study examined the problems and prospects associated with granting of credit
facilities by commercial banks. To assess this situation questionnaire were
distributed to low members of staff of skye bank pIc. 20 of the questionnaire
were given to 5 departments using stratified random sampling. The data was
analysed using descriptive statistics and chi-square distribution.
that granting credit to customers’ facilities
economic activities by providing foods for the needs sectors. It was therefore
recommended among others that a good credit department of any bank should ensure that credit policies are in
TABLE OF CONTENTS
1.0 Background to the study
1.1 Statement of the Problem
1.2 Objective of the study
1.3 Research Question
1.4 Research Hypothesis
1.5 Significance of the study
1.6 Scope of the study
2.2 The role of banks in Nigeria and its economic
2.3 Sources of loanable funds for banks
of bank lending
of banking lending evaluation
of bank extending credits
procedures and design
tools of analytics employed
DATA ANALYSIS AND INTERPRETATION
SUMMARY OF FINDINGS,
CONCLUSIONS AND RECOMMENDATION
1.0 BACKGROUND OF THE STUDY
years it has been a difficult task to find an acceptable definition of a bank
or a banker. Several attempts have been made to offer a comprehension and
acceptable definition. According to J.W. filbert who defined a bank as a dealer
in capital or more properly a dealer in money. He stresses further that bank
can be also called an intermediate party between the borrower and the lender.
i.e. he borrows from surplus party and lend to deficit party. He observed that
this definition emphasizes on the two traditional function of bank. i.e the
mobilization of deposits and the granting of loans and advances in recent
times. Banking business has expended considerably and as a result Gulbert's
definition cannot be regarded as a complete or comprehensive statement.
other attempts have been, especially in United Kingdom to define what a bank
is. For example, the bankers book Evidence Act 1979 defines bank as: any
person; partnership as company carrying out the business of bankers and having
daily made a return to the commission of island revenue. And also any savings
banks certified under the acts relating to saving bank and also to any past
Nigeria, the first banking legislation was enacted in 1952 and defined bank as
the business of receiving from the public on current account money which is to
be repayable on demand by cheque and of making advances to customers. This
definition later modified is 1958 and 1962. until when the banking act of that
year defined banking as the business of receiving monies from outside sources
as deposits irrespective of the payment of interest and, the granting of money,
loan and acceptance of credits, or the purchase of bills and cheques or the
purchase and sales of securities for the account of others or the incurring of
the obligation to acquire claims in respect of loans prior to the maturity or
the assumption of guarantees and other warrantees for others or the effecting
of transfer and clearing and such other transaction of the commissions may on
the recommendation of the central bank by other published on the federal
gazette designate as banking business. This is the Nigeria context any -Derson
carrying in banking business as defined above can be called a banker.
be classified in Nigeria into retail or commercial bank, which is described as
a bank whose business includes the acceptance of deposits withdrawals by
cheques. Merchants Banks; can be defined as any person engaged in wholesale
banking, medium and long term financing equipment leasing investment
management, insurance and acceptance to bill the management; of unit trusts.
Development bank is viewed as banking institutions which attempt through their
resources to increase the availability and the distribution of the basic
necessities of life and assist a given economy deficits particularly in areas
which that economy perceives as route to attaining ideals of modernization and
more importantly long range balanced growth in the economy and central bank is
defined as a state bank established to keep a country; financial system under
control and close supervision. It is established to promote economic
development by promoting the establishment of money d capital markets, banking
habit and supervision and controlling the commercial banks.
F. (1989: 101) posits that banks are buyers and sellers of funds, this
depository function enables bank customers to save with the banks under
different arrangements. Funds deposited by customers. He further mentioned that
bank customers are in turn rent out to needy investing customers. He further
mentioned that bank customers borrows. For a number of reason some which will
be dealt with in subsequent chapter precisely in the review of literatures.
Suffice to say that customer borrowing from the banks can do so for the
following reasons such as transaction purpose. Investment opportunities
and foreseen contingencies. A pertinent question he further asked is what basic
principles guide the banks in their lending decision? The various factors that
influence the banks in their lending decision can be classified as the lending
policies of the banks, the general principles of bank lending and general
economic policies of the state.
banking system of any country as an internal part of the structure of that
economy. This banking institution is regarded as engine of growth in an
economy. Banks provide invisible funds and perform some other socially
desirably services on behalf of the government of the country.
attainment of government macro-economic objectives of economic
price stability, full employment and equilibrium balance of payment can be a
function of the relative effectiveness of the growth and development of the
Bank PIc as a commercial bank performs the following roles:
Mobilization of savings
Extension of credit facilities
Money transfer services
International trade services
Business advisory services
Development sources Status services
focus of this research is extension of credit, therefore the bank is a
financial intermediate source for fund from the surplus unit and in turn lends
to the deficit units.
