ASSESSING CREDIT CONTROL IN DEPOSIT

ASSESSING CREDIT CONTROL IN DEPOSIT MONEY BANKS IN NIGERIA (A CASE STUDY OF UNION BANK PLC 2006-2015)

CHAPTER ONE

INTRODUCTION

• BACKGROUND OF THE STUDY

In a modern economy, there is distinction between the surplus economic units and the deficit economic units. This has necessitated the existence of financial institution whose jobs include the transfer of funds from savers to investors. One of such institution is the deposit money banks.

The intermediating roles of the deposit money banks places them is a position of “Trustees” since it saved the  widely dispersed surplus economic units and also determining the rate and shape of the economy. The deposit money banks should employ techniques in its intermediating functions which will provide them with perfect knowledge of the outcomes of lending such that funds will be allocated to investors, in which the probability of full payment is certain. However, in practice on such tools can be found in the decision of the lending institutions, virtually all lending decision are made under creditors on uncertainty.

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

Credit control in the banking sectors today has taken a different dimension from what it used to be. The banking institutions has adopted a lot of strategies in checking credit in order to stay in business, thus the banking industries in Nigeria has lost large amount of money as a result of the turning sources of credit exposure and taken interest rate position. The central Bank of Nigeria(CBN) established a credit Acts in 1990 which empowered banks to render returns to the credit risk management system in respect to its entire customers with aggregate out-standing debit balance of one million naira(#1m) and above(Ijaiya .T and Abdulraheem A.  2000), this made Nigerian banks to universally embark on upgrading their control system and risk management because this coincidental activity is recognized as the banking industries physiological weakness to financial risk.

According to a new- based America researcher (Willie 2000) that 40% of Nigerian banks that made up exchange rate value in West Africa has reduced the operating lending as a result of non-performing loans which hit more than $10billon in 2009 and this has led to tied-up questioning assets that are holding almost half of Nigerian banks. The CBN fired eight(8) chief executive officers and set aside $4.1billion in order to bail out almost ten(10) of the country’s lenders. The reform which was introduced by the CBN in 2010 has made Nigerian deposit money banks resume lending supporting Assets Management companies and set up the requirement which will allow Nigerian banks to make full provision for non-performing loans that will boast the market.

The  lending banks sought solace in tangible and marketable assets as security giving the impression that lending against such securities is an insurance against non- performing loans, this makes the deposit money banks a complacent with its loan portfolio.

Therefore, credit control according to Odofuye 2007 will include the following measures;

• Monitor compliance with established covenants.
• Assess where applicable, collateral covenants, relative to creditor’s current condition.
• Identify contractual payment delinquencies and classify potential credits on a timely basis and
• Direct actions at solving problem promptly for remedial management.

Union bank of Nigeria plc which is one of Nigerian deposit money banks was established in1917 as colonial bank. In 1925 it became known as Barclays bank {Dominion, colonial and overseas (DCO)}. In 1969, Barclays bank DCO was incorporated in Nigeria as Barclays bank of Nigeria limited to comply with the new banking laws enacted in 1968. Between 1971 and 1979, the bank went through a series of changes including its listing in the Nigerian Stock Exchange (NSE) and share acquisitions/transfer driven by the Nigeria Enterprise Promotion Acts 1972 and 1977; this resulted in its evolution into a new wholly Nigerian-owned entity. To reflect the new ownership structure and in compliance of companies and Allied Matter Acts 1990 (CAMA), it assumed the named “Union Bank of Nigeria plc”

During the central bank of Nigeria (CBN) bank sector consolidated policy, Union bank of Nigeria plc acquired the former universal Trust Bank plc and Board bank ltd and absorbed its one time subsidiary union merchant bank plc.

Following the banks crisis in 2009 and the invention of the CBN through Assets Management company of Nigeria (AMCON), the bank was recapitalized in  2012 with an injection of $500 million by union global partners limited (UGPL), a consortium of local and international investors.

The UGPL acquired 65% of