EFFECTIVENESS OF CREDIT MANAGEMENT IN THE BANKING INDUSTRY (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)

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EFFECTIVENESS OF CREDIT MANAGEMENT IN THE BANKING INDUSTRY (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)

PROPOSAL

The research work is basically concerned with the effectiveness of credit management in the banking industry. It will also discuss about the emergence of banking industry in Nigeria.

The research will also discuss about the meaning, benefit of banking industry, purpose of banking industry, causes and types of lending and credit facility and tools used in loan monitoring and supervision.

This research work will be divided into five (5) chapters in – order to have a better understanding of the subject matter and aid locating of different chapters and numbers where they can be found.

Chapter one will discuss the purpose and objectives of

the study, scope and limitation of study.

Chapter two will cover the reviewing of different literature

from different author that are relevant to the project.

Chapter three will be based on the research methods used in carrying out the research work.

Chapter four is the presentation and analysis of data used.

Finally chapter five will being summary of the work, recommendation, conclusions and references.

TABLE OF CONTENTS

Title Page i

Certification ii

Dedication iii

Acknowledgement iv

Table of Contents vi

Proposal viii

CHAPTER ONE

1.0 Introduction 1

Objective of the study 6

Scope of the study 7

Limitation of the study 7

Background of the study 8

Statement of the problem 10

Definition of terms 11

Plans of the study 13

CHAPTER TWO

Review of related literature 15

CHAPTER THREE

Research methodology 38

Background of the studies 38

Source of data 32

Analysis of Data 39

Historical background of the case study 40

Corporate Organization structure 44

Sample Size 45

Population of the study 46

CHAPTER FOUR

Data presentation, interpretation and analysis 48

Source of Field Summary 48

Research findings 67

CHAPTER FIVE

Summary, conclusion and recommendation 70

Summary 70

Recommendation 72

Conclusion 78

References 79

CHAPTER ONE

1.0 INTRODUCTION

It is an established fact that Banking industry occupies a prominent position in the Nigeria economy today. The significance of banks stem from the fact that they are custodians of the most sought after commodity on earth. Which is money. Availability of financial capital is obviously a condition for the rapid development and transformation of any national economy.

However, since the provision and efficient management of this scarce resource is best facilitated by the existence and appropriate function of financial institutions in the economy. It therefore follows that banks have a vital role to play by making their vast financial resources available for financing and promoting economic development banks play this unique role through granting of loans which constitute a vital function in banking operations, because of its direct effect on economic growth and business development. Loans and bank lending which is the primary function of commercial banks. It is the single most important source of gross income for the commercial banks.

Lending contributes the larger part to a bank’s profit, hence, it is the backbone of banking activities however, the degrees of risk associated with lending is proportionate to it contribution to profit.

As financial intermediaries, banks assist in channeling funds form surplus economic development generally. Since these funds are owned by third demands the depositors, prudence demands that such funds should be efficiently managed to sustain the confidence of depositors in the banking system and ensure the continued soundless of the system itself and thereby minimize risk of the bank failures.

Unlike the depositor who is certain of getting his money back on demand and, or when due a lending bankers is faced with the problem of either delay in reimbursement or out right non-reimbursement by the borrowers. As in case of National Bank of Nigeria which is being managed by Nigerian Deposit insurance corporation (NDIC) due to inability to meet its numerous customer’s cash needs. The bank was crippled by the non-payment of about N800 million Naira (eight Hundred million naira lent out to customers. Recovery of these huge debts became more difficult due to poor credit administration and control reflective in subjective appraisal of loan request, improper documentation, poor perfection of securities etc.

In January 1993, the newly reconstituted management of Owena Bank Plc, discovered several cases of expenses incurred but not properly booked, unearned income over statement and above all several unsecured, unanalyzed loans which are not charged off or provisioned lack of commercial orientation is also glaring in the management and administration of staff leans in Owena Bank Plc.

By February 1993, total outstanding staff loans was at over N60 million (sixty million Naira) exceed the bank’s paid gross loans. These loans are granted at 28% interest rate per annual against the prevailing cost of loans are said to have been used not for the purpose originally intended and are not support with documentation to secure the bank’s interest.

Many bank’s in Nigeria today are facing similar problems of national bank limited and owena bank plc stated above and many lead to bank failures if not urgently addressed. In fact, the number of banks sin operation remained at 90 as at end-December, 2002 following the insurance of an operating license to one bank (bond bank Ltd) and the revocation of the operating license of another (savannah bank plc) during the year.

Nevertheless, this worrisome position of banking industry in Nigeria possibly forms the federal government’s decision to amend C.B.N Decree 24 of 1991, which centers autonomy on the Apex Bank. This amendation granted a wider power to of bank’s debtors, in addition to the earlier provision in section 52 of the principal decree which authorizes the nation’s apex bank to compile and circulate to all banks in Nigeria a list of debtor whose outstand debts to any bank had been classified by bank examines as bad debts.

From the above therefore, the need for effective administration of credit to customers cannot be over-emphasized. Thus, the effective supervision and monitoring loans to ensure that they do not turn bad forms the theme of this study. A credit to beneficial to the bank only when the principle and interest are fully paid.

1.1 PURPOSE AND OBJECTIVE OF THE STUDY

The main purpose of the study is to measure the credit administration pattern of commercial banks using first bank Nigeria Plc as the case study.

The specific objectives of the study are:

To examine the credit policy and practices of first bank

To review the credit administration and control procedures in the bank.

To examine the management of bad debts and recovery process in the bank.

To measure the effective of the procedure adopted in B and C above.

To identify constraints associated with loan management

To make recommendations based on the finding of the study.

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