The Impact of effective credit Documentation in
commercial banks. The level and Magnitude of credit Mis-management has
continued to increase in the financial system at an alarming rate, and very
soon, the banks capacity to perform it’s traditional function of financial
intermediation will be impaired and obviously, the real section of the economy
will be adversely affected. It is in
view of this fact that the need for this research exercise arose, taking a
through look into the scene of “portfolio management problems in commercial
Banks” with first bank Plc Kaduna branch as case stitches. The research exercise
states from chapter one with the statement of general problems, objectives,
significant, scope limitation and delimitations, definition of terms,
historical background of first bank and it’s organizational structure. Chapter
two being the literature review dealt with issues like functions/debt
management concept, etc. the central banks production guide lines for license
banks also outline. chapter three
(research methodology) discussed research methods with particular emphasis on
the method employed for this research exercise these methods employed were also
justified. Chapter four data presentation and methodology presents some adverse
effect of credit mis-management, also the analysis of response gotten from the
respondents sampled out for the purpose of this research exercise. Lastly,
chapter five shows the whole event in summary form then concluded by mentioning
the various recommendations on how to improve on credit management in
Title Page - - - - - - - - - - i
Declaration Page - - - - - - - - ii
Approval Page - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - - v
Abstract - - - - - - - - - - vi
Table of content - - - - - - - - vii
CHAPTER ONE Introduction
1.0 Introduction - - - - - - - 1
background of the case study - - - - 3
of General Problems - - - - - 6
of the study - - - - - - 8
Significance of the Study - - - - - - 9
CHAPTER TWO - Literature Reviews
2.0 Introduction - - - - - - - - - 11
2.1 The concept of credit
Management in Commercial banks 12
2.2 The Impact of Effective
Credit Management on
Commercial bank - - - - - - - - 13
2.3 Credit Risk Management
Strategy in Commercial Banks 15
2.4 The qualitative Procedures
for Evaluating Commercial
Loan Proposal - - - - - - - - - 18
2.11 Summary of the Chapter- - - - - - 24
CHAPTER THREE - Research Methodology
3.0 Introduction - - - - - - - - 26
3.1 Research Methodology - - - - - - 26
3.2 Area of the Study- - - - - - - - 26
3.3 Population of the study - - - - - - 27
3.4 Sample Size and Sample Technique - - - 27
3.5 Sampling Technique and
Justification - - - - 27
3.6 Research Instrument- - - - - - 27
3.6 Administration of Research
Instrument- - - - 28
3.8 Validity and Reliability - - - - - - - 28
CHAPTER FOUR - Presentation and Analysis of data
4.0 Introduction - - - - - - - - 36
Presentation of Data - - - - - - 36
Findings- - - - - - - - 40
and Summary of Findings- - - - 41
CHAPTER FIVE - Summary, conclusion and
Introduction- - - - - - - - - 43
Summary - - - - - - - - - 43
Conclusion - - - - - - - - 45
Recommendations- - - - - - - - 45
Bibliography - - - - - - - - - 47
Appendix - - - - - - - - - 48
Credit generally denotes loans and advances made
either directly or indirectly by a creditor (lender) to a debtor (borrower) on
the principles of different payment. The banks as a lender, provides credit
facilities by making funds available to customers in agreed terms and condition
of payment. The gain of this credit to the bank is supposed to be huge profit
instead of this over the year, modern banks (particularly commercial banks)
have been recording huge amount of bad debt provision which increase with each
The term credit is the granting of money (loans)
and advances to borrowers with the general expectation that they would honour
their obligation to repay the fund with or without interest when due.
Credit is the means by which we are able to obtain
immediate benefit of goods and services upon the promise of payment at a future
One of the main reasons for obtaining credit is
that money which is our recognized unit of exchange is kept in relative short
supply and although we may have enough credit for those items which we require
but can not immediately afford and as these problems is not confined to
individuals. A banks objective is to make money and one of the methods used to
achieve this is by loans.
However, loans are only granted to those whom they
have every confidences in and then as often as not, demand some form of
security. The motive for leaning money is therefore to acquire profit for
themselves and not out of favour to the customer. Although, we are not able to
adopt such stringent attitudes, our motives for granting credit must be the
It is however, dishearten to note that not
withstanding the level and magnitude of impact that the banks have on economy
in terms of importance which is unarguably immense. Whenever money is always
certainly a risk of not getting it back from such customers. It is this
(non-payment of loan) that has made it necessary for this research to go into
the area of credit management.
The impact of effective credit management as a
process is very essential for banks because poor credit revaluation leads to
poorly unstructured loans facilities that reduce the profitability and
liquidity of the bank.