O. (2007: 158) stresses that there has been a tremendous expansion of bank
lending with different techniques of recovery thence, lending has gradually
changed to a gentlemen's agreement between a lender and a borrower to a set of
procedures that are guided by different policies and principles, which are full
but, need to be supplemented. He further maintained that appraising a bank loan
on a loan-run proposition, therefore should be taken with caution, there is the
need for a bank to make funds available only on a safe ground as this involves
creating proper lending policies and criteria applying the appropriate credit
analysis and techniques.
will focus on the degree to which the total asset and some keys sources of fund
affect the volume of loans and advances. It also lead into the strategies
conforms to the background. In addition, the project appraises these strategies
in terms of reducing credit default and bad debts. Since the activities of the
commercial banks in Nigeria are stereo typed, the analysis of data
or Skye bank PIc will give a clear picture of the general practice of
commercial banks in the Act of lending and loan recovery.
(2008:124) views bad debt as a debt that can no longer be recovered because the
debt does not have the capacity to pay. As a result, the amount of the debt
must be written off the account of the customer such debt that cannot be
recovered must necessarily be a loss to the business. As a result bad debt is
regarded as an expense of running the business just like salary expense and
depreciation expense in the case of this study, bad de bt emanated from either
approved facilities or unauthorized. Facilities granted to the customer by the
head office or the branch manager. It is difficult to eliminate bad debt
completely in the business of the banking but, it can be managed to comfortable
level which will not endanger the life of the banking business.
in the books are traceable to the outstanding list of unserviceable risk assets
of customers. Majorities of bad debt arise from unauthorized facilities granted
by the bank officer. Oluwatoyin, R.K. (2007: 121) argued that it is now
generally agreed that financial sector of an economy matter in economic
development. It assist in the transition from a depressed economic
to an accelerated growth. If the financial sector is repressed and distorted,
it can intercept and destroy impulsed of development and argued that bank
lending performed a lot of role on the economy, which are stated as:
serves the lender: This is because in our modem individual societies,
individual needs to defer the use of part of income they receive in any period
in order to accumulate purchasing power for later use. Such a deferral (by
factor) is made possible through credit management. Credit enables lender to
defer immediate consumption.
serves as benefit to the borrower: This is because some individual and
group in the society wish to acquire more goods and services in a given period
than they can from their own receipts of money those people (i.e. borrower) can
finance these acquire by means of credit arrangement.
serves the need or trade: For example an individual or a
company may sell its goods and services not for money but for buyer's promise
to pay money at sine future date. As a result it enhance steady flow of goods
and services acquired for the satisfaction of people's daily needs.
in credit (debt): Whether public or private, appears to the essential
to finance the deficits (public or private) need for rising Gross National
Product (GNP) expenditure overtime. In other words, credit increase aggregate
demand. Again, because the purchase of durable real estate is financed in substantial
degree by bo-n o-irig, the growth of debt is intimately
related to the increase in the productive capital and real wealth of the
economy. As a result of the roles performing be classified into three ways,
According to maturity
to the degree of security or the loan and
According to usage and nature of the loans.
above classification will be discussed fully in Chapter two of this project.
Iture, C.E. (2006:
1330) maintain that loan recovery is the process undertaken by a bank to
recover the money borrowed out to their customer as at when due. It involves a
lot of procedure which includes such as the security position of the bank borrower’s
ability to pay, recorded by induced concession, use of debt collectors, debt
renewal of Rescheduling, appointment of a receiver, recovery by legal
to. minimize the increase in bad debt there are a lot of control or strategies
by the bank such as demanding for collateral securities from the borrowers,
visiting the customer always i.e. relationship management etc. some, of the
collateral accepted by banks are land building, stock and shares. The life
insurance policy, guarantee etc. certain principles guide banks in making
prudent lending decisions; these principles are mere guides hence, each
application for loan is treated on its own merits.
problem of lending bankers is obtaining adequate and right information on the
client, this can however be obtained through relevant statements, submitted by
the customers trade reference, state's inquiry from professional companies and
banks personal visits, major customers and competitors. Different classes of
people are interested in the operation of banks for different objectives.
However bank's basic problems in developing countries centre ground
unwillingness of bank customers to honour their loan obligations. To reduce bad
debts, Banks are advised to examine critically the adequacy of their provisions
for bad and doubtful debts, their credit policies and the quality of personnel
in credit departments. Nwankwo, G.O. (2003:1) opines that although the number
of services a modern commercial bank offers has increased immensely, risk
taking which is a fundamental nature of banking remains unchanged. It is inherent
in maturity transformation, which is another fundamental feature of banking.
