THE METHOD OF CREDIT CONTROL IN COMMERCIAL BANKS (A CASE STUDY OF FIRST BANK OF NIGERIA PLC, YAKUBU GOWON WAY BRANCH OFFICE, KADUNA)
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THE METHOD OF CREDIT CONTROL IN COMMERCIAL BANKS
(A CASE STUDY OF FIRST BANK OF NIGERIA PLC, YAKUBU
GOWON WAY BRANCH OFFICE, KADUNA)
ABSTRACT
The
objective of this project work is to provide an insight on the method of credit
control in commercial banks. The findings are based on the outcome of going
through First Bank publications, newspaper and reports and other corresponding
reports of the first Bank office. The study work is divided into five chapters
as follows; chapter one, the background of the study was presented specifically
on the role of commercial banks and the scope of the study. Chapter two
discusses the loans and advances, chapter three contains methodology and
research designs, chapter four talks about presentation and analysis of data,
chapter five contains summary, conclusion and recommendation made on how to
solve the problem of credit control commercial banks.
TABLE
OF CONTENT
Title page i
Declaration ii
Approval page iii
Dedication iv
Acknowledgment v
Abstract vi
Table of content vii
CHAPTER ONE
1.1
Introduction 1
1.2
Brief
historical background 4
1.3
Statement
of the problem 5
1.4
Purpose of
the objectives of the study 6
1.5
Scope and
delimitation 7
1.6
Research
questions 7
1.7
Definition
of terms 8
CHAPTER TWO
2.1
Literature
review 12
2.2
Loans and
advances 12
2.3
Maturity
pattern of bank loan and advances 16
2.4
Pattern of
credit collateral securities 18
2.5
The need
for credit control 20
2.6
Basic
principles of lending 22
2.7
Credit risk
management 24
CHAPTER THREE
3.0
Introduction 30
3.1
Research
methodology 30
3.2
Methods of
Data collection 32
3.3
Sources of
data 34
3.4
Types of
data 36
3.5
Summary and
conclusion 37
CHAPTER FOUR
4.0
Introduction 38
4.1
Presentation
of data 38
4.2
data of Analysis Methods of controlling
credit in bank 42
4.3
Research
findings 44
4.4
First bank
credit repayment or recovering 50
4.5
Commencement
of recovery process 53
CHAPTER FIVE
5.0
Summary
conclusion and recommendation 55
5.1
Introduction 55
5.2
Limitation
of the study 57
5.3
Recommendations 59
5.4
Summary of
the study 62
Bibliography 63
CHAPTER ONE
CHAPTER ONE
1.0 INTRODUCTION
The banking system is an important sector of the
economy because it acts as an agent for mobilizing funds from those who wish to
deposit their money and allocating the same to those who want to borrow, thus
facilitating the efficient functioning of commercial and .manufacturing
activities.
The credit allocation and control policies are
required by the bank and other financial in particular development activity.
Control of advances are usually targeted at reducing unwise spending and
promoting industrialization with a view to reviewing the economy through
generation of employment to promote development.
Government gives a directive by constituting a
forum of control for bank to recover all loans advances disbursed on reduction
basis so that funds available would be channeled to more preferred sectors specifically
agro-based, agro-alhed, agro-chemicals industries and exports. Most of the
times, the control of credit at the head office and at the branch levels are
essentially. On the same basis. The only difference is that the head office and
regional administration are completely detached form the scene, and this takes
a more realistic approach in appraising proposals with limited and defined
power, whereas as a branch often makes a hurried assessment, which in most
cases is completely full of sentiment, pressure and influences. As stated
above, the banking and financial sector plays the role of intermediary. The
sector mobilizes funds from small and big savers who have no immediate need for
such funds and provided such funds for users who are basically business
entrepreneurs and investors who need such funds.
These surplus funds owners may deposit their funds
in the banking sector in the form of investment and they are generally referred
to ultimate savers of funds. On the other hand, the users are the business
entrepreneurs and individual who have brilliant ideas on how to create
additional wealth in the economy, but lack the necessary capital to execute
their plan and concretize their ideas from the above this group is referred to
as the ultimate users of funds. Ti must be noted that one of the basic
objectives of any bank is the generation of profit, which is realized through
the banks ability to attract new deposits while retaining the old ones and
putting them into profitable use. Such deposits funds in the opinion of the
management is not immediately required for everyday working needs of the
depositors and so it must be channeled appropriately to places
where they are needed for economic development.
However, for any bank to achieve its objectives it
must be able to manage or control its credit portfolio effectively. If the
spate of bad debt now engulfing the banking industry is to be abted, these
speculative tendencies on the part of the customers and passive approach by
lending officers towards credit control like administration process require a
process of action, analysis and follow up.