Historical Background of the Case Study
First bank of Nigeria Plc is a leading banking
institution in Nigeria
with over a hundred years of banking experience, founded in 31st
march1894 by a shipping magnate from Liverpool,
sir Alfred Jones. It commenced as a small business bank in the office of elder
Dampster and co. in Lagos.
Today, first bank of Nigeria Plc has diversified
into a wide range of network of banking activities and services including
commercial, merchant and international banking. And has become appetent factor in the development
of the country.
It was incorporated as Limited Liability company in
London, with it’s head office in Liverpool under the corporate name “Bank of
British West Africa; with a paid up of twelve Thousand Pounds sterling (£12,000)
it commenced business after it had absorbed it’s predecessors assets in the
African banking of the pre-eminent position which the bank was established in
the ban king industry in west Africa.
The bank in it’s early years grew rapidly working
in close corporation with the colonial government in performing the traditional
roles of a central bank.
In 1896, a branch was opened in Accra, Gold coast (now Ghana) while
another was established in Freetown
in 1898. This marked a milestone in bank’s internationally banking operations
thereby justifying it’s west African coverage operationally.
The second branch in Nigeria was situated in the
old Calabar in 1900 and two year later, it’s services had extend to Northern
Nigeria with a branch network of 291 in 1996 spread throughout the federation,
including London. The bank has the highest number of branches in the banking
The banking has experience a phenomenal growth
over years with a share capital of 55.6 million in 1980, which rose to N68.4
million in 1995, the bank’s total assets currently stand at N69.82 million,
supported with a deposit based of N41.641 million.
When the bank began operation in 1894, it has a
staff of six composing of 3 Europeans and 3 African today, the bank is
virtually fully Nigerianlized. This of course has been the result of planning
responsiveness of the yearning of the Nigeria people and government as
well as the banks determination to identify with the aspiration of the country
in it’s march towards national development.
As a result of corporate policy to divas it’s
portfolio of non-core activities and in order to meet the bank of England’s
regulatory requirement the banks foreign partners, the standard chattered banks
of Africa Plc, have reduced their
shareholding to 9.9% following the offer of 120.941.195 share to the Nigerian
public, thus bringing the equity holdings by Nigerian to 90.1%.
The bank has maintained its leadership in
financial long-term loan to the colonial government. To day, the banks boast of
a diversified loan portfolio to various sectors of the economy. The banks rural
banking record is unmarked by army bank’s while its agricultural credit
facilities through the community farming loan schemes have given the common man
and farmers a tremendous access to the much needed bank credit.
In meeting the challenges of the second century
the First Bank of Nigeria Plc. Is committed to put a smile on the face of every
Statement of General Problem
The incidence of credit mis-management” in the
financial system has not Luther to attract due attention and discussion until recently.
The depth of distress in financial system which could be essentially traceable
to credit mis-management as well as a few other forms of frauds appeared to
have brought to the need to address this economic malaise.
The incidence of huge bad debt in the banking
industry has not only attracted the attention of the monetary authorizes but
the public at large.
There is a growing concern in these sectors of
increased potential for back failures if the problems is not urgently address.
The fear may not be out of place when viewed against recent development in the
industry. In January 1991, the central bank of Nigeria took over control of Nigeria which
was established in 1933 by the defunct western region.
This research is going to optically analyze the
“inefficient credit management” procedure adopted by some banks which is the initiator
of bad debts incidence thereby reducing it’s liquidity ratio.
The research is aimed at finding the cases and
solution to such problems a “Bad debts for effective and efficient management
OBJECTIVE OF THE STUDY
the various considerations and analysis in the impact of credit management for
lending purposes in the principal industries especially the commercial banks.
practitioners in the banking industries to acquire the high decree of unperforming
credits as presently carried in their debt portfolios and to assist in sound
and reasonable credit aimed at minimizing the incident of bad debt.
the portion of lending (i.e advances and loans) that should be allotted to
out from all available data the lending structure of banks (commercial banks)
in Nigeria with particular emphasis on
the selected banks located in Nations.
To stir or
stimulate interest in this area for prospective students who may wish to
develop their career in the area or field of credit management.
as a useful preliminary paraphernalia (tool) or materials for further study in
the field of credit management.
Significance of the Study
It is the hope to evaluate credit management
process and the subsequent problems of un-performing loans and the increasing
incidence of bad debt that this study is made. It is also hoped that it will
serve as a useful tool (material) to those who may wish to further in the field
or credit portfolio in Banks with view to or in an attempt to identify those
credit that are “performing” against these credit with a high degree of default
in order to enhance debt management practices in the Nigerian banking
The impact of credit management as a system or a
process is very essential for banks, because poorly structured loan facilities
result in bad debts and losses which in-turn goes to reduce the profitability
and the liquidity of the Banks.
Taking into cognizance the above significance it
use hope that the material as a product of this research shall assist the
practitioner in the banking industry to promote their skills on the impact of