TABLE OF
CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
1.2 STATEMENT
OF THE PROBLEMS
1.3 THE MAIN OBJECTIVE OF THIS STUDY
1.4 RESEARCH QUESTIONS
1.5 RESEARCH
HYPOTHESIS
1.6 SIGNIFICANCE
OF THE STUDY
1.7 THE SCOPE OF THE STUDY
1.8 THE LIMITATIONS OF THE STUDY
1.9 DEFINITION OF TERMS
CHAPTER TWO
LITERATURE REVIEW
2.1 THEORETICAL FRAME WORK
2.2 GOVERNMENT CONTROL OVER CREDIT
2.3 CREDIT ADMINISTRATION IN FIRST BANKS OF NIGERIA PLC.
2.4 LENDING AND CREDIT ANALYSIS.
CHAPTER THREE
3.0 RESEARCH DESIGN AND
METHODOLOGY
3.1 RESEARCH DESIGN
3.2 SCOPE OF STUDY
3.3 POPULATION
OF THE STUDY
3.4 SAMPLE
SIZE DETERMINATION
3.5 INSTRUMENT FOR DATA COLLECTION
3.7 RELIABILITY OF RESEARCH INSTRUMENT
CHAPTER FOUR
DATA PRESENTATION AND
ANALYSIS
4.1 DATA PRESENTATION AND SUMMARY OF FINDINGS
4.2 PROVISION
AND ANALYSIS OF DATA QUESTION
CHAPTER FIVE
SUMMARY OF
FINDINGS, RECOMMENDATIONS, CONCLUSION.
5.1 SUMMARY OF FINDINGS
5.2 RECOMMENDATIONS
5.3 CONCLUSION
BIBLIOGRAPHY
APPENDIX: RESEARCH QUESTIONNAIRE
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
In a modern economy, there is
distinction between the surplus economic units and the deficit economic units
and inconsequence a separation of the savings investment mechanism. This has
necessitated the existence of financial institution whose jobs include the
transfer of funds from savers to
investors.one of such institution is the money deposits banks, the
intermediating roles of the money-deposit banks places them in a position of
``trustees´´ of the saving of the widely
dispersed surplus economic units as well as the determinant of the rate and shape
of the economic development. The techniques employed by bankers in this
intermediary function should provide them with perfect knowledge of the outcomes of lending such that funds
will be allocated to investments in
which the probability of full payment is
certain. However, in practise no such tool can be found in the decision of the
lending banker. Virtually all lending decisions are made under creditors on
uncertainty. The risk and uncertainty associated with lending decision,
situation are so great that the concepts of risk and risk analysis need to be employed by lending bankers in order to
facilitate sound decision-making and judgement. This statement implies that if
risks are to be objectively assessed, lending decisions by the money-deposit
banks should be based less on quantitative data and more on principles too
subjective to provide sound and unbiased judgement. Furthermore, the banks depend
heavily on historical information as a basis for decision making.
Apparently aware of the inadequacies
of his decisions base, the lending banker has often sought solace in tangible
and marketable assets as security giving the impression that lending against
such securities is an insurance against bad debts. this makes the banker complacent
with his loan portfolio. The increasing
trend of provisions for bad and doubtful debts in most money-deposit banks is a
major source of concern not only to management but also to the shareholders who
are becoming more aware of the dangers posed by these debts. Bad debts destroy
part of the earning assets of banks such
as loans and advances which have been described as the main source of earning
and also determines the liquidity and
solvency which generate two major
problems, That is profitability and liquidity, has to earn sufficient
income to meet its operating costs and
to have adequate return on its investments.
1.2 STATEMENT OF THE PROBLEMS
The problem for this study is to appraise the
lending and credit management policies of a typical Money-deposit bank(the first bank of Nigeria Plc) with
a view of finding the
causes, consequences of bad debts in
banks. Year after year, banks suffer much from the part of full loan extended
which has for one reason or the other
proved unrecoverable. Banks lose millions of Naira in various bad debts yearly and despite efforts by bank
management, committee of chief inspectors and the bankers committee on the
other hand, the wave of bad debts in banks is still on alarming proportion. This
is gathered from a combination of literature reviews on the topic.
On the other hand, many
banks experienced a lot of bad debts when the new government abandoned the
project awarded to the contractors by civilian government. These contractors borrowed
to execute the project awarded to them but could not repay the loan, due to
government action on reramping the economy thereby abandoning the project. Other
experiences were during the time of draught or poor rainfall and pest. These
however led to low harvest which did not give the farmers enough time to repay their debt.
Again, experience may
arise in respect of lapses on the part of the banks credit officers. For
instance, there may be excesses over
approved facility, unformatted facilities and expired facilities not renewed on
time. In each of these cases the customer may easily deny even owing the bank all or part of the
amount. Money. deposit banks have always borne the burden alone, but this may not
continue in future as the banks may be
unable to take the risk of lending more but when eventually they do, they would
seek the best way they come out of the risk with a realistic
reward which they are clearly failing to achieve at present.
1.3 THE MAIN OBJECTIVE OF THIS STUDY
To determine and appraise the lending procedure of banks using first bank of Nigerian plc as a
case study-with a view to highlighting the effectiveness and adequacy or
otherwise the credit management policy
of Nigerian banks in reducing the occurrence and consequences of bad debts.
The other
objectives are:
(i)
To highlight the rate
at which inadequate collateral security provision by borrowers increases the
incidences of bad debt in Nigerian.
