CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Lending has become a vital function because of its direct effect on economic growth and business development. This is being pursued in most countries particularly the developing ones, where banks and they lending activities have been usefully integrated into government policy formulation in the national economic development process.
As far as banks are concern their role as lenders is as important as they of deposit taking consideration of inter – relationship between one another. A careful study and proper analysis of lending in its main parameters has become imperative banking students, finance managers and those concerned with the function of lending.
According to Ogamba (1999), one of the basic functions of a bank is the lending of surplus deposits to these who wanted to borrow and accepts deposits from the public in order to make profit; the bank represents one of the cheapest and most flexible sources of finance available for the small business in particular.
Credit facilities are usually in form of loans, advances, bills, discount, bonds and overdraft. Lending is one of the most intricate services rendered by banks and credit facilities are integral part of bank services. The bank lending have to operate in accordance with central bank of Nigeria directives and other control, while at the same time, adequate reserve and credit must be maintained.
It is an undisputable that importance assets items in the balance sheet of commercial banks are loans and advances, these items are reported for some good reasons.
Onyia and Okeke (2000) from the banks perspective, they are the largest sources of income loans and overdraft are the focus of prudential credits guideline which are the basic of monetary policy in Nigeria. Credit guideline as used in Nigeria are directives released annually by the central bank of Nigeria (CBN) on their lending activities in a given year. Anyganwaokoro (1999). This guideline normally set by CBN stipulate the minimum or maximum level of credit that could be given to a particular sector of the economy. Bankers are therefore advised to follow strictly these guideline of the appraisal of a customer’s proposal of loan.
There are some conditions which must be fulfilled by customers before such facilities are granted, these are popularly known as the CANONS of good lending which includes the character of the borrower, the amount of borrow, the purpose of the loan etc. the first question that come into focus is who the customer is (character), what is his or her previous relationship with the bank? This goes into the integrity of whoever the borrower may be. Some borrowers could pay with ease but will fail to oblique due to lack morality. Therefore, the lender should as a matter of fact make sure the integrity of the borrower is not in doubt.
Most bad debt arises as a result of insufficient information about the prospective borrower, in order to avoid this, banks are expected to carry out enough inquires about the borrower so that adequate information would be obtained to enable them make better judgment.
In 1970’s, agricultural was termed the main stay of our economy. The fact is that federal government embarked on credit facilities otherwise known as agric credit guarantee scheme, every farmers both subsistence and commercial to put more effort in their field. At the present time, there are lots of changes in both commercial and industrial sectors. New structures abound all over the country. Commercial activities have become the order of the day. Traders can easily secure loans and overdrafts in order to raise capital for their commercial activities; therefore the problem of lack of fund for the executive of private and public project has been ameliorated.
1.2 STATEMENT OF THE PROBLEM
Bank lending is an indispensable figure in the growth of the country and also a provider of credit facilities to its customers in order to enhance the economic growth of the country.
However in the recent years, there has been a general consensus by the people that bank lending in Nigeria is faced with various problem such as:- .
a. Week management
b. Inappropriate corporate governance structure
c. Inadequate regulatory and supervisory capacity.
d. Asymmetric information
1.3 THE OBJECTIVE OF THE STUDY
The broad objectives of this research is to identify ways of enhancing economic growth through bank lending, the specific objectives are:
1. To examine the impact of credit facilities on the economic development
2. To determine the extent to which lending has contributed to the growth of Nigeria economy.
3. To examine the effect of lending rate on the economy.
1.4 RESEARCH QUESTIONS
1. Do credit facilities have any impact on the Nigeria economy?
2. To what extent has lending contribute to the growth of the Nigeria economy?
3. Does lending rate has any effect on the Nigeria economy?
1.5 RESEARCH HYPOTHESIS
The following hypothesis will be relevant for the research
1. Ho: credit facilities has no significant impact on the Nigeria economy.
Hi: credit facilities has a significant impact on the Nigeria economy
2. Ho: lending rate has no effectively contributed to the development of the Nigeria economy
Hi: Lending rate has effectively contributed to the development of the Nigeria economy
1.6 SIGNIFICANCE OF THE STUDY
The researcher has understood that industrialist, commercialist, profit and non – profit organization, individual, students, scholars and the society at large would benefit from the subject matter of this work. The importance of this study cannot be over emphasized because:-
1. It determines whether or not the practices of lending conform to the stated guideline of the bank.
2. It also tries to minimize the difficulties encountered by banks in the area of lending
3. It also enables the public understand how the government could reduced inflation among other things by the manipulation of liquidity and cash reserve ration of various banks in order to ensure a more satisfactory level of financing for the development of the economy.
4. It also provides the individuals firm, industrialist etc. with the knowledge on how to secure loan needed for effective performance in the line of business in which, he is involved.
1.7 SCOPE OF THE STUDY
Development has made it possible for this country to have myriad of bank such as commercial banks, development banks, and micro finance banks. They are engaged in deposit, taking real estate and other form of lending, foreign exchange trading, securities underwriting and portfolio management. It is assumed that bank lending is a peculiar service of all functions of banks because of some constraints in the process. Therefore this research work covers all the above mentioned banks.
1.8 LIMITATION OF THE STUDY
The limitations of the study are as follows:-
1. Finance
2. Time
3. Distance
4. Level of literacy
1. Finance:- due to the level of the researcher, the cost of acquiring the necessary information and materials (such as textbooks, handout, internet etc) to write up the project work.
2. Time:– because of the short time given for this work and also because the project is written along side other academic work, the researcher could not meet up with the requirement of the work.
3. Distance:– Not all the necessary information obtained due to long distance from the researcher residence to the area where materials are available. This lead to not meeting up with the demand of the project
4. Level of literacy:– The fact that the researcher is still a student with little knowledge about the project work, it therefore brings a little set back on this project. The researcher is not as perfect as the supervisor or other experts in academic level. Therefore the little they had done could not be compared to that of the lecturer.
1.9 OPERATIONAL DEFINITION OF TERMS
The related terms below are defined to the understanding of a lay person
1. Banking lending:- This is the granting of credit or advancing of money by a bank to a customer for a specific purpose, tenor and at agreed rate of interest with repayment to be made installmentally over a specific period of time.
2. Economic development:- this is an overall trend or process in which socio – economic and socio – political transformation is achieved with little or no reference to other significant degree or technological economic growth plus changes
3. Credit facilities:– This includes loans, overdraft, discounting advances that are granted by banks to various customers
4. Collateral securities:– Collateral serves as security or fall banks to the bankers for the loan offered to the borrow
5. Capital:– This is the amount being sought by potential borrower, which must be seriously assessed with respected to its adequacy or otherwise for the executive of the project in question
6. Mortgage:- This is the conveyance or transfer of an interest in land of other assets as security for a debt.
7. Deposit Account:- This is an account operated by those who really have surplus funds but do not have the need to spend them now
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