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An Evaluation Of Credit Management And The Incident Of Bad Debt In Nigeria Commercial Bank (Case Study Of Union Bank Of Nigeria)

Chapter one of An Evaluation Of Credit Management And The Incident Of Bad Debt In Nigeria Commercial Bank



In a modern Economy there is distinction between the surplus economic unit and the deficit in consequences a separation of the saving investment mechanism. This has necessitated the existence of financial institution whose job includes the transfer of fund from sales to investors. One such institution is the commercial bank.  The intermediating roles of the banks places them in a position of trustees of the saving of the widely dispersed surplus economic unit as well the determinant of the rate and shape of economic development.  The techniques employed banks in this intermediating function should provide them with perfect acknowledge of the out come of a lending such that funds will be allocated to investment in which the probability of full repayment is certain.

However, in practice no such tools can be found in the decision of the lending bank virtually all lending decision are made under condition of uncertainty. They risk and uncertain associated with lending decisions. Situation are so great that the concepts of risk and risk analysis need to be employed by lending banker in order to facilitate sound decision making and judgment.

The increasing trend of provision for bad and doubtful debts most commercial bank is a major source of concern not only to management but also to the  share holder who are becoming more aware of the damage posed by these debts. Bad debt destroy part of the earning assets of bank such as loans and advance which have been described as the main source of earning and also determine the liquidity and solvency of banks.  In the other words bad debt in commercial bank generate two major problem that is profitability problems. Bad debt emotive words to bankers. Because they represent losses to banks.  There are various reason for the occurrence of bad debt and its impart on the banking operation.

CAUSES OF BAD DEBT: The causes of bad debt could be based on four main classified causative agents.  They are a follows. Borrowers/Customers



Nature related factors


IGNORANCE: Customer are ignorance for the fact that bank like other commercial ventures are out to make profit by selling their product (loan) instead they understood it to be a place where government and other will- to –do people stove they money.

Consequently, they regard any amount borrowed to be “ national case” them as an articles purchased which must be paid for on the part of our etiles in white they gratuity which should not be repaid.  Again some customer/borrower over invest the loan approved on infrastructure to the betterment of actual purpose. This creates a situation factor thereby occasioning bad debts.


This concerns efficient disbursement and amortizing

schedule be bank. This relate to poor evaluation of customers; The first point which readily come to mind for this bad debt is poor evaluation of customer by the supervision before giving out loan to them. The pre requisite for giving out loan is on the consideration of the following.

CHARACTER: The likelihood that customer will try to honour obligation

CAPACITY: The subjective appraisal of the customer ability to pay.

COLLATERAL: assets that customer may offer as security to obtain credit

Condition: Impact on general or specific economic trend.

(ii)High Interest chargeable by bank sometimes occasioned a

situation of bad debt because the interest adds to increase the amount to be repaid.

(iii) Absence of forum by bank for enlightenment education of

customers resulting to bar to procedure on report lodgment for joint solution.

(iv)Improper evaluation of profit by bank: a situation whereby

fund become inadequate for project. This affects loan resulting the bad debt.


Political instability contributes indirectly to bad debt in banking industry by refusing later abandoned by a new government. The abandonment of many project an attempt to revamp our economy incapacitate the contractors and affects repayment of the loan borrowed


Nature contributes in crating bad debts in our banking industry.

Natural hazard includes something like fine enqulting the factory

which the loan is invested.  Death of sole proprietor that borrowed the loan.  In the case of agriculture poor rainfall and pest may cause low harvest which will not give the farmer enough to repay the dept.


The problem for this study is an evaluation of lending and credit management and policies of a typical commercial bank the union bank of Nigeria plc with a view to find the cause and consequence of bad debt in Nigeria bank.

Year after year, bank suffer much from the part of full loan extended which is one reason or the other produced irrecoverable. Many bank experienced a lot of bad debt when the government abandoned the project awarded to contractor by Civilian government. These contractor borrowed money to execute the project awarded to them but could not the economy loan due to government action to revamp the economy thereby abandoning the project. Again experience may arise in respect of lapses on the part of bank credit officers.


The  objective of the study are as follows.

1. To evaluate the lending and credit management and polices of a typical commercial bank the Union bank of Nigeria plc with a view to find the cause and consequence of bad debt in Nigeria bank.

2. To investigate the extent to which improper project evaluation influences the credit management and incident of bad debt in Commercial bank in Nigeria using Union bank of Nigeria plc as s case study.

3. To ascertain the extent to which government intervention in Nigeria Commercial bank has influenced the credit management and incident of bad debt in Nigeria Commercial bank.

4. Recommendation for Solutions


1. What are the reason for the occurrence of bad debt in commercial bank?

2. What are the criteria for lending is the financial institution and

the three basic principles that should guide bank lending?

3. Enumerates some factor that may cause bad doubtful debts to arise?

4. What are the problem associated with financial statement?

5. What is it that borrower often refuse to pay loan extended to them?


The following were tested in the course of the research work by the researcher.

1. H0: government of bad debt in Nigeria Commercial bank is

not high.

2. H0: government intervention in lending policies of

Commercial bank has no influence on Union bank of

Nigeria plc bad debt.

3. H0: Improper project evolution has no significant relationship with bad debt in union bank.

3. Hi: Improper project evaluation has direct relationship with bad debt in Union bank of Nigeria plc.


It is hardly an exaggeration that the difference between success and failure in the  banking industry are in effective management of the bank loan advances. Effective loan management is vital to the protection of assets and achievement of adequate investment. Though much work abound in the literature of technique of lending, the method of securing such lending and pitfalls that away the unway banker. By comparison, there appear to be very little in print on the subject loan management and recovering. A study of the subject with therefore be a welcome addition to the existing volume of bank literature.

Effective loan management recognize that beyond the application of sound banking principles whenever a loan is made, there is need for urgency in appreciating the point when a loan begins to look doubtful in arriving at a decision as to the appropriate action.  This will enable the bank to at lest obtain full repayment including accrued interest or act worst to mitigated the eventual capital loss. In the face of increased competition among bank, future profit are likely to be harder to come by and since bad debt are a change against profit, proportions and margins of lending to bad and doubtful debt hence the significance of this study to banker. The economy as a whole will benefit from the study because of the level of bad debt is reduce, the banker will be left with more profit to enable them make the expected contribution to the development of the economy.

The study will also educate the general public on the incidence of bad debt and credit management by commercial bank it will also serve as a stepping stone for further research in the topic.


As the business of banking is the business of credit

Management. Commercial bank Credit in Nigeria suffers the

Problem of going bad most of the time. Borrowers often refuse to repay loans extended to them but Commercial bank are interested in loan payment. To this end the researcher intends to find out how credit could be effectively managed by commercial bank. And will also find out if the carnonsposals  by banks and if the adequate controls and supervision are applied to ensure that loans do not go bad and irrecoverable.


1. DEBT: This is what one owes to another person

2. LOAN: A loan is a credit arrangement or transfer of fund from one economics entity to another whereby a security is pledged and must be repaid with interest over a stipulated period of time

3. OVERDRAFT: This is a credit arrangement by bank to the their customer whereby the customer with draws money over and above what he has in his/her account.

4. DEFAULTY: The means failure to pay ones debt in credit extended which has fallen due.


Adekanya F. (1983) Element of banking in

Nigeria, Graham Bumbed

Ford shire page 20

Ajayi S.I. (1081) Money and Banking London,

George Allen and Urvin

Pg 101

Adenyi O. A. (1985) Employing Credit Scorning

as an aid to personal

lending decision in Nigeria

The University Banker Vol. 11 No 4.


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