ABSTRACT
This research work involves an insight into the problems faced by commercial banks in retrieving funds given out to customers as loan and reasons for failure in the repayment of such loans. The study starts by examining the importance of sound credit administration in any commercial bank and the general view of credit. Also, problems of the study, the significance, scope and brief history of First Bank Nigeria Plc are highlighted.
In chapter two, literature are reviewed on the importance of credit to the economy, ways of controlling fraud and reduce non-performing loan are reached.
The methodology adopted for analyzing data are clearly stated in chapter three and the procedures and methods used in analyzing data are also given.
Chapter four focuses on Data presentation, analysis and interpretation are carried out. Consequently, research questions stated in chapter one are done using appropriate statistical techniques based on the findings of the study.
Finally, in chapter five, some recommendations were made to which in my opinion will to a large extent be useful to any person who may have one form of contact or to the others with this project work at any point in time.
TABLE OF CONTENTS
Title i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of Contents viii
Chapter One
1.1 Introduction 1
1.2 background of the study 2
1.3 Statement of the problems 4
1.4 Purpose of the study 4
1.5 Significance of the study 6
1.6 Research Questions 8
1.7 Limitation of the study 9
1.8 Definition of Terms 11
1.9 Organisation of the study 13
Chapter Two
2.1 Introduction 15
2.2 Nigerian banking and bank credit 16
2.3 First Bank Plc and Credit Management 18
2.4 The Central Bank of Nigerian and Bank
lending activities 20
2.5 Principles of Credit Administration 21
2.6 Bank Capital and Incentive Compatibility 25
Chapter Three
3.1 Introduction 27
3.2 Population 27
3.3 Sample and Sampling Procedure 28
3.4 Sources of Data 28
3.5 Questionnaire Administration 30
3.6 Data preparation and Presentation 31
3.7 Instrument for data collection 31
3.8 Method of data analysis 32
Chapter Four
4.1 Introduction 33
4.2 Data Presentation 33
4.3 Discussion of Findings 39
Chapter five
5.1 Summary of Findings 42
5.2 Recommendations 44
5.3 Conclusion 46
References 48
Appendix 51
CHAPTER ONE
1.1 INTRODUCTION
In Nigeria, banks play an important role in the development of her economy. No economy in the world under the present dispensation can thrive without banks and other financial institutions. The Nigerian Banks are being reputed for the provision of a basket of interrelated services to:
The individual, government, profit and non-profit oriented organizations, as financial intermediaries, they thus provides the means by which funds are raised and mobilized by ways of loans and advances; through the Nigerian financial system, banks are more active in the short term loans, raising overdraft and trading in foreign exchange with marginal effects on the real sectors.
For efficient administration of credit as strongly put, this work aims at putting in place viable, safe and some of financial system that will launch Nigerian on the path of sustainable growth, system that were trust prevails. Most glaring, a financial intermediaries attaining higher level investment is their goal.
1.2 BACKGROUND OF THE STUDY
Credit in commerce and finance involves the transfer of money or property in promise of repayment, usually at fixed determinable date; the transferor thereby becomes a creditor and the transferee, a debtor. For this reason, credit are simply terms describing the same operation viewed from the opposite standpoint.
In developing country like Nigeria, sometimes, a credit will require a guarantee by a third party to pay the credit should the debtor fails, or the debtor may be obliged to provide collateral securities by assigning it to the creditor in the event of default, which is equal to the loan in value.
Government borrowing as by the issue of government bonds and stocks which are sold in deferred payment or higher purchase plan, the seller in possessor may retains the goals until final payment is made. The depositing of funds are used for loan and investment purposes, and the bank is legally bound to repay them as an ordinary debtor.
1.2.1 Creditor and the Economy
The credit position with a country at any given time is a useful indicator of state of the economy, expanding credit reflects a period of business prosperity, whereas contracting will reflect a period of decline in economic activities or depression, fluctuation in the supply of credit can also have effect on inflation and increases in credit circulation which can tempt business to increase their prices.
Government, likely the CBN are worthy of either expanding or contracting credits depending on the measures that calls for urgency or which is necessary to take, they do these through Open Market Operation (OMO), Moral Suasion etc.
1.3 STATEMENT OF THE PROBLEMS
This study is carried out in order to have an insight into the problems faced by commercial banks in retrieving the funds given out to their numerous customers as loan and the reasons for failure in the repayment of such loans.
The study started by first examining the importance of sound credit administration in any commercial bank and the general view of credit. Also, the problem of the study, the significance, scope and statement of hypothesis and a way of controlling fraud and reducing non-performing loans.
1.4 PURPOSE OF THE STUDY
Many people have watched their business closed for many reasons which relates from the lack of funds to lack of thorough awareness about the various facilities that could be obtained from commercial banks. This study will therefore assist in findings out the procedures of getting loans from commercial banks, assist borrowers in finding out problems who intends to seek the banks assistance through loans might be confronted with and how to contend with them.
The study will also expose the reasons for commercial banks loan going bad; the issue of over reliance on collateral securities as a cause of concern.
Lastly, the purpose of the advances should have an overriding influence closely followed by the relevance of the study/subject is our match to economic development, also of importance is the borrowers knowledge of business, his capability as well as personal integrity.
It context, useful suggestions and recommendations shall be proffered where it is considered that lending and credit administration are not achieving the designated goals.