Although other sources exit, the main source of investable funds remain bank
deposits and loans and investments the main source of income and profitability
of banking remains the spread or difference between the rate or loaned
out. In these circumstances, bank management becomes coterminous with risk
management. Bank management, in other words, is no more than managing risk, the
risks of mismatches between assets and abilities and between borrowing and
managing the risks, the bank was has to satisfy five main constituencies; one
is the surplus units from which it borrows. These units demand the best
possible term, in the rates of interest and maturity structures and maximum
liquidity to enable them to have the funds back when they deficit units which
borrow from the banks. They want to borrow when they wants them or agreed. The
second constituency is the deficit units, which borrow from the banks. They
want to borrow when they need funds and as cheaply as possible. Like the
lenders, the borrowers also imposed the obligation of maximum liquidity on the
banks to enable them to obtain the funds when they need them.
addition to satisfying the surplus and deficit sectors, the shareholder must
also be satisfied. These require maximum or adequate return on their
investments, in order to remain invested in the bank and to be willing to
continue to provide additional resource's as and when needed. To these is added
the fourth consistency, the regulatory authorities, whose interest
is to ensure that the bank does not undertake excessive risks and that it
operate prudently and within stipulated regulatory requirements. There is
finally, the community at large as the providers of their environment within
which is operates, the bank owes an obligation to the community to be a good
corporate of the opportunities available and minimizing the threats in the
1.1 STATEMENT OF THE PROBLEMS
P.R. (2001: 100) expressed that a problem is recognized when a doubt is raised,
difficulty is created or dissatisfaction occurs and a solution is need. The
lending and recovery activities of the commercial banks constitute the dominant
activities yielding the highest percentage of income to enable them earn enough
profits and provide adequate returns to the shareholders. On this note, the
foundation upon which any research work is based on the proving questions
initiated by the numerous problems which this research is set to address, some
of them are mentioned below:
The commercial banks can not satisfy loans demanded
because the banks’ capital, its earnings, its liquidity, the size, structure,
maturity and volatility of its deposits and the quality and competence of
The banks are usually faced or comforted by borowers
before they are given loans by the bank (lender).
The banks cannot examine how the loan part folio IS
damaged to achieve the desired objectives.
policy put in place to monitor insider transactions in recovering loans in
maintain the integrity of the bank
1.2 OBJECTIVES OF THE STUDY
(1999:7) maintained that the purpose of objectives of any study is to set up
apparatus to achieving the goals of the study. The reason for carrying out this
research work is to review relevant concepts of bank fending (credits) and
strategies in recovering the loan to remain the business of banking.
degree of defaults has made ending in banking a very high-risk ventures therefore,
the ability of the bank managers and loan officers to minimize the occurrence
of bad debts, to the desirable level reflects their success as a good leader.
True to provide the service as this generates the highest earning of the bank.
Hence, this study will be focused on the following:
To evaluate the general principles of bank fending
procedures of Skye bank PIc as it affects the general practice of lending and
recovery of commercial banks.
To evaluate the procedures of bank lending and the
formulation of credit policies.
To assess how the total assets and other sources of
funds affect the volume of loans and advances
The banks cannot projecting the future loans and
advances of Skye bank PIc and the provision for debits to be set aside for such
loans and advances
1.3 RESEARCH QUESTIONS
questions serve as a guide to the researcher in her quest, for answers to the
problems being investigated in the problems being. Among all the services
provided by the commercial banks, the most profitable service IS the
mobilization of deposits and provision of credit, facilities to their
facilities come in form of an overdraft loan, debenture commercial papers and bankers’
questions in this study are listed below:
Do your bank respond positively to loan request from
the ultimate users of funds?
Is bank lending the highest sources of income to
your bank because of interest earning in the funds lent out?
Do your customers meet the requirement of loan
-policy your bank before giving loan?
Are the loan repaid as agreed upon by the two
Is there any close relationship and monitoring
between money from the borrowers?
Is there any procedure put in place in receiving
your money from the borowers?
the above, the study is entailed to sensitize the batik manager (lender) and
the loan officers on the fir principles of lending, the procedures involved and
strategies in the recovery of the loanable fund from the customers. It will
also involve the procedures that would tower the level of loan default and
factors that have direct effect on the availability of loanable funds and to
investigate the frame work of lending and recovering options available.
