CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The purpose of this project is to highlight the instability, uncertainty, inaccurate planning and budgeting process and loss of effective control management function in the financial institutions, occasioned by the dynamic macro economic variable in Nigeria within the last decade. The economic variables were introduced apparently to achieve or obtain a level of economics sanity in the country, under different names like structural adjustment programme, exchange control deregulation and price control.
Consequently, the management of policy issues in financial institution has become not only volatile but unpredictably difficult. It has become toughly risky for those institutions to carry on their normal functions. The banking industries are susceptible to all forms of risk. It has an ageing long history in the overall operation of all banks. Risk is a commonly used word.
The Oxford learning dictionary, defines risk as the possibility of meeting danger or suffering harm or loss. All human and corporate under taking have certain element of risk to avert risk, forward looking in management must show sufficient interest in the management and control of these Operations in the bank and monitor the possible impact these may have on the banking performance. This study attempts to emphasize this point in bank management.
1.2 STATEMENT OF RESEARCH PROBLEMS
Research work is carried out to investigate into some areas that need more attention, which has not been focused or where there has been work or ideals put forward in the areas. To this end, this work attempts to find out a certain problems that affect the bank and try to suggest solution in areas of pitfalls some of these problems included the followings:
1. Does the bank actually carry out critical assignment before advancing credit?
2. Does the bank lack competent handling the sensitive areas of risk control of the bank?
3. Does customers effectively utilize the fund borrowed to endure return which consequently lead to payment?
4. Are the measures of loans recovering by the bank effective?
5. Does the intimacy of some loans seekers with the authorities of the bank inhabit proper risk evaluation?
6. These and many more are worth assessing in order to being a position to endurance a more realistic measure, which when followed will bring about positive change in the banking industry.
1.3 OBJECTIVES OF THE STUDY
Based on the background information, this study, therefore aims at examining and actually finding out how the banking industry in Nigeria has been faring in management, managing risk in the bank. The purpose of this research is to seek recondition with their risk elements through the polices, as no bank can be in operation without risk, there is a need to take such, risk as would be compatible with profitability, liquidity and prudence. Realizing the profitability are inversely related, it is the good management of risk that will achieved a locus of feasible point exchange or the banks.
1.4 SCOPE OF STUDY
This work is restricted to the bank under the study, Union Bank of Nigeria Plc and no attempt was made to compare finding with what is obtainable in other banks within the same sections, although reference could be made in this regard when needed.
1.5 SIGNIFICANT OF STUDY
The significant of this research work includes among others, the gains that accrue to the research, the bank and invariable to other interested parties. Effective management of risk in banks had been gained. The work will enable the banks to know whether there is risk when giving out credit to customers and whether the risk on existing credit management system is in the line with the recommended credit policy laid down by the central bank of Nigeria and not the necessary in the feature. The result from this study shows that the research frequently hope would provide the policy makers, head of organization most especially the board of director of Union bank of Nigeria plc, a background of this information for proper risk management system in the bank.
1.6 STATEMENT OF RESEARCH HYPOTHESIS
Hypothesis could be defined as a statement of association which are yet to undergo verification order to prove their validity or otherwise such as preposition of this work included:
1 Ho: Some customers have the problems of inadequate collateral securities of the loan requested for.
2. Ho: There is a risk in bank leading, because the rules of lending are not often granted when granting credit abilities of customers Hi: Some customers do not have the problem of inadequate collateral securities or the loan requested for.
3 Ho: Counter –order from superior officers does not influence the lending decision of lending officers.
1.7 LIMITATION OF STUDY
The factors that limit the scope of this work can be categorized into two variables, which is a controlled and uncontrolled variable. The formal is based on the time with researcher disposals to carry out the study and financial constraint, while the latter is attributed of the established under study some staffs treat questionnaires administered with competent and resentment which at the number of questionnaire that retired, while some initial information that would have been added to the substance of the work was not given as it was claimed to be management decision and they view such facilities.
1.8 CORPORATE PROFILE OF UNION BANK
The evaluation of the union bank in Nigeria cannot distinguish from growth in international trade. Before the advert of European, Nigeria and other west Asia countries had trade link with the worth and East via the Sahara trade routes. In 1917, the colonial Bank which started operation in African in the year 1836, opened branch in Lagos, Zaire and Accra, however in 1925 the colonial bank limited merged with Anglo-Egyptians banks and the national bank of south Africa to form the Barclays bank D.C.O. Dominion colonial and overseas. This was an era when individual could float banks that will subject only to the provisions of the section 2 (1) of the companies ordinances, availability of adequate bank capital, windows banking was common feature since banks poferated at such supervision rate that era could also be described as a rudimentary banking in Nigeria. Prior to 1973, the foreigners were the majority shareholders in Barclay’s banks of Nigeria. Thanks to Nigeria indegenisation decree of 1973, which no longer allow the establishment of foreign banks with a majority of foreign interest. In compliance with this decrees the shareholder, Nigeria owing 28.3% in the year 1997, the Barclays Banking of Nigeria limited, change its name to Union bank of Nigeria with Barclays bank giving up 22% equity.
Union bank in may 1989, the bank became 100% Nigeria owned and managed making it the first of the kind among the three biggest banking systems in Nigeria, section 29 (2) of the companies and allied matter, decree CAMB 1990, mandated all the public companies in Nigeria limited by shares to end their name with the worlds public limited company in compliance with this section and its subsection of this decrees the bank charge d from limited to Plc after it name now bears the union bank of Nigeria plc. In 1994, at the annual general meeting member approved by a special resolution to increase the share capital of the bank to N250 million as new capitals.
Union bank of Nigeria plc annual report and account core capital consist 1 paid up capital statutory and other researcher is now very lose to the N1 billion banking history and it confirms the bank story position as the highest enterprises wholly owned and managed by Nigerian among the companies quoted on the Nigeria stock exchange with over 75 years of banking services to the nation. The bank assets based has risen to N The bank is the first bank of Nigeria to achieve the N 4.5 billion deposit account. The bank has 400 branches nationwide and will filed overseas branches in London. The bank also has over 12,000 staff strength.
1.9 DEFINITIONS OF TERMS
MANAGEMENT:- This can be defined as the variability that is likely to occur in the feature returns of the project. Management, This is defined as the process of directing, co-ordination and influencing the operations of an organization so as to obtain desired result and enhance a total performance.
RISK:- A business organization that requite and hold deposit of funds from others, make loans or extends credit and transfer fund by written order or depositor. The terms occasionally but accurately applied to commercial banks only because of the peculiar types of services that commercial performs, they maintain and create demand deposited (checking account which are part of the nation money supply) a place of business or keeping or lending exchanging and issuing money.
COMMERCIAL BANKS:- These are financial institutions, which accept deposit and other loans to the customers.
FACULTY:- A bank faculty is any credit services rendered by a bank. It is distinct from bank services. Bank services included all such function performed by the banks or example opening a saving account, cashing cheque, opening a letter credit foreign remittance e.t.c. Bank facilities is a concession given to trusted customer at times on the pledging of available credit, credit facilities are not mutually exclusives.
CREDIT:- A transaction between two parties in which one (creditor or lender) supplier money, goods, securities in returns for a promised future, payment by the other of debtor borrower. To sell or lend in the basis of future payment.
MONEY:- This can be defined as anything which passes freely from hand to hand and is generally acceptable in settlement of debt.
COLLATERAL:- A property pledge as a guarantee of payment or an obligation or loan.
RISK MANAGEMENT IN NIGERIA BANKING INSTITUTION
