Thursday, 28 July 2016

Credit Management And The Incidence Of Bad Debt In Nigeria Money-Deposit Banks

This research work was undertaken to assess the credit management and the incidence of Bad debts in Money-Deposit Banks.This work was intended to achieve the following objectives: to appraise and determine the lending procedure of banks, to highlight the extent to which improper project evaluation influence  bad debt of Money-Deposit Banks. Relevant data were collected from both primary and secondary sources. Questionnaire was the main primary data collected instrument employed while data from various relevant publications constituted the sources of secondary data.

Upon the analysis of data, the following conclusions were drawn; that sound lending requires a clear-well articulated and easy accessible policy document which spells out the philosophy of lending. On the basis of the above findings, it was recommended that banks should ensure that loans given out to customers should be backed by adequate collateral security. Finally, it is the opinion of the researcher that the management of the Money-Deposit Banks should prevent the incidence of bad debts in Nigerian Banks


Title Page                                                                                                      
Approval Page                                                                                              

Table of  Contents                                                                                         
1.1 Background of the study                                                                        
1.2    Statement of the problems                                                                      
1.3    Purpose̸ Objective of the study                                                               
1.4    Research Questions                                                                                
1.5    Research Hypothesis                                                                              
1.6   Significant of the study                                                                          
1.7    Scope of the study                                                                                  
1.8    Limitations of the Study                                                                        
1.9   Definition of terms                                                                                 

  2.1Theoretical Framework                                                                        
  2.2     Government control over credits                                                         
  2.3     Credit Administration in Union  bank of Nigeria plc                            
   2.4     Lending and Credit Analysis                                                                

3.1      Research Methodology                                                                              
3.2     Research Design                                                                                                                                Area of Study          
 3.4     Population for the Study                                                                                
 3.5     Sample Size Used                                                                                     
 3.6    Instrument For Data Collection                                                                
 3.7    Validation of the instrument                                                                      

    4.1    Data presentation and summary of findings                                              
    4.2   Provision and Analysis of Data Question                                                   
     4.3  Test of Hypothesis                                                                                     

 5.1  Summary of Findings                                                                                       
 5.2  Recommendations                                                                                            
 5.3  Conclusion                                                                                                                 


In a modern economy,there is distinction between the surplus economic units and the deficit economic units and inconsequence a separation of the savings investment mechanism.This has necessitated the existence of financial institution whose jobs include the transfer of  funds from savers to of such institution is the money deposits banks,the intermediating roles of the money-deposit banks places them in a position of ``trustees´´ of  the saving of the widely dispersed surplus economic units as well as the determinant of the rate and shape of the economic development.

The techniques employed by bankers in this intermediary function should provide them with perfect knowledge  of the outcomes of lending such that funds will be allocated to investments  in which the probability  of full payment is certain.However,in practise no such tool can be found in the decision of the lending banker.Virtually all lending decisions are made under creditors on uncertainty.

The risk and uncertainty associated with lending decision, situation are so great that the concepts of risk and risk analysis need to  be employed by lending bankers in order to facilitate sound decision-making and judgement.This statement implies that if risks are to be objectively assessed,lending decisions by the money-deposit banks should be based less on quantitative data and more on principles too subjective to provide sound and unbiased judgement.Furthermore,the banks depend heavily on historical information as a basis for decision making.

Apparently aware of the inadequacies of his decisions base,the lending banker has often sought solace in tangible and marketable assets as security giving the impression that lending against such securities is an insurance against bad debts.this makes the banker complacent with  his loan portfolio.The increasing trend of provisions for bad and doubtful debts in most money-deposit banks is a major source of concern not only to management but also to the shareholders who are becoming more aware of the dangers posed by these debts.

Bad debts destroy part  of the earning assets of banks such as loans and advances which  have  been described as the main source of earning and also determines the liquidity  and solvency which generate two major  problems, That is profitability and liquidity, has to earn sufficient income  to meet its operating costs and to have adequate return on its investments.

The problem for this study is to appraise the lending and credit management policies of a typical Money-deposit bank(the Union bank of Nigeria Plc) with a view  of finding the causes,consequences  of bad debts in banks.Year after year,banks suffer much from the part of full loan extended which has  for one reason or the other proved unrecoverable.Banks lose millions of Naira in various  bad debts yearly and despite efforts by bank management, committee of chief inspectors and the bankers committee on the other hand,the wave of bad debts in banks is still on alarming proportion.This is gathered from a combination of literature reviews on the topic.

On the other hand,many banks experienced a lot of bad debts when the new government abandoned the project awarded to the contractors by civilian government.These contractors borrowed to execute the project awarded to them but could not repay the loan,due to government action on reramping the economy thereby abandoning the project.Other experiences were during the time of draught or poor rainfall and pest.These however  led to low harvest  which did not give the farmers enough  time to repay their debt.
Again, experience may arise in respect of lapses on the part of the banks credit officers.For instance, there may be excesses  over approved facility,unformatted facilities and expired facilities not renewed on time.In each of these cases the customer may easily  deny even owing the bank all or part of the amount.Money.deposit banks have always borne the burden alone,but this may not continue in  future as the banks may be unable to take the risk of lending more but when eventually they do,they would seek the best  way  they come out of the risk with a realistic reward which they are clearly failing to achieve at present.

(i)  To determine and appraise the lending procedure of banks using Union bank of Nigerian plc as a case study-with a view to highlighting the effectiveness and adequacy or otherwise  the credit management policy of Nigerian banks in reducing the occurrence and consequences of bad debts.
(ii)  To highlight the  rate at which inadequate collateral security provision by borrowers increases the incidences of bad debt in Nigerian.
(iii)  To determine whether fund diversion has any effect on bad debt of money deposit banks in Nigerian.
(iv)  To ascertain the extent to which government intervention in lending policies of money deposit banks has influenced bad debts in Nigerian money deposit banks.
(v)  To highlight the extent to which improper project evaluation influence bad debt of money deposit  banks in Nigerian.

 In view of the consequences of bad debt in Nigerian money deposit banks,it is neccessary to formulate some research question which will enable the researcher  formulate statistical  tables for testing hypothesis.
  1. Has inadequate collateral security provision by borrowers caused bad debt in Union bank of Nigeria plc?
  2. Does fund diversion have any effect on bad debt of Union  bank of Nigeria Plc?
  3. To what extent has government intervention in lending policies of money deposit bank influenced bad debt in Union  bank of Nigeria Plc?
To what extent does improper project evaluation influenced bad debt of Union  bank of Nigeria  plc?


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