1.4 RESEARCH HYPOTHESIS
(2003:26) defines hypothesis as a valuable convention used by science in
exploring regularities that is a tentative statement a scientist makes when he
believes he has discovered the 'existence of a relationship(s). He runner
viewed that hypothesis is used to indicate that a statement, of a relationship
is considered to be tentative and one to be tested and proven.
are usually classified into two, namely:
Null hypothesis - Ho
Alternative Hypothesis - Hi
study, the following hypothesis are formulated:
credits do not depend largely on the liquidity base of the bank.
credits depend largely on the liquidity base of the bank.
credit to customers do not facilitate economic activities
by providing funds for the needs sectors.
credit to customers facilitate economic activities by providing funds for the
should not be granted to safe, sound, honest, capable, responsible individual
and business that cannot repay loan.
should be granted to safe, sound, honest, capable, responsible individual and
business that cannot repay loan.
Ho: Bank loan is
not to satisfy the credit need of the individuals or community the Bank stands
loan is to satisfy the credit need of the individual or community the banks
stands to serve.
SIGNIFICANCE OF THE STUDY
(2002: 133) stresses that the significance of the study is to state for whom
the study will be useful in meaningful end give some indication of its value
for others. This is because the essence of a research study is to provide
solutions to identify problems and to contribute to the body of knowledge in
the particular area of investigation.
reason for this study is to examine the "granting of credit facilities in
a commercial bank, the prospects and problems" A case study of Skye bank
PIc. The main service of commercial bank is the mobilization of deposits and
lending as it forms the major part of the asset structure of the banks.
way in which the bank contribute to economic growth of a country is by lending
to product or preferred sectors of the economy. As there are many industrials
competing for those credits and the banks itself are being faced with problems
of distress syndrome, there is need to evolve basic lending criteria that will
sort out genuine case of lending from the lots.
research work will also be of significant use to the students of the Nigeria
Universities, for the well sort out relevant and well-articulated literature
reviewed. This study will also be of significant and valuable use to Skye bank
PIc, because of the study has been able to reveal and evaluate the lending
activities of the bank understudy and credit.
techniques that will assist banks managers and loan officers in their lending
study will also recommend and suggest ways of minimizing if total elimination
is not recovering loan. Considering, the significant of bank lending to the
growth of the economy of a country, the bank and the beneficiary of such loans,
manufacturers, traders and the populace contribute in assisting growth of the
industry by creating employment opportunity for the masses.
1.6 SCOPE AND LIMITATIONS OF
and Hatt (1983:317) views scope of the study as more than a mere designation of
the population being studies, however, it must also include the level of
generality of the study.
study focuses in the granting of credit facilities to a commercial bank, the
prospects and problems. Skye bank as a case study this project is aimed at
providing affective solutions to practical lending problems which will involve
vigorous analytical calculations.
scope of the study will be based on level of management (i.e. top management,
branch managers and credit officers) that are involved in the process of
lending to the customers. The granting of credits process will depend on the
bank policy as regard the preferred sectors. The sectors to be allocated funds
also depends on the banks policy in respect of which is more profitable or not.
The analysis is based on the data gathered from the head offices of the bank
and the branches including analysis real life. Proposal submitted to the bank
highlighting the decision taken as at the time in view.
P. et al (1998:30) regards limitation of study as those factors inherent in the
research situation that might affect the result which, the researcher must
recognize and acknowledge such as:
Delays in filling of the questionnaires by the
respondents. D Uncooperative attitude of some interviewees who are
in position to supply the researcher with relevant data and information.
Inadequate financial resources occasioned by
economic hardship or situation.
factor - the time specified for the completion of the study could militate
against the researcher's effort.
attempts would be made as much as possible to include relevant vital
information to aid in understanding the study.
1.7 DEFINITION OF TERMS
P.K. (2003: 121) expressed that definition of terms serves as the dictionary of
the research, the terms are defined to enable the initiated reader to
understand the research work more clearly.
BANK: Is a financial institution where
money and valuables are kept.
LOAN: Is money advance to credit worthy
person(s) for a specific period on specked terms.
OVER DRAFT: This is
a lending facility to current account holders on an agreed line of credit.
BAD DEBT: This is a debt that can no longer be
recovered because the debtor does not have the ability to pay.
DOUBTFUL DEBT: Is a mere allowance for debts that
are not bad at the moment, but may be bad in the future.
INCOME STATEMENT: Is a document that, ascertain the net
profit or loss arising from trading activities.
BALANCE SHEET: This presents a brief summary of the
assets and liabilities of a business firm in an intelligible well-arranged
LIEN: Is the right to retain property
belonging to another person until a debt due from the owner of the property to
the possessor is paid.
