CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Credit management in commercial bank is concerned with the management of cash flow, liquidity and profitability of the bank, it has been observe over the years that credit have been granted merely to preserve relationships without due records to prepare lending procedure. Proper credit management entails that due attention is paid to the terms of credit and to test the effectiveness of the terms of credit, a recoverable turnover ratio should be used. Note, a successful management of commercial bank credit ensures a steady growth of such bank.
A credit manager is a person employed by an organization to manage the credit department and make decisions concerning credit limits, acceptable levels of risk and terms of payment of other customers. In companies, the role of credit manager is variable in it’s scope.
Boaz Galinson (2011) Leumi – credit risk modeling and measurement, Israel pointed out that credit risk management should be much more than just an add on to the credit process, but effectively implemented within the credit process and throughout decision making and also how to create a complete view and understanding of the risk profit of the credit portfolio
Another approach of credit management is having a credit limit. Individual are assigned credit limit and this is monitored so that no further loans are granted to those who have exceeded the limited credit. Limits can be determined by looking at such factors as banks reference, trade references and financial statement, all these not withstanding, its advisable that bankers install machinery for monitoring credits an efficient credit management must consider the collection techniques. Credit mangers should endeavour to collect due amount promptly because a naira, today is worth more than a Naira.
1.2 STATEMENT OF THE PROBLEM
A major problem which necessitate this study in the increasing incidence of bad and doubtful debts in commercial banks. What are the cause of bad and doubtful debt as experienced by commercial bank?
A cursory look at the annual statement of most commercial banks relatively provide for bad debt more than the other banks, this fact could also be reflected in the relative performance of the bank. Indeed, many commercial bank in this country are on the verge of collapse. This level of credit extension by commercial bank over the last four years has not been encouraging. To what extent does the level of bad debt affect a banks and now more interest in foreign exchange transaction them providing loans to investors. This new dangerous attitude of bank has resulted in the unemployment and low standard of living in the economy. It is this on base, of the above problem that the purpose of this study is designed.
1.3 OBJECTIVE OF THE STUDY
The objective of this study is as follows:
1. To determine the effect of poor credit management in the ability of commercial banks to make funds available to the investing public
2. To determine the relationship between credit management and level of bad and doubtful debts and to relate this to commercial banks lending ability.
3. Evaluate personal factor that affect loan repayment by examining the past records of this borrows.
4. To prefer suggestion as to ways of improving credit management ability of bank and the reduction of the incidence of bad and doubtful debts, so that in the final analysis more funds will be made available to commercial bank to loan out to the investing public.
1.4 RESEARCH QUESTION
This study attempt to provide answer to the following questions:
1 What generally are the causes of bad and doubtful debt as experienced by commercial bank?
2. To what level or extent does credit management influence the level of bad and doubtful debts?
3 To what extent does the level of bad debts affect a bank ability to provide loans?
4. How efficient are various credit management approaches adopted by the commercial bank under study?
5. What improvement can be made with regards to credit management by Nigeria bankers?
1.5 SIGNIFICANCE OF THE STUDY
This study will be of immense use of Nigeria commercial bank, investors, government and its agencies and the general public
1.6 SCOPE OF THE STUDY
There are so many commercial bank operating in Nigeria currently and it would be tedious, trying to carry out a comprehensive study on all of them, whence the choice of ECOBANK PLC, UGHELLI for the study.
1.7 LIMITATION OF THE STUDY
In carrying out research about this study, so many problems were encountered by the research in terms of fund. Some of the respondents were reluctant in filling out the questionnaire as they complained of time constraint due to work. Another, limitation is that most respondents were hardly elaborated in their answer due a secrecy of information.
1.8 CONCEPTUAL DEFINITION OF TERMS
In order to clear doubt some of the items used in this work we need to be defined the following terms
1. Bad and doubtful debt: bad debt can be defined as “debt whose repayment is known to be impossible or unlikely. Failure of the borrower to make payment of principal or interest on the due dates. Doubtful debt on the other hand is debts which possesses to likelihood if being recovered.
2. Over drafts: a negative balance in a bank account, so that the customer owes the bank money. This is normally allowed only by prior arrangement, though a normally reliable customer may be allowed to overdraw without prior arrangement. They have limit to which customers are allowed and interest change and applicable.
3. Data: These can be described as facts observation or information in isolation and relating to the subject of the study.
4. Questionnaire: A questionnaire is a set of question prepared relating to the aims objective of the study which this respondents are required to answer by writing in their response (take of sample) option preferred by them with response to the aim of the question.
5. Commercial Bank: These are bank that provide various services for depositors. Including provision of cash and credit cards, storage facilities for valuables and documents, foreign exchange, stock broking, mortgage finance and executor services and also make short and long medium term loans to borrower at interest.
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