research work is basically concerned with the effectiveness of credit
management in the banking industry. It will also discuss about the emergence of
banking industry in Nigeria.
research will also discuss about the meaning, benefit of banking industry,
purpose of banking industry, causes and types of lending and credit facility
and tools used in loan monitoring and supervision.
research work will be divided into five (5) chapters in – order to have a
better understanding of the subject matter and aid locating of different
chapters and numbers where they can be found.
one will discuss the purpose and objectives of
study, scope and limitation of study.
two will cover the reviewing of different literature
different author that are relevant to the project.
three will be based on the research methods used in carrying out the research
four is the presentation and analysis of data used.
chapter five will being summary of the work, recommendation, conclusions and
TABLE OF CONTENTS
Title Page i
Table of Contents vi
1.0 Introduction 1
Objective of the study 6
Scope of the study 7
Limitation of the study 7
Background of the study 8
Statement of the problem 10
Definition of terms 11
Plans of the study 13
Review of related literature 15
Research methodology 38
Background of the studies 38
Source of data 32
Analysis of Data 39
Historical background of the case
Corporate Organization structure 44
Sample Size 45
Population of the study 46
Data presentation, interpretation and analysis 48
Source of Field Summary 48
Research findings 67
Summary, conclusion and recommendation 70
is an established fact that Banking industry occupies a prominent position in
economy today. The significance of banks stem from the fact that they are
custodians of the most sought after commodity on earth. Which is money.
Availability of financial capital is obviously a condition for the rapid
development and transformation of any national economy.
However, since the provision and
efficient management of this scarce resource is best facilitated by the
existence and appropriate function of financial institutions in the economy. It
therefore follows that banks have a vital role to play by making their vast
financial resources available for financing and promoting economic development
banks play this unique role through granting of loans which constitute a vital
function in banking operations, because of its direct effect on economic growth
and business development. Loans and bank lending which is the primary function
of commercial banks. It is the single most important source of gross income for
the commercial banks.
Lending contributes the larger part to a
bank’s profit, hence, it is the backbone of banking activities however, the
degrees of risk associated with lending is proportionate to it contribution to
As financial intermediaries, banks
assist in channeling funds form surplus economic development generally. Since
these funds are owned by third demands the depositors, prudence demands that
such funds should be efficiently managed to sustain the confidence of
depositors in the banking system and ensure the continued soundless of the
system itself and thereby minimize risk of the bank failures.
Unlike the depositor who is certain of
getting his money back on demand and, or when due a lending bankers is faced with
the problem of either delay in reimbursement or out right non-reimbursement by
the borrowers. As in case of National Bank of Nigeria which is being managed by
Nigerian Deposit insurance corporation (NDIC) due to inability to meet its
numerous customer’s cash needs. The bank was crippled by the non-payment of
about N800 million Naira (eight Hundred million naira lent out to customers.
Recovery of these huge debts became more difficult due to poor credit
administration and control reflective in subjective appraisal of loan request,
improper documentation, poor perfection of securities etc.
In January 1993, the newly reconstituted
management of Owena Bank Plc, discovered several cases of expenses incurred but
not properly booked, unearned income over statement and above all several
unsecured, unanalyzed loans which are not charged off or provisioned lack of
commercial orientation is also glaring in the management and administration of
staff leans in Owena Bank Plc.
By February 1993, total outstanding
staff loans was at over N60 million (sixty million Naira) exceed the bank’s
paid gross loans. These loans are granted at 28% interest rate per annual
against the prevailing cost of loans are said to have been used not for the
purpose originally intended and are not support with documentation to secure
the bank’s interest.
Many bank’s in Nigeria today
are facing similar problems of national bank limited and owena bank plc stated
above and many lead to bank failures if not urgently addressed. In fact, the
number of banks sin operation remained at 90 as at end-December, 2002 following
the insurance of an operating license to one bank (bond bank Ltd) and the
revocation of the operating license of another (savannah bank plc) during the
Nevertheless, this worrisome position of
banking industry in Nigeria
possibly forms the federal government’s decision to amend C.B.N Decree 24 of
1991, which centers autonomy on the Apex Bank. This amendation granted a wider
power to of bank’s debtors, in addition
to the earlier provision in section 52 of the principal decree which authorizes
the nation’s apex bank to compile and circulate to all banks in Nigeria a list
of debtor whose outstand debts to any bank had been classified by bank examines
as bad debts.
From the above therefore, the need for
effective administration of credit to customers cannot be over-emphasized.
Thus, the effective supervision and monitoring loans to ensure that they do not
turn bad forms the theme of this study. A credit to beneficial to the bank only
when the principle and interest are fully paid.
1.1 PURPOSE AND OBJECTIVE
OF THE STUDY
The main purpose of the study is to
measure the credit administration pattern of commercial banks using first bank
Nigeria Plc as the case study.