PLEDGE: Is a delivery of goods and documents
of little to goods by a debtor to his creditor as security for a debt, or for
any other obligation.
ASSIGNMENT: Is a transfer by a creditor to an
assigned of the right of receive a sum of money or some other benefits from a
VISION OF THE COMPANY
vision of the company is to be one of the lending financial institutions in
Africa, through a progressive realization of the corporate mission.
An Ethical Organization
Industry Leader Delivery
achieve superior, well-secured stakeholders.
LOCATION OF BRANCHES
branches in the key business cities and trading routes in Nigeria, the bank
serves its customers whenever and however the customer wills to be served.
strength of the bank is the branch network corporate values and customer -
intimacy. Skye bank correspondent relationship with lending global financial
institutions empower it to be the gateway to international business worldwide.
Investment limited was incorporated in 1999 while HLA Estates limited and Skye
leasing corporation limited was incorporated ill 2000 and
Skye centre limited was incorporated in 2001. SC Investment and trust company
is engaged in the business of an investment company, trading in shares and
stocks and also acts as trustees. HLA Estates limited is engaged in the
business of property development and management. Skye leasing and Skye centers
limited, which shall be engaged in the business of acquisition and construction
of real estate properties, hospitality business, establishment of supermarkets,
shopping centers, bakeries and confectioneries are yet to commence operations.
GLITTERIN ARRAY OF SKYE BANKS PRODUCT
launch of new personalized products Skye bank is set to take banking'
operations and services beyond the imagination of its teeming clientele.
Catch them young (CTU) Account
Skye bank women investment scheme for entrepreneur
Skye bank savings plus
Quality investment multiplier Account (QIMA)
public holds 44.54%
of the issues share capital, while Ekiti and
Ondo state governments hold 15.34% and
13.84% respectively. Haastrup lines
(W.A.) limited holds 13.84%) while the
employees of the bank hold 12.440/0.
CUSTOMER SERVICE INNOVATION
bank, there is no unequalled commitment to excellence, which has motivated a
unique customer service initiative, creating value - added offerings that are
on the cutting edge of competition. Our "error - free banking or we
pay" customer service guarantee scheme to the first of its kind to be
introduced by any financial institution in Africa. With this scheme, Skye bank
would compensate customers if services were not delivered as promised.
SKYE BANK ROBUST TECHNOLOGY
bank invested substantially in state of the art banking application software to
maintain and sustain commitment to excellent customer service. The bank
branches nationwide are networked to enable the esteemed customers transact
business from any Skye bank branch or from comfort of their homes or offices.
pivot of the bank expertise is founded upon the talents training, experiences
and motivation of the bank. With the bank corporate culture, the bank has a
continuing obligation to recruit, develop and retain the best individuals and
to support them with state of the art training and technology.
THE PLAN OF THE STUDY
chapter one of this study will be looking into the background objective,
purpose, types of credit facilities, statement of the problem, significance,
scope, hypothesis, Limitation, research questions, research methodology and the
plan of the study.
two of this study will cover literature review of credit policy, recent trend
in loan growth and quality, the credit analysis, credit execution,
administration of credit process business development and credit review, the
problems of loan and leases, an overview of loan losses, measures of loan
losses, controlling loan losses, cause of loan loses preventing problems of
loan, detecting problems of loans and the problems loans work out.
three has the method and procedures, data selections, research design sampling,
data source, method of data analysis and testing of hypothesis and decision
four of this study will comprise data analysis and interpretation,
introduction, analysis of question of questionnaires and testing of hypothesis.
the Chapter five will be summary recommendation, conclusion summary of
findings, recommendations, conclusion and areas for further study.
factor that is fundamental to banking operation is granting of credit
facilities to the customers. Therefore the need to have effective credit
processing system and policy must be emphasized of a bank to avoid the distress
monster that has become the loss of the banking sector in the recent time.
Known well that this monster cannot be eliminated but they can be reduced to
their barest minimum when sound credit policies are put in place.
Sinclair, Alford C. Loan Quality at Every Step The
Journal of Commercial Banking (RMA) Robert Morris Associates, October 2003.
Bjork, Williams E. The Judgment Factors In Commercial Credit
Analysis, The Journal of Commercial Bank lending (RMA) September 1999.
Hemderson, W. Keth Plugging a Critical Loan Training Gap,
The Journal of Commercial Bank lending Robert Morris Association (RMA) February
Koch, T. W. Banking
management (Second edition)
Olalusi, F. The
practice of Banking Tridon Publishers, Nigeria.
Omolehinwa, E. Foundation
of Accounting Pumark Nigeria Limited, Nigeria.