ABSTRACT
The research was undertaken to
evaluate credit risk management Perception in Nigeria commercial banks using First
bank of Nigeria Plc and Union bank of Nigeria Plc as a case study.The work was
intended to achieve the following objectives; to examine the causes of credit
risks in Nigeria commercial banks. To review the strength of the Commercial
banks in combating this menace.To also ascertain the level of contribution of
the central bank of Nigeria in helping the commercial banks mitigate credit
risk. Relevant data were collected from both primary and secondary data
sources. Questionnaire was the main primary data collection instrument employed
while data from various relevant publications and annual reports constituted
the secondary data. Based on the study, the following conclusions were drawn: There
are several causes of credit risk to commercial banks in Nigeria Credit risks
do really affect or reduce the operational efficiency of these banks. Employment
of strategies in reducing this credit risk is more sophisticated in first bank
of Nigeria plc than in union bank of Nigeria plc. Central bank of Nigeria has
over the years been assisting the commercial banks in fighting these credit
risks. On the basis of the above findings the following recommendations were
made: Commercial banks should employ more strategic means in monitoring credit
losses in their banking system.
Commercial
banks should assess the workability of each strategy before implementation.
Since strategies are costly and may involve heavy capital investment.
More research should be conducted in assessing the lending behaviour of Nigeria commercial banks.
TABLE
OF CONTENTS
Cover
pager
Title
page
Certification
Dedication
Acknowledgements
Abstract
Table of contents
Chapter One: Introduction
1.1 Background
of the study
1.2 Statement
of problem
1.3 Objectives
of the study
1.4 Research
questions
1.5 Hypotheses
of the study
1.6 Significance
of the study
1.7 Profile
of the selected commercial banks
1.8 Scope
and limitations of the study
1.9 Acronyms/Definition
of terms
References
Chapter Two: Review of Related Literature
2.0 Introduction
2.1 The
changing bank environment
2.2 Bank
exposure to risk
2.3 Corporate
Governance of commercial banks in Nigeria
2.4 Risk
based analysis of banks
2.5 Analytical
tools provided
2.6 Justification
for banks regulation
2.7 Political
Economy of the based accord
2.8 The
based accord of 1988
2.9 The
based accord base II
References
Chapter Three: Research Methodology
3.1 Research
design
3.2 Nature
and sources of data
3.3 Method
of data collection
3.4 Population
and sample determination
3.5 Method
of data analysis and presentation
3.6 Primary
data analysis techniques
Chapter Four: Data Presentation and Analysis
4.2 Data
presentation and analysis
4.3 Testing
of Hypothesis
Chapter Five: Summary of findings, Recommendations and
Conclusions.
5.1 Summary
of Findings
5.2 Recommendations
5.3 Conclusion
Appendix
Bibliography
CHAPTER ONE
1.1 Background
of the Study
The changing environment in which banks
finds themselves present major opportunities for banks, but also entails
complex, variable risk that challenge traditional approaches to bank
management.
Recently, there was increase in
non-performing credit portfolios in banks and other financial institutions and
these significantly contributed to the financial distress in the banking
sector.
Consequently, banks must quickly gain
financial risk management capabilities in order to survive in a market oriented
environment, withstand competition by foreign banks, and support private
sector-led economic growth. An external evaluation of the capacity of a bank to
operate safely and productively in its business through effective credit risk
management is normally performed once each year. All animal assessment is
similar in nature, but has slightly different focuses depending on the purpose
of the assessment.
Risks faced by banks are numerous but
this study is essentially concerned with credit risk management in Nigeria
commercial banks with First Bank Nigeria Plc and Union Bank Nigeria Plc. as
case studies.
The credit risk management in commercial
banks should be adequately attended to by banks that want to succeed in its
over-all business operation.
For most banks, loans are the largest
and most obvious source of credit risk, loans and advances constitute almost
sixty to seventy percent of the assets side of the balance sheet of any bank.
As long as the borrower pays the interest and the principal through proper
amortization of loan on the due dates, a loan will be a performing asset.
The problem however arises once the
payment are delayed or defaulted and such situations are very common
occurrences in any bank. Delay or defaults in payment of bank loan affects the
cash forecast made by banks and further result in a changed risk profile, as
the bank will now have to face an enhanced interest rate risk, liquidity risk
and credit risk.
Bank are increasingly facing credit risk
in various financial instruments other than loans, which includes inter bank
transactions, trade financing, foreign exchange transactions, financial
futures, swaps, bonds, equities, options, and in the extension of commitments
and guarantees; and the settlement of transactions.
The late 1980s and early 1990s witnessed
a great rising non performing credit portfolio in commercial banks especially
in First Bank Nigeria Plc. and Union Bank Nigeria Plc. The use of status
enquiries on bilateral basis between banks was characterized by some
weaknesses. Status enquiries is regarded as business courtesies to which some
banks either did not respond to or gave vague replies.
In spite of the systematic weakness,
many banks continued to extend fresh facilities to customers who already had
hard core and un-serviced debt with other banks and financial institutions.
Although, it is difficult to evaluate credit risk, an argument can be made that
the loan default disclosures proxy for credit risk may also provide and
indication of operational risk related to management decision making.
However, it has been noted that
managerial weakness for failed banks includes inadequate supervision of loan
portfolio and over-all aggressive strategies for growth in loans and deposits.
Between 1994 and 2003, thirty-seven (37)
banks were closed in Nigeria
as against twenty-one (21) banks closed between 1930 through 1966. An
assessment of the banking distress era of 1993 through 1997 reveals that
lending defaults were essentially responsible for over seventy-five (75)
percent of the casualties suffered by the Nigerian banking sector through this
period.
So the effective management of credit
risk is a critical component of a comprehensive approach to risk management and
essential to the long-term success of any banking organization. Banks should
also consider the relationship between credit risk and other risk.
1.2 Statement
of Problem
Various commercial banks in Nigeria are
faced with the problem of credit risk management. The First Bank of Nigeria
Plc. and Union Bank Nigeria Plc. are faced with the problem of credit risk
management just like other commercial banks in Nigeria.
During the recent re-capitalization of
the banking industry, many banks even the ones people hold to high esteem
closed operation as they could not meet up with the statutory capitalization
requirement.
According to Rose and Hudgins (2008) and
Kock and Macdonald (2003) bank capital provides a cushion against the risk of
failure by absorbing financial and operating losses until management can
address the problem.
This problem of credit risk management has crippled most of the commercial banks in Nigeria including First Bank Nigeria Plc. and Union Bank Nigeria Plc.
Credit Risk Management Perception in Nigeria commercial Banks A Case Study of First Bank of Nigeria Plc and Union Bank of Nigeria Plc
