DEBT RECOVERY PROCEDURES AND STRATEGIES OF MONEY-DEPOSIT BANKS IN NIGERIA ( A CASES STUDY OF 3 BANKS IN NIGERIA)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

A major function of the banking system is the transfer of funds from the surplus units to deficit units of the economy. This is achieved through deposit mobilization and onward lending to customers by ways of loans and advances. Most money deposit banks in Nigeria today cannot equivocally declare that they have been untouched by problem of loans certainty; it is a way of life in these tumultuous times of investing that virtually all investors are faced with problem loans.

Whatever form of lending is adopted by commercial banks in any given situation depends on the purpose of the borrower and the circumstances of the transaction. The important thing to understand is that regardless of the form investment lending takes, a debt is inevitably created between the bank and customers.

The bank becomes the creditor and customer, the debtor. Review of loan facilities span served stages from the request stage to the repayment and when the facilities get bad. In this research work, the aim is to outlines the prerequisite for loan, warning signals, management of problem loan as well as debt recovery strategies with the impact of the credit and debt recovery department towards recovering of such debt.

It appears that the review of a debt recovery structures should be related to review of analytical tools of credit facility towards its restructuring, preparing a workable game plan or pay out plan. In this project, the subsequent chapters will look at prevention of problem debts and various strategies for recovering credit facilities.

The numbers of volume of good loan and advance seriously determine the degree of profitable commercial banks. Consequently, profitable commercial banks have to limit or eliminate the number of bad account in their lending portfolio. It is necessary to note that all funds tied up in bad and doubtful account are not accountable for further onward lending.

Also, with the advent of CBN prudential guidelines, non performing loans and advances who interest have been outstanding on these account are not reflected in the earnings of commercial bank, but charged to interest suspense and charged income when realized. Bad debt regarded as negative contributors to the profitability of commercial banks.

So banks should be expected to be the most relevant to provide for bad debts unless it is unavoidable. Another dimension however is that critics are quick in pointing out that the high bad or doubtful debts figures in final accounts of commercial banks could be realistic. It is also alleged that banks could use such provision to evade tax. It also demonstrate the incompetence of the lending bankers in the management of loan able funds on the other hand, it is held that this provisions shows the level of convenience by the bank officer system. This views was expressed by the president of Association of Shareholders of Wema Bank, Mr. Akintunde Asaw. He alleged that some of the official of Wema Bank acted outside the specified authority and scheduled by irregularly approving loans. He therefore gave the bank up to 1990 to recover all irregular loans while assuring that those involved “regular disbursement” of shareholders would be punished.

The final accounts is of most commercial banks in Nigeria have provisions for bad and doubtful debts of various figures while the funds of the level of such provisions id decreasing in the case of some commercial banks for other, it is increasing.

This reflected in the comments made by the Chairman of the Board Directors of such commercial banks. In the case of the Bank of the North provision for bad and doubtful debts were N6.8 million (1993), N6.7 million (1994) and N213.5 million (1995). This shows an increasing trend from 1992 to 1995, which may not be connected with the allegation of the President of shareholders of Wema Bank.

The view of the provisions for bad and doubtful debts by banks in the country has necessitated on in-depth study into the fundamental factors for such losses by the bank. Consequently, the fundamental objective of this study is to identify the causes of bad and doubtful debts and controls been employed by banks to minimize or eliminate such debts. In so doing, we will be able to establish the efficiency of the control otherwise in the banks lending system. Consequently, appropriate recommendations could be made for improvement.

1.2 STATEMENT OF THE RESEARCH PROBLEM

It is paramount to state as clearly as possible some of the prevailing problem of loan and debt recovery, how it has impeded the smooth operations of financial institutions and thereby hindering the banking sector chances of achieving its objectives.

The essence is to appreciate the magnitude and the vital roles which the investment company plays as the lubricant to the economy, as a sector, it is the pillar of the economy. It is therefore as a result of these important roles that the researcher have taken pains to carryout an in depth research into the impact of credit and debt recovery department in investment company with the view to identifying not only the problem loan, but the possible causes of this loan becoming bad debt and possibly make recommendation that will perhaps assist in solving these problems.

1.3 OBJECTIVES OF THE STUDY

The main objective of the study was to examine debt recovery procedures of money deposit banks in Nigeria. Specific objectives of the study are:

1.  To find out debt recovery techniques employeed by money deposit banks in Nigeria.

2.  To identify debt recovery challenges of money deposit banks in Nigeria.

3.  To examine the relationship between bank profitability and returns on loans and assets.

4.   To recommend techniques to minimize bad debts in money deposit banks.