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AN ASSESSMENT OF RISK
MANAGEMENT AND CREDIT ADMINISTRATION IN UNION BANK NIGERIA PLC, KADUNA
ABSTRACT
The study examines risk management and Credit
Administration in Union Bank Plc, Kaduna.
The research questions that guided this study were: How is risk managed in
Union Bank? What are the constraints militating against risk management and
credit administration? What are the solutions to the identified problems. The
survey method was used as the sample size. A questionnaire designed in five
likert scale was used as the instrument of data collection. The mean (x) was
used to analyze data. The result of findings indicates that risk is mainly
managed in Union Bank through embarking on insurance of customers deposit as
well proper evaluation and monitoring of loan proposal.
TABLE
OF CONTENTS
Title
Page - - - - - - - - - - i
Declaration - - - - - - - - - ii
Approval
Page - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgement - - - - - - - - v
Abstract - - - - - - - - - - vi
Table
of Contents - - - - - - - - vii
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study - - - - - - 1
1.2 Statement of the Problem - - - - - - 3
1.4 Significance of the Study - - - - - - 4
1.3 Objectives of the Study - - - - - - 4
1.6 Scope of the Study - - - - - - - 5
1.5 Research Questions - - - - - - - 5
1.7 Definition of Terms - - - - - - - 6
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction - - - - - - - - 7
2.2 Concept of Risk Management in Commercial
Banks - 7
2.3 Credit Administration in Commercial Bank - - - 10
2.4 Techniques of Risk Management in Commercial
Banks - 19
2.5 Credit Administrative Techniques in
Commercial Banks 23
2.6 The Problems Militating against Risk Management and Credit
Administration in Commercial Banks - - - - 25
2.7 Summary of the Literature - - - - - - 26
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction - - - - - - - - 27
3.2 Research Design - - - - - - - 27
3.3 Area of the Study - - - - - - - 27
3.4 Population of the Study - - - - - - 27
3.5 Sample Size - - - - - - - - 28
3.6 Instrument of Data Collection - - - - - 28
3.7 Validity of the Instrument - - - - - - 28
3.8 Reliability of the Instrument - - - - - 29
3.9 Method of Data Collection - - - - - - 29
3.10 Method of Data Analysis - - - - - - 29
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Introduction - - - - - - - - 31
4.2 Respondent Characteristics - - - - - - 31
4.3 Data Presentation and Analysis - - - - - 32
4.4 Summary
of Findings - - - - - - - 38
4.5 Discussion
of Findings - - - - - - 39
CHAPTER FIVE
SUMMARRY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings - - - - - - - 41
5.2 Conclusion - - - - - - - - - 42
5.3 Recommendations - - - - - - - 43
Bibliography - - - - - - - - 49
Appendix - - - - - - - - - 51
CHAPTER
ONE
INTRODUCTION
1.1 Background
of the Study
Risk
Management is the identification assessment and prioritization of risks. It is
the effect of uncertainty on objectives, whether positive or negative followed
by coordinated and economic of application of resources to monitor and control
the probability and/or impact of unfortunate events or to maximize the
realization of opportunities (Okeh, 2006).
The survival
of every commercial bank depends on its ability to manage its risks and loans
or advance portfolio effectively. However in the recent past, commercial banks
in Nigeria witnessed rising non-performing credit portfolios and these
significantly contributed to the financial distress in the banking sector.
Financial
organization need to manage the credit risk inherent in the entire portfolio as
well as the risk in individual credit or transaction. This is so because the
survival and ability of financial institution to compete depend on their
ability to profitability and manage credit risk. This is the reasons why
lending is based on the two fundamental products of banking: money and
information. Banks obtain these products from customers themselves by offering
customer valuable services. They package money and information about their
borrowers together with valuable banking services to create loan agreements and
sell the loan agreements back to their customers (Hempel and Simonson, 2007).
As such, risk
rating system in financial institution contains both objective and subjective elements.
Objective aspect are based on financial statements and application of certain
financial ratio that reflect liquidity, leverage and earnings. Despite the
requirement that risk be quantified, risk rating systems always have a
subjective dimension that attempts to capture intangibles such as the quality
of management, the borrower’s status within the industry, and the quality of
financial reporting. These subjective items may result in inconsistencies.
It is in this
regard that many financial institutions have faced difficulties over the years
arising from their inability to effectively manage credit risk. As such the
major cause of serious banking problems continues to be directly related to tax
credit standard for borrowers and counterparties, poor portfolio risk
management, or lack of attention lead to a deterioration in the credit standard
of a bank’s counterparties. Hence, the need to investigate the subject matter
of this research becomes imperative.
1.2 Statement
of the Problem
Commercial
banks in the recent past witness rising non-performing credit portfolios sequel
to the inability of their management to effectively manage risk and credit
administration. That problem resulted to high bad debts in commercial bank and
a number of other commercial banks were classified as distressed banks by the
monetary authorities.
Consequently,
the need to examine the subject matter: An Assessment of risk management and
credit administration in Union Bank Plc, Kaduna Main branch becomes worthy of
investigation.
1.3 Objectives
of the Study
The central
objective of the study is to assess risk management and credit administration
in Union Bank Plc, Kaduna.
The specific objectives are:
i)
To examine risk management system in
Union Bank Kaduna Main Branch.
ii)
To assess credit administration in
Union Bank Kaduna Main Branch.
iii)
To identify the constraints
militating against risk management and credit administration in Union Bank.
iv)
To proffer workable solutions to the
identified problems.
1.4 Significance
of the Study
This study
will be beneficial to financial institution especially Union Bank Plc, as they
utilize the finding of this study as a basis for policy formulation regarding
risk management and credit administration in Banks. The shareholders,
stakeholders and the entire society will benefit from this study.
1.5 Research
Questions
i) How is risk managed in Union Bank Kaduna
Main Branch?
ii) How is credit administered in Union Bank
Plc Kaduna Main Branch?
iii)
What are the constraints militating
against risk management and credit administration in Union Bank Plc Kaduna Main
Branch?
iv)
What are the solutions to the
identified problems?
1.6 Scope
of the Study
The study
shall cover an empirical examination of the assessment of risk management and
credit administration in Union Bank Plc Kaduna. To this end, the study will
examine how risk is managed in Union Bank as well as credit administration. The
study shall cover a time from 2006 – 2011.
1.7 Definition
of Terms
1. Credit Risk: This refers to
delinquency and default by borrowers i.e. failure to make payment as at when
due.
2. Pure Risk: This refers to reduction
in business value as a result of damage to business property by theft, robbery,
fire, flood or the prospect of premature death of employee due to work-related
illness or accident.
3. Price Risk: This refers to
variability in cash flows due to change in input and output prices.
4. Credit Administration: This is the
system used in managing the exposure of financial institution to loan
delinquency and default.
5. Business Risk: This refers to
variability in cash flow.
6. Loan Appraisal: This is the process
of determining in advance the various lending parameters and determining the
overall loan limit for each borrower based on his debt capacity, loan duration.
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