CHAPTER ONE
- INTRODUCTION
Bank lending evolved from the beginning when the goldsmith discovered that only small proportion of the money kept with him to save was in fact required by the depositor at any point in time and that he could safely lend the rest to borrowers and charge interest thereon.
Commercial Banks hinged their consistent existence in the
profession on profit making or profitability. Hence, it is chiefly regarded as
aspect of financial operation system with a very high risk business. In
definition, commercial banks are seen as a financial institution setup by
individual(s) and even the government for keeping and lending money to their
respective customers with the view of making profit from such transaction.
The place of commercial banking in the national polity is so peculiar such that the banks engaging in commercial activities are very important in the achievement of most governmental, economic and fiscal policies objectives. One of the major aspects of the business of commercial banks is that of extending credit to other sectors of the economy for their smooth operation. The process of extending their credit is however known as “LENDING”
However, undertaking the lending function exposes the
commercial banks to several risks, particularly credit risk, which is the risk
that bank will lose either the whole of the principal of part of it or the
interest thereof.
Lending services by banks is being managed by the credit
management portfolio of the bank. To ensure proper management therefore, credit
management cannot be overemphasized.
According to “PANDY” (2008) Credit Management can be defined as the procedure, steps and action taken in the loan recovery and lending a stated in the credit. Policy manual. Credit management concern itself with the formulation of credit policies with frame work of banks overall corporate objectives.
Credit policy influences the management of credit. A good
policy must adequately provide and state procedure in granting different types
of credit, credit portfolio and policies for lending officers.
Apparently, the role of commercial bank is basically
intermediation. This involves the act of mobilizing fund the surplus areas as
deposits and passing of these funds to the difficult area as loans and
advances. The depositors that keep their money with the banks do so, based on
trust they expect to credit their money back on demand or as agreed upon.
Consequently, the commercial bank is faced with the
responsibility of not only ensuring that the loans and advance are repaid as at
when due, but also ensuring the depositors can have their funds on demand or as
agreed upon, the way and manner the lending function is carried out in any
commercial bank may have far reaching implications on the liquidity of the
banks. More so, the lending functions also affect the profitability of the bank
as well as its continued existence and future survivals.
- STATEMENT OF THE PROBLEMS
Lending through very profitable and important to the bank
and customer posses some risk. Distress in the commercial banking industry can
be attributed to poor credit management and loan policy, many loans have proven
bad due to non- repayment by the customers. Inconsistency and inefficiency of
lending officers to make appropriate judgment in the allocation of loans.
As a result of the complexity and inefficiencies in the lending function of the banks, this study is intended to examine how a well articulated credit policy and credit management can reduce to a considerable extent. The research study provides answer to the following questions:-
- What are the
practices of Nigerian banks in their lending function and in the management of
loans and advances?
- What are the general
principles and concept of lending in banking?
- What benefit and
impact can efficient and effective lending function can have on the bank, the
customers, the banking system and the economy at large?
- What significant
steps and action can be taken to drastically reduce the incidence and the
causes of bad problem loans, and also to reduce bad lending?
- What are the
importances of lending?
OBJECTIVES OF THE
STUDY
- To highlight the
general principles and concept of lending banking industry.
- To determine and know
whether commercial banks follow the general acceptable principle and practices
of lending in Nigeria.
- To examine the
benefits and impacts an efficient and effective lending function can have on
the banks, the customers and the economy at large.
- To discuss
significant steps and action that can be effective completion and quality of
the research work.
- To discuss the
importance of lending and credit management.
- SIGNIFICANCE OF THE STUDY
Finding from this study will be used to commercial banks,
in the sense that it would let the bank clearly understand and appreciate the
appropriateness of proper lending and credit management on banks profitability
growth, as a useful means for banks to be able to meet their day to day
obligations.
Also, effective credit management help in enforcing
government, laid down rules and regulations pertaining to lending of a certain
amount of money and also at a particular point in time.
The study will also be benefit to the students in knowing
the rules and principles guarding lending and credit management for future
career.
Lastly, the study will also be of benefit to the public
(Bank-Customer) to let them know that there are principles for lending; this
will make them to be prepare for any future borrowing.
- LIMITATIONS OF THE STUDY
This study has chosen Central Bank of Nigeria out of the
twenty four mega banks to critically examine the effect of lending and credit
management on banks profitability growth
However,
the research work has been constrained as to time, lack of recent and adequate
materials. Lack of corporation of the case study. Hence, effort has been made
to ensure the above limitation did not hinder effective completion and quality
of the research work.
- RESEARCH METHODOLOGY
The research work on the effect of the lending and credit management on the banks profitability and growth. The research work were gathered from two main sources of data i.e. primary and secondary sources of data.
The
primary data employed include questionnaire and interview, while the secondary
data include textbooks, internet, journals, current annual reports e.t.c.
- DEFINITION OF TERMS
LENDING: – It involves the granting of loans and advances to
various customers of the bank.
CREDIT: – It is the transaction between two parties in which one,
the creditor or lender supplies goods money return for promised future payment
by the other known as the debtor or borrower.
MANAGEMENT: – This is the process of designing and maintaining an
environment in which individual working together in group efficiently
accomplishes selected aim.
CREDIT MANAGEMENT:- Is the process of ensuring that all loans and advances,
banking or accommodation granted to a customer by a bank are well managed to
ensure that the facility run to a satisfaction according to the term
governing them are ultimately on the due
data.
LIQUIDITY: – This is the ability of banks to convert assets into case
with minimum risk cost and delay.
PROFITABILITY: – This is the ability of banks to make profit for its
shareholder and the ability to have left over after all expenses have been
deducted with out any liability.
RISK: – This is the situation whereby the outcome of an
occurrence hence a known or estimable probability.
BAD DEBTS: – These are debts that are irremovable or uncountable and
no longer bankable assets, they are debt that have not been and are not
expected to be paid.
NON-PERFORMING LOAN:
– These are loans and advances upon which
the bank has experience default from customer in terms of repayment of the
principal amount or interest.
- PLAN OF THE STUDY
Chapter one is the introduction aspect while chapter two is
the literature review.
Chapter three deals with the research methodology and
chapter four include the data presentation and analysis.
Finally, chapter five contains the findings, summary of the study, conclusion based on the data analyzed and recommendations of the study.
EFFECT OF CREDIT MANAGEMENT IN BANKS PROFITABILITY AND GROWTH IN NIGERIA ECONOMY (A CASE STUDY OF CENTRAL BANK OF NIGERIA ILORIN BRANCH)