Recommendations will also be made as to how the various factors affecting the rate of default in repayment of loans can be minimized.
And at the end of this research, the study should be able to achieve the following;
1. To appraise the techniques of credit administration in banks generally and First Bank of Nigeria Plc in particular.
2. Provide suggestions aimed at improving quality of decision making in bank lending and
3. Establishing the role of effective credit administration in boosting the bank credit.
1.5 SIGNIFICANCE OF THE STUDY
This work will give possible explanation to the various difficulties that go along with credit administration in Nigerian Commercial banks, proffer possible solutions on how to reach appreciable level of understanding among the centered parties.
The commercial banks too on the other hand can help introduce more effective strategies, policies and other measures to avoid failure by banks on the distress mention in 1.4 above.
It is my opinion that the following groups and organization will benefit from my project work and find it very useful;
Researchers
People who may be carrying out research on this project area in future.
Government and Monetary Authorities
Particularly the CBN may find this work relevant in their future credit policy.
Bank Official
It will enable then acquire skills and knowledge of using quantitative techniques in assessing credit proposal to attain sound effective decision.
Students and General Public
Students in tertiary institutions mostly will benefits from this study including financial public who may be embarking on a similar academic work in the future.
Economist and Financial Analysts
The study will generate insight on them into how the compliance or otherwise with government policy with respect to commercial banks credit management may affect the profit of banks and its impact on the national economy.
Investors
The study will acquaint investors with government policies and establish each group of investors with needed information on investment strategies.
1.6 RESEARCH QUESTIONS
Based on the contents of the introductory section and in order to analyses the various cause of default, the following questions are generated.
1. That the reliance on the use of collaterals alone cannot act as a check on loan default?
2. The value of deposit affects the level of loans and advances granted by commercial banks?
3. That poor credit management and administration usually led to most banks failure?
4. That there is not significant relationship between the size of loan and the rate of default?
1.7 LIMITATION OF THE STUDY
The issue of my discussion is to build a topic and the need for in-depth and flawless research. However, my utmost urge to dig deeper was limited by some factors which are listed below:
i. Difficulties in Obtaining Relevant Data
Banks in general especially First Bank of Nigeria Plc are reluctant in giving information to students especially when those information relates to the activities and their accounts apart from the one published under status and legally.
ii. Time Constraint
The time available for the work is definitely inadequate from the extent of coverage of this research due to the other academic activities coupled with this work.
iii. Financial Constraint
My work is limited by availability of enough funds to cover the federation as a whole, so I concluded by drawing accurate and effective sampling approach method.
iv. Miscellaneous
Inability to retrieve questionnaires administered to some people and uncompromising up-to-date records from the banks.
1.8 DEFINITION OF TERMS
Bank – An establishment or financial institution licensed by CBN for safe keeping of money, valuables etc, acceptance of deposits and granting of loans and advances
Banking – The business and financial activities of banks.
Collateral Securities – Something valuable given as a pledge for the repayment of loan or the fulfillment of promise undertaking.
Credit – The sum of money lent by bank as financial assistance to his bonafide customers. Also a sum of money paid into a bank account.
Indemnity – Gurantee against damages or loss, compensation for damages or loss.
Management – This means planning, organizing, coordinating and directing of persons and material resources etc.
Inflation – Persistence increase in the general level of price.
Loan Syndication – A practice whereby two or more institutions agree to provide a borrower credit for financing large project.
Risk – Uncertainty which may exist between the bank and it’s borrower during lending and credit administration.
Mortgage – Legal agreement in which banks lends money to individual to purchase a house.
Savings Deposit rate – This is the amount paid by banks for funds withdrawable after seven days notice. This restriction is however, seldom i.e unusual
Maximum Lending Rate – This refers to the rate which banks charge for lending to a customer with a low credit rating.
Maximum Rediscount Rate – This is the amount that is charge by the Central Bank of Nigeria for lending to banks in the performance of its function as a lender of last resort.
1.9 ORGANIZATION OF STUDY
Overview of my study relates to “The First Bank of Nigeria PLC.
The First Bank of Nigeria, truly the first was founded in 1894 by a shipping magnate from Loverpool, by name Sir Alfred Jones, which started the business under the corporate name of the Bank of British West Africa (BBWA) with a paid up capital of 12,000 pounds sterling. To justify it’s West Africa coverage, a branch was opened in Accra, Gold Coast (Now Ghana) in 1896. Later, the bank has about 250 branched spread nationwide. Over the years, the bank has experienced phenomenal growth, for instance, its total deposit then rose to 30% to N332.2 billion in 2005 from N255.5 billion. Increase in loan and advances, bank most lucrative but highly risky investment avenue from N83.5 billion in 2004 toN123.7 billion a year later (2005) the bank experience a jump of about 48.2% during this period.
There is much also to be said in the area of the bank profitability, the bank has also done well because as at 2005, the bank group gross earning is N57.2 billion as at 2004, the bank group net profit is N11.billion on group gross earning of N51.3 billion (Financial Standard, August 15, 2005).
First bank of Nigeria got listed on the Nigeria Stock Exchange (NSE) in March 1971 and has won (NSE) president’s merit award nine times for the best financial report in the banking sector. The bank has improved enormously judging from a number of parameters including number of branches, growth in deposit base, asset size and size of loans and advances.
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