This study attempt to appraise an evaluation of
credit and bad debt management in commercial bank. A comparative study was conducted
on the incidence of bad debts in Zenith Bank (2008 – 2013) the researcher
choice of this period of study was informed by the relative stability in the
banking industry particularly Zenith Bank, banking operations were significance
affected by the focal and monetary policies of the government during this
period. Inferential statistical techniques were used to test null hypothesis which reveals that incessant
increase in interest rate is a strong and statistically important factor that
causes bad debt in Nigeria
commercial banks. It was concluded that the subject, credit and
bad debt management is indeed topical not only because it touches on nerve of
bank profitability, but also because of the need to focus more attention on its
importance in the surviving gain. It
was recommended that banks management should establish sound lending policies,
adequate credit administration procedures and an effective and efficient
machinery to monitor leading function with establish guidelines, reduce
interest rates on lending.
TABLE OF CONTENTS
Background to the study 1
Statement of Problem 4
Research Questions 5
Objectives of the Study 5
Statement of hypothesis 6
Significance of the Study 7
Scope of the Study 8
Limitation of the Study 8
1.9 Definition of Terms 9
Two: Review of Related Literature
Reason for Bank Credit 11
Canons of Good Lending 14
Causes of Bad and debtful debts 17
of analysis in credit management 20
Implication of financial rations 22
analysis from financial statement 30
Credit scoring system 31
Rational for government participation in
The 5Cs of credit 34
Credit rating and analysis of debt 38
2.11.1 Formulating polices for credit control 39
Lending and profit generation 40
Three: Research Method and Design
3.2 Research Design 44
3.3 Description of Population of the study 44
Sample Size 44
3.5 Sampling Techniques 44
Sources of Data Collection 45
Method of Data Presentation 46
Method of Data Analysis 46
Four: Data Presentation,
Analysis and Interpretation
Presentation of Data 48
4.3 Data Analysis 48
Hypothesis Testing 53
Five: Summary of Findings, Conclusion and Recommendation
of Findings 59
5.4 Recommendations 62
Appendix II 66
Background to the Study
resources are not equitable distributed among the different economic units.
This led to the existence of financial institution especially commercial and
merchant banks whose jobs include the efficient transfer of the deficit unit
through saving investment mechanism in attempt to achieve this objective bank
mobilize from people who have loan and advance to investors who have viable
project but do not have sufficient funds to meet their investment commitment.
normal circumstances, the technique employed by banks in case of credit
analysis should be able to provide them with perfect knowledge of a viable
project that will be less risky with a view of curbing loan losses. In other
words, the techniques employed by the banks should help them determine the
level of risk involve in any project before giving out loan to their customers.
in practice no such techniques can not be found in the leading decision of risk
and uncertainty, and decision are in most cases based on principles, which are
too subjective to provide some judgment this is the more reason why bankers, in
terms of lending they are unavoidable extent loan and advance which remain uncollected
and as such changes against the operating income of the bank.
debts destroy loan and advances, which are one of the main earning assets of
the banks when bad debts grow out of acceptable margin .it creates serious
liquidity and profitability problems. Under such circumstance the bank will
find it difficult to cover its operating cost and also pay dividend to its shareholders
that have invested their money in the banks.
as economic organization lend in order to meet the credit need of the economy
and generate sufficient revenue to satisfy the profit maximization objective of
a bank cannot achieve this objective without keeping its asset bases ‘at
reasonable level of liquidity with a view of meeting depositor withdrawer needs
and at the same time maintaining full public confidence.
facility extended in the credit creation process sink, a loan that is not
repaid according to schedule cannot be used as a basis for further credit, the
deadline in credit creation makes it difficult for new firms to grow while
existing ones find it more difficult to expand. Consequently, in order m have
true and fair position of their performance; banks need to raise their level of
provision for bad and doubtful debts over the year. For example the size of bad
debt for the entire banking industry is at December 1990 is put at eight
billion naira without doubt this development has a lot of implication for the
industry in form of jeopardizing individual banks survival and threaten nations
economic stability and growth by causing a decline in out put, employment and
capacity utilization in industries.
