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CREDIT MANAGEMENT IN
NIGERIA COMMERCIAL BANKS
(A CASE STUDY OF
FIRST AND UNION BANKS OF NIGERIA)
PROPOSAL
Granting of credit is risky and which
has to be revise as the most important risk which Nigeria banks face,
Therefore, is the risk which could cause a loss for a bank due default by
customers in meeting their obligation.
In order to organize this, credit
management involves credit analysis to assess and safeguard against the risk
involves in the extension of credit, to bankers customers. This lead to the
topic credit management in Nigeria commercial bank; this research work will
contain chapters from one to five, in chapter at this project, the aim will be
the introduction part of credit management in Nigeria commercial banks. It will
state objective and significance at the study, it will also contain the
statement of the problems which state as that.
Credit must be adequately managed so
that banks could be remain business and it could be done through prudent
lending. It will state how loan in commercial bank cannot be granted to
customers. The statement will show that no matter how prudent a bank is, in its
lending, they must make provision for bad and doubtful debts.
The scope and limitation of study and
the test of hypothesis will also be review of related literature, under chapter
two will define bank credits which will includes over draft, loan, and letter
of credit. This chapter will state why bank should give credit, sources of
repayment and characters of borrowers because characters of customers should be
thoroughly change and investigated before granting only credit to such
customer.
In chapter three it will show how
research design and methodology will be collected, because the research for
this project will base on primary source data collection and secondary source
of data. Primary source of data include data which will obtain direct oral
interview with some loans and advanced management/offers and some strategic
management staff in commercial bank; secondary source will consist information
from banks annual statement, Journals, news papers and other text books from
libraries. Chapter four will show how data collected will be presented and
analyze and chapter five will be summary and conclusion with bibliography.
TABLE OF CONTENT
Introduction
1.1
Background of
study
1.2
Statement of the
problem
1.3
Purpose/objective of the
study
1.4
Research questions
1.5
Research hypothesis
1.6
Significance of the
study
1.7
Scope, limitations and
delimitations
1.8
Definitions of
terms
Reference
Chapter Two
Review of related
literature
2.1
Definition of bank
credit
2.2
Reference
Chapter Three
Research design and
methodology
3.1
research design
3.2
area of study
3.3
Population
3.4
sample and sampling
techniques
3.5
instruments of data collection
3.6
method of data
presentation
3.7
methods of data
analysis
Reference
Chapter
four
Data
presentation and
analysis
4.1
data analysis and test of hypothesis
Reference
Chapter
five
Findings, recommendation and conclusion
5.1
Findings
5.2
Recommendation
5.3
Conclusion
Bibliography
CHAPTER ONE
INTRODUCTION
1.9
BACKGROUND OF STUDY
The
banking industry has been known for its intermediary role in providing
financial assistance (credit) needed in the economy. this role of financial
intermediation is carried out in so many ways. First to be mentioned is the
granting of loans and advances to customers which constitutes the major part of
banking lending. Apart from loans and advances, other forms of bank credits
like bond issued banks for and on behalf of their customers.
In
providing credits or for business venture, banks should as a matter at
important take all necessary steps to ensure that advances are granted to those
customers who can and will make judicious use at loans so that repayment will
not become a problem. Therefore credit must be made to people who are capable
for utilizing it well and repaying back the loan at its maturity data. Affairs
at banks can be explained by reference to the fact that “loan and advances are
the large single item in the asset structure of Nigeria commercial banks; it
also constitutes the major source at the operating income at banks and also the
most profitable asses for the employment of bank funds.
According
to Olashore, “credit (Loan and advances) are important to the bank balance,
they account for a large proportion at banks income; such operating income
produced from sound investment and effective management of such funds in
credits enables the bank to:
(i)
Pay depositors interest
(ii)
Pay investors dividend
(iii)
Pay government tax
(iv)
Have further investment and
(v)
Maintain adequate reserves.
The
actual work in connection with the management and conversion of such funds into
various types of credit facilities in an operating function is performed by the
credit department of commercial bank instruct compliance by the “Board of
Director” at the bank, lie annual credit policy guidelines and prudential
guideline (1990) of the Central Bank of Nigeria (CBN) and other monetary and
fiscal policy issued by the government of Nigeria. The credit department is
usually headed by a loan officer manager who has acquired a high skill
experience and personal judgement criteria in credit administration.
Medium - term loans
and long-term loan including overdraft facilities.
1.10
STATEMENT OF THE PROBLEM:-
The only way to avoid
bad debt is to refuse to lend money at all. But if banks should refuse to lend
money at all issue at profitability is called hence the main purpose of
carrying on business which is to maximize profit will be defeated. Credit must
be adequately managed so that banks could remain in business and this could be
done through prudent lending.
However, irrespective
of how prudent a bank may be in its lending, the fact remain that every year,
provision for bad and doubtful debts should be provided for. Not all loan
should be granted. A profitable loan which is not safe should not be granted.
The attitude of most borrowers to wards loans and advances granted to them
should not be ignored. As they regard such credit facilities as their own share
at the national cake.
Furthermore, failure
at banks to make use of banks to make use of trained qualified and experienced
personnel in their credit management is a problem that should be addressed.
Bank
are merely customers of the money that depositors deposit with them, and hence
interest must be paid to depositors and dividend to the investