banks witnessed rising effects of credit portfolios and these significantly
contributed to financial distress in the banking sector. Banks collects deposit
and lends to customers but when customers fail to meet their obligations,
problem arise and it affects the profitability of the bank. This study
evaluates the effect of credit administration on profitability of banks in Nigeria.
Financial ratios as measures of bank profitability and performance were the
data collected from secondary sources mainly the journals, text books and
internet documents. Descriptive and chi-square were used in the analysis. The
findings revealed that credit risk management has significant impact on the
profitability of Nigeria
banks. Therefore, management need to be cautious in setting up a credit policy
that might not negatively affect profitability and also they need to know how
credit policy affects the operation of their banks to ensure judicious
utilization of deposits.
Title Page I
Table of Content VI
1.0 Introduction 1
of the study 1
of the problem 1
Questions and Hypothesis 2
of the study 2
of the study 2
of the study 2
of the study 3
of terms 3
of credit on profitability in financial institutions 5
lending activities in Nigeria
banking industry 6
of Credit 7
policy and objectives 8
of good lending 10
effect of credit administration on the efficiency
Of banks in Nigeria. 13
of study 14
of study 14
for data collection 14
of data collection 15
of data analysis 15
presentation, analysis and interpretation 16
for the Hypothesis 20
of Finding 22
Summary, Conclusion and Recommendation 23
5.1 Summary 23
5.2 Conclusion 23
5.3 Recommendation 24
Chi- square Table
1.1 BACKGROUND OF THE STUDY
Credit administration is standards and practices followed
in extending servicing, and collecting loans, Factors such as loan purpose,
size, type, and complexity, the borrower’s financial condition, earnings
history, intrepidity, and ability; and the impact of macro economic conditions
on the institution’s territory influence credit administration.
as discussed in the loan portfolio management section of this module, the
institutions lending policies should include adequate credit administration
standards. Credit administration can have a significant impact on the quality
of the loan portfolio. Effective credit administration can mitigate certain
credit risks, while deficient credit administration can increase credit risk
and often a fore runner of deterioration in the loan portfolio. As such, credit
administration standard should ensure all loans are administered in a safe and
sound manner and on compliance with FCA regulations. This section provided
guidance in evaluating these standards, as well as the actual practices
followed in the administration of credit.
Credit administration can go a long way to determine the
profitability of banks because credit has become a vital function of banking
operations because of its direct effect on economic growth and business
development. The business of banks is that of taking deposits, lending out
money or given of credit and other related services. Banks and their lending
activities have been usefully integrated into government policy formulation in
the national economic development process.
the light of the above, as far as banks are concerned, their role as lender is
as important as that of taking deposits, considering the interrelationship
between them. Banks give out more than 80% of money within the economy as loan.
It is through these activities of banks that profit are realized through the
interest earned on these credits extend to worthy customers.
credit administration is most effectively examined using a system analysis
approach that determines how the process is supposed to be done, how it is
actually being done, and what the weaknesses are in the process.
1.2 STATEMENT OF THE PROBLEM
problem for this study is to appraise the effect of credit administration on
profitability of banks in Nigeria,
and particularly, Wema Bank of Nigeria plc.
With a view of finding the causes, consequences of profit in banks year
after year, banks gain much from the part or full loan extended which as for
one reason or the other yielded profits to the banks.
However, banks looses millions of naira as a result of poor
credit administration and management each year. Despite efforts which have been
made by banks management, they still perform poorly; they are not making profit
as projected and as well not meeting the demand and supply of their customers.
1.3 RESEARCH QUESTION AND HYPOTHESIS
view of the consequences on the effect of credit administration on
profitability of banks in Nigeria,
especially Wema banks of Nigeria Plc. It
is necessary to formulate some research question and hypothesis which will
enable the researcher formulate statistical tables for testing hypothesis.
there are two ways in which researcher work can be carried out using the
hypothesis testing; namely:
Null hypothesis and alternatives
hypothesis will be used to formulate our research hypothesis, since the actual
research work has not been fully conducted. Below are the stated null
Consolidation exercises in the Nigeria banking industry do not
have any effect on the credit facilities of banks.
Banks do not have the required capital base that is unimpaired by
Credit facilities of banks do not have any significance on the economy
1.4 PURPOSE OF THE STUDY
main reason behind this research work is to find out how effective or
ineffective banks in Nigeria
are able to manage their credit administration. And also the importance of
credit administration on profitability in Wema Bank of Nigeria Plc.
determine and appraise the lending procedure of banks using Wema Bank of
Nigeria plc as case study with a view to highlighting the effect of credit
administration on profitability of banks.
1.5 SCOPE OF THE STUDY
research work will focus more on Nigeria banks and most especially Wema
bank of Nigeria Plc on how effective it has been able to manage her credit administration.
1.6 LIMITATION OF THE STUDY
major limitation encountered in this study is the lack of sufficient time to
carry out the research work, which will hinder getting adequate information.
constraint is money, lot of money will be expanded on the research to get current and vital in formations and the
researcher is handicapped in this area.
Banks, especially Wema
bank, are reluctant to divulge information on their credit activities because
of the policy of secrecy and for security reasons. However, this research work
is capable of adding to knowledge.
1.7 SIGNIFICANCE OF THE STUDY
is hardly an exaggeration that the difference between the success and the
failure in the banking industry is in the effective credit administration. Efficient
credit administration is vital to the protection of banks profitability and
returns of investment. Though much work abound in the literature of techniques
of lending, methods of securing such lending and pitfalls that await the unwary
banker. By comparison it appears to be very little in point on the subject of
credit management and administration.
study of this subject will therefore be a welcome addition to the existing
volume of banking literatures.
credit administration will recognized that beyond the application of sound
banking principles whenever a credit is made there is need for urgency in
appreciating the point when a credit begins to look doubtfully in arriving at a decision as to the appropriate action and
on taking that action. This will enable the bank i.e (Wema Bank of Nigeria Plc)
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, since credit administration
are a charge against profits, it is appropriate that we reviewed the methods,
proportions and margins of lending to customers.
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.
1.8 DEFINITION OF TERMS
CREDIT: Can be defined as a transaction between two
parties in which the creditor or lender supplies money, goods and services or
securities in return for promised future payments by the debtor or borrower.
ADMINSITRATION; Can be define as central and vital to
banking business because banks are
intermediate of funds and therefore pay special attention or credit
administration because credit administration can greatly influence the success
and failure of any financial institution.
LOAN: A loan is a credit arrangement; a security is
pledged and must be repaid with interest over a stipulated period of time
Assets the customers may offer as security to obtain credit in case of bad debt
PROFIT: Can be defined as the return received on a
business undertaking after all operating expenses have been met.
Charges made on loan or to the use of money
State of being able to convert asset to raw cash
POLICY: This is laid
down rules and regulation guiding the lending activities.