Statement of Problem
management is at the centre of the operations of the banking industry. It
accounts largely for the sadness of the industry as it represents the credit
for the money spending activity and the bank of some organizations. Thus the
survival or failure of the industry depends on credit management in the
positive or negative aspects. A critical examination of the financial statement
of most banks in negative will show that they would be technically in solvent,
if they were required to reserve interest on non performing asset. The
implication of this development is that bad debt is gradually bringing Nigeria
banking industry to its knee; in fact, some of the banks are already in serious
the case is so with burden of bad debts, this study is conducted to address the
problem. “What is the extent of effectiveness of the credit and debts
management schemes of commercial banks in Nigeria?”
following question is formulated to address the problem formulated above
To what extent do commercial banks
provide for bad debts in their lending portfolio relating to creation?
To what extent do commercial banks have
enough credits facilities?
To what extent do commercial banks
manage bank credit effectively?
Objectives of the Study
objectives of the study are:
Determine whether commercial banks
make sufficient provision for bad debt.
Appraise the management of credit in
commercial banks with a view to high lighting the adequacy, effective or
otherwise in improving the performance of the Nigeria Banking Industry.
Examine the ways of improving credit
management in Nigeria Bank so as to reduce the incidence of bad debts to enable
them play their role more effectively in the growth and development of the
To make the necessary recommendations.
Statement of Hypothesis
following hypothesis has been, formulated for the purpose of this study.
HO: Commercial bank does
not provide bad debts more than credit in their lending portfolio.
HI: Commercial bank provide bad debts more than
credit in their lending portfolio.
HO: Provision for bad and
doubtful debt is not a function of the total loans and advent made by bank.
Provision for bad and doubtful debt is
a function of the total loans and advance made by banks.
The security required to secure
customers loan account does not prevents them from going bad.
HI: The security required
to secure customer’s loan account prevent them from going bad.
Significance of the Study
the upward trend in the yearly provision for bad and doubtful debts should
continue unchecked, in face of increasing in competition among bank. It will
certainly affect the future profit of the bank since bad and doubtful debt is
charged against profit or loss unit of the bank.
fact, the destructive effects of bad debts on both the bank and general economy
are better imagined than real.
is against this background that the study will review the methods. Proportions
and margins or lending to bad and doubtful debts with a view of establishing
the relationship between these variables. So that both the government and
bankers can realize the urgent need to work out appropriate strategies for
tackling the huge bad debts that is threatening to destroy Nigeria Banking
study is relevant to the entire economy if it can lead to debt reduction;
improve credit creation, thereby placing the banking industry in a comfortable
position to extend credit for project that can make expected positive contribution
to economic expansion.
it is an addition to existing literatures in the field and a useful tool for
Scope of the Study
study is restricted to the management of credit and effect of bad is on the
earnings of commercial banks. The study is designed to appraise the
relationship between banks earnings and the level of bad debt.
reference of the study is commercial banks. A case study of Zenith Bank. The
time horizon ranges from 2008 – 2013.
1.8 Limitations of the Study
major problem of the study is that the bank is reluctant to disclose and
discuss the actual annual figures of loans and advance classified as bad debts for
the fear that such information might be to the detriment of the bank.
Constraint: The academic time given was not enough
for the researcher to met up and produce the necessary material that may
contribute neaningful1y to this work.
of funds: A research work of this nature will required some
funds to meet the cost of assembling and relevance materials needed for the
of data: This is as a result of inadequate relevant data in
our cioo1 library.
1.9 Definition of Terms
Loan: A specified sum of money lent by a bank to a
customer, usually for a specified time and at a specified rate of interest.
and Doubtful Debts: Debts granted to a customer which cannot
be recovered again (bad) and debts of which there repayment or recovering is
doubtful to the bank (doubtful debts).
A social processed entailing responsibility for the effectiveness and economic
planning and regulation of the operation of an enterprise in fulfillment of a
given task or objective loan portfolio. The total amount of money available to
a business enterprise which are to be given as credit to customer.
This is an organization that provides various financial services for example
keeping or lending money.
Loans: This is the money that an
organization such as a bank lends and somebody borrows.
means to give money to somebody on the condition that they pay it back over a
period of time and pay interest on it.
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