(ii)
To determine whether fund diversion has any effect on bad
debt of money deposit banks in Nigerian.
(iii)
To ascertain the extent to which government intervention in
lending policies of money deposit banks has influenced bad debts in Nigerian
money deposit banks.
(iv)
To highlight the extent to which improper project evaluation
influence bad debt of money deposit
banks in Nigerian.
1.5
RESEARCH QUESTIONS
In view of the consequences of bad debt in Nigerian
money deposit banks, it is necessary to formulate some research
question which will enable the researcher formulate statistical tables for testing hypothesis.
1. Does inadequate collateral
security provision by borrowers caused bad debt in first bank of Nigeria plc?
2. Does fund diversion have
any effect on bad debt of first bank
of Nigeria Plc?
3. To what extent has
government intervention in lending policies of money deposit bank influenced
bad debt in first bank of Nigeria Plc?
4. To what extent does
improper project evaluation influenced bad debt of first bank of Nigeria plc?
1.5 RESEARCH
HYPOTHESIS
The following hypothesis were drawn as follows.
1. Ho: inadequate collateral provisions by borrowers does not
increase the incidence of bad debt in first bank of Nigeria plc.
Hi: Inadequate collateral provisions by borrowers increases the incidence of bad debt in first Bank of Nigeria.
2. Ho: Fund diversion does
not affect bad debt in first Bank of Nigeria
Plc.
Hi: Fund diversion affects bad debts
in first
Bank of Nigeria Plc.
3. Ho: Government intervention in lending
policies of money-deposit banks
has no influence on first Bank of Nigeria Plc bad debt.
Hi:
Government intervention in lending policies of money-deposit
banks have direct influence on
first Bank of Nigeria Plc,bad
debt.
4. Ho: improper project
evaluation has no significant relationship with bad debt in first Bank of Nigeria
plc.
Hi: improper project evaluation
has direct relationship with bad debt in first Bank of Nigeria plc.
1.6 SIGNIFICANCE OF THE STUDY
It is hardly an exaggeration that the
difference between the success and the failure in the banking industry is in the effective
management of the banks loans and advance. Efficient loan management is vital to
the protection of assets and the achievements of adequate returns to investment. Though
much work abound in the literature of
the technique of lending, the methods of securing such lending and the pitfalls
that await the unwary banker. By
comparison it appears to be very little
in point on the subject of loan management and recovery.
A study of this subject will
therefore be a welcome addition to the existing volume of banking literature.
Effective loan management
recognized that beyond the application of sound banking principles whenever a
loan is made, there is need for urgency in appreciating the point when a loan
begins to look doubtful, in arriving at a decision as to the appropriate action
and in taking that action. This will enable the bank to at least obtain full payment including
accrued interest or at worst to mitigate
the capital loss in the face of increased competition among banks, future
profits are likely to be harder to come by and since bad debts are a charge
against profits, it is appropriate that we review the methods, proportions and
margins of lending to bad and doubtful debts.
Hence the significance of this
study to bankers will enable them to appreciate an appraisal of their lending and control mechanism now
that they are expected to lend under tight monetary conditions. The economy as a
whole will benefit from the study
because if the level of bad debts is reduced, banks will be left with
more profits to enable them make the expected contributions to the development
of the economy.
1.7 THE SCOPE OF THE STUDY
In the study of credit
management in Nigeria, first Bank of Nigeria Plc was used for my
analysis. All references therefore relate to first Bank of Nigeria
plc.
A Six-year period covering
1988-1993 will be studied.
1.8 THE LIMITATIONS OF THE STUDY
The limitations of this study
include some of unavoidable constraints and problems encountered in the
process. They are as follows:
i)
FINANCE: The problem of finance was not left out in the course of
research to this study. This type of study required adequate money and time to
enable the researcher visit the
necessary places for collection of data. Insufficient fund hindered an
in-depth study of this research since it was financed from meager pocket money
of the researcher.
ii)
NON-AVAILABILITY OF RECORDS: This is one of the most important limiting
factors in the course of the study. This includes the problems of easily getting
the appropriate data due to bureaucracy which hinders the information flow in
the country.
iii)
NON-CHALLANT ATTITUDE OF BANK OFFICIALS: The reluctance of bank
officials to reveal information on the need for this study, for fear of breach
of duty of secrecy to customers exposure of banks administrative short-comings.
iv)
IGNORANCE OF RESPONDENT /BORROWERS: Most bank customers were semi-illiterates and most often it was very difficult to
collect adequate data required from
them.
v)
TIME: Since this study is one of the many courses offered by the
researcher, the researcher was constrained by time to carry out an indent research on the study.
1.9 DEFINITION OF TERMS
DEBT: This is what one owes to another
person.
LOAN: A Loan is a credit arrangement, a
security is pledged and must be repaid with interest over a stipulated period
of time.
OVERDRAFT: This is a credit arrangement by banks to
their customer to withdraw money over and above that what he has in the
account.
DEFAULT: This means failure to pay one´s debt for
credit extended which has fallen due.
HYPOTHESIS: This is a tentative statement of conclusion. It
is a statement of claim which is to be proved right or wrong having been confirmed
with facts.
Ho:
Null Hypothesis: the hypothesis that is being tested.
Hi:
Alternative Hypothesis: the hypothesis that will be accepted if the null
hypothesis is rejected.
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