY
The motivation for the study arises from the
research interest in tracking the effect of economic reforms within the
structural adjustment programme since the deregulation of financial system of
the economic reforms is expected to alter the volume and pattern of lending by
banks and the profitability of banks. It is necessary to investigate the extent
to which profit that are being declared by banks actually reflect their true
profitability position. Whether adequate precaution have been taken in their
granting loans. The structural weakness of these banks is referred in the heavy
bad debt portfolio, which is fact eroding their capital base. The introduction
of prudential guidelines has therefore exposed the weak foundation and the
misfortune arising from bank debt structure. Data generated from the annual
reports of banks with regards to the volume of the bad debts have been fraught
difficulties until the introduction of the prudential guidelines.
Firstly, it is a policy objectives of the monetary
authority to recognize only income that is earned and not paper profits.
Secondly, it is also the objectives of the monetary
authority to confirm with4t he international prudential guidelines.
Thirdly, it is to make banks more prudent in their
lending decision thus reducing incidence of bad and doubtful account.
Finally, it is to encourage bankers to become solid
financially able in Ibadan
the customers are partially sophisticated.
Of serious limitation of the study is the problem
of data collect ion. Through thus is not peculiar to this study. It must be
recognized that not until the prudent guidelines came into effect November
1990. Most banks nor do they realize the need to make adequate provision of
data for bad and doubtful debts. What banks did at best was a make petty
provisions for those classes of debts.
1.5 RESEARCH
OF THE STUDY
The course of action employed in this research in
order to achieve its objective were both a case study and survey methods.
According to Aliazu (1981) a case study involves the
study of one group at a point in time and arriving at a conclusion in relation
to the situation of that one group.
While the survey method is one in which the representation sample of the
population is studied and the entire result generalized.
Most financial institutions and industrialist
sampled preferred to remain anonymous.
One of the logs in the wheel of progress is carrying out survey studies
is the difficulty encountered in data collection.
Institution and individuals are usually not ready to release
information. The strategy of anonymous
was adopted in this work to enable easy access to information needed for the
study.
1.6 PLAN OF
THE STUDY
The remaining part of work is organized into four
chapters. In chapter two, the study
reviews some existing literature on bad debt management with view and
conclusion as generated among the various authors. Chapter three of the study contains the
methodology. In the chapter, I tried to
present the methods by which the result which terms basis of my samples and how
the questionnaires were administered.
The forth chapter derives from the third and contains my analysis of the
questionnaire and my basic deductions.
Finally, chapter five contains a summary of my
findings, recommendation and conclusion.
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