The specific objectives of the study
To examine the credit policy and
practices of first bank
To review the credit administration
and control procedures in the bank.
To examine the management of bad debts
and recovery process in the bank.
To measure the effective of the
procedure adopted in B and C above.
To identify constraints associated
with loan management
To make recommendations based on the
finding of the study.
1.2 SCOPE OF STUDY
The study covers lending operation of
first bank Nigeria plc which constitute less than one percent of the total
number of banks currently licensed to operate banking business in Nigeria in
accordance to decree no 25 of 1991. also, within the bank, the study will not
be restricted only to the banks on credit administration and control but all
activities that makes effective management of credit.
1.3 LIMITATION OF STUDY
Apart from the financial and time
constraints that limited the scope of study, a bank selected out of 90 banks
operating in the commercial banks in the country could not be a said to be a
good representation or sample of banks required to generalized the lending
policies and practices in the nigeria
banking industry. It should also be noted that the officers of th bank are wary
of disclosing certain or vital information often tagged as confidential because
of the oath of secrecy’ sworn to by them. This equally limited the extend to
which useful data were made available.
1.4 BACKGROUND OF THE STUDY
First bank of Nigeria plc, for over a
century, has distinguished itself as a leading banking institution and major
contributor to the economic advancement and development of Nigeria.
Founded in 1894 by a shipping magnate
from Liverpool, sir Alfred jones, the bank
commenced as a small operation in the office elder Dempter and company in lagos.
The bank was incorporated as a limited
liability company on Marc 31, 1894, with head office in Liverpool.
It started business under the corporate name of the bank for British west
African (BBWA) with a paid-up capital of 12,000 pound sterling, after absorbing
its predecessor, the African banking corporation which was established in 1892.
This signaled the pre-eminent position which the bank was to establish in the
years of operation, the bank recorded an impressive growth and worked closely with
the colonial government in performing the traditional functions of a central
bank such as specie in the west African sub-region.
To justify its west African coverage, a
branch was opened in Accra,
Gold cost (now Ghana)
in 1896 and another in Freetown,
Sierra Leone in
1898. These marked the genesis of the bank’s international Banking operations.
The second branch of the bank in nigeria was in the old calabar in
1900 and two year later, services were extended to Northen Nigeria.
Currently with 339 branches spread
throughout the federation, the bank maintains the largest branch network in the
1.5 STATEMENT OF THE PROBLEM
of the most important problems of the organization is lack of adequate finance
to carry out their function successfully.
It is believed that availability of fund
can yield so good result and contributed to the stability of an organization.
Also lack of enough manpower can lead to laxity in all areas of financial
management in an organization. Frustration of these desires of credit
management could lead to collapse of an organization. So credit management is
very important to an organization in such organization is to survive any
In the light of above, this research
intends to find out whether this good and strong credit management which will
be supported with interview and it there are laxities in any area, the research
intend to sort out what measures to take.
1.6 DEFINITION OF TERMS
this is when a customer is given a limit within which his account may be
overdrawn. Overdraft is granted normally for working capital purpose and amount
is expected to fluctuate over the life of the facility, depending on the
customer’s working capital needs at a given time.
statistics: A periodic statistical return of
customer’s account operation either weekly, monthly or quarterly helps in
assessing the performance of the credit customer as well as detecting any
an advance is a short term loan extended period usually 30-180 days. Advances
are normally granted for specific consideration e.g. payment of school fees.
Settlement of medical bill payment of collection, bridging finance etc.
balance: Keeping customers daily balances accounts as
contained in the computer print-out or ledger balanced, provides a good tool in
watching the movement of the account. Any unexpected or strange figure showing
on a customer’s account should be investigated.
term loan: this loan is mostly granted for
projects with longer duration such as oil exploration, real estate, equipment
financing such as oil rings, computers etc. by the nature of such investment,
their maturity is generally (ten) 10 years and above.
term loan: this loan is generally granted for a single
purpose such as investment equipment financing, housing, purchase etc. the
duration of the loan is generally longer than overdrafts and range usually
between 1 and 5 years.
term loan: There are loans made available for use
for a period of (one) 1 year or less. The cost of short term borrowing in lower
than cost of long term borrowings since a lender of long term long will have to
wait further into the uncertain future to have his loan repaid. It is obvious that
he will demand a higher rate of interest.
facilities: There are ‘non cash facilities of an
contingent nature required by customers from their banker in order to
facilitate their operations.
1.7 PLANS OF THE STUDY
This research work is divided into
(five) 5 chapters, chapter one is the general introduction of the study,
background of the study, scope of the study limitation of the study etc.
Chapter two the review of related
literature of the study.
Chapter three disucsses the method used in
gathering information and method of analysis.
Chapter four reveals data presentation,
data interpretation data analysis and research findings.
The last chapter which is chapter five
discusses summary, recommendation and conclusion.