1.2
BRIEF HISTORICAL BACKGROUND OF FIRST BANK OF
NIGERIA PLC
First bank of Nigeria plc was founded by Alfred
Jones, a shipping magnate form live pool, who started the business of banking
in Lagos with
emerging of the African banking corporation (ABC) established in 1891. it was
first incorporated with the name. Bank of British west African (BBWA) as a
limited liability company in London on March 31st 1894 having its
head office in Liverpool, started business of banking with a paid – up capital
of twelve thousand pounds stipulated ($12,000) in 1957, the name was changed
form Bank of Nigeria Ltd.
In 1979 and 1991, the bank of Nigeria changed to
first Bank of Nigeria Ltd, and first Bank of Nigeria Ltd, and first Bank of
Nigeria Plc” respectively. First Bank is having the largest network of branches
in Nigeria.
Today it has one of the largest portfolios of diversified loans and credit
facilities to various sectors of the economy in the country. Lending is the
main business of first Bank of Nigeria plc, in this process of lending money is
created in a way of loans and advances usually disbursed to customers with
interest and a sties pulsated terms of repayment
1.3
STATEMENT OF THE PROBLEM
There are some problems faced by some banks today,
which a manager or credit officer must lay more emphasis on. The research will
take a look into the ways by which the problem of lending and credit control
can be eradicated in banking ( if this is a reality in the banking sector) what
are the problems of leaning in banks? What problems does the credit
control manager en manager encounter, in
problems in granting, monitoring,
supervising and recovering of loans? All of these
form a basis for this research work.
1.4 PURPOSE OR OBJECTIVES OF THE STUDY
The
objectives of the research work are as
follows
1. To examine the credit allocation and the credit
control policies which are required by the work.
2. To know the general performances of the bank on
credit control.
3. To examine the security pattern of the bank in
advances and loans and in what form?
4. To examine the basic principles employed by the
bank managers in granting, monitoring, supervising and recovering of loan.
5. To know the role of the central bank in the
management of credits by commercial and
merchant bank.
1.5 SCOPE
AND DELIMITATION
This research has a special emphasis on first Bank
of Nigeria plc, Yakubu Gowon way branch, Kaduna
and it focuses on the control of advances on credit in the banking industry
with special effort made at discovering if the procedure of credit control is
still in existence or complied with in banks. Due to the nature of the
organization and the inherent secrecy
associated with it, the researcher and problem of getting the necessary records
that should have been of great assistance in the course of the research area of
study.
1.6 RESEARCH
QUESTIONS
These research questions constitute the areas the
researcher intends to examine, which are as follows
1. Is an effective credit control system important to
the progress and development of a banking business?
2. Should collateral securities be presented for the
managers when making prepositions.
3. Does the procedure for monitoring, supervision and
repayment of loans vary from manager to manager?
4. Are there major procedures for following up of loan
repayment?
5. Is the procedure of credit central still in
existence
6. Is the credit control procedure effective?
7. What are the requirements for loans to customers?
1.7 DEFINITION
OF TERMS
LOAN: it simply means that the bank lends, usually with
interest and at a stipulated time and terms of payment.
ADVANCE;
it can be called overdraft, it is usually on a
continuous basis with fluctuation balances within a given limit.
COLLATERAL:
it is insurance evaluate: at the background to make
or substitute at the borrowing that the bank wants to make if the unexpected
happens there by jeopardizing the safety of the lending. It will therefore minimize
the risk of defaulting in the repayment of the credit on maturity.
CREDIT:
an avenue in
which loan able fund is made available to a prospective borrower, which is to
be repaid in a determinable future date. The bank control the loanble fund.
RISK: a measurable uncertainty involved in any decision
making, be it granting of loans or an advances
BANK: A bank is a financial institution which collects
and from dividends or organization, safeguard them and undertakes to surrender
them to their owners which required but also at a certain time, lends some of
these funds to those who needs to borrow it and pay back with interest.
CONTROL: Performance evaluation that provides feed back of
the result.
SECTOR; it is a
branch of the banking industry or area within the banking sector for the
purpose of controlling operation.
AGRO-ALLIED
INDUSTRIES: These are
industries that use agricultural procedures to produce with order identity
dependents on others
AGRO-BASED INDUSTRIES: They are the industries that have
their by – products used specifically in the agriculture sectors.
AGRO-CHEMICALS: These are industries that produce
chemicals e.g insecticides in the agriculture sector.
DIRECTIVES: These are instructions given by the governments so
as to control ministries in the affairs of different sector.
PREFERRED
SECTOR: this is sector to
which government allocates either finance as other resources more than the
remaining sectors. Hence, their sector that needs attention by government.
FINANCIAL
INSTITUIONS: these are
institutions that deal with finance as the name implies. They are concerned
with receiving and disbursement of funds or money.
FINANCIAL
INTERMEDIARIES; These are
people that go in better the lenders and the borrowers or they act as people that go between the financial
institutions and those that want to transact business with the institutions.
EFFICIENCY: The degree to which inputs are used in relation to
a given level of output.
PROFIT: Revenue minus cost
ECONOMY: The management of an administration of the
material resources of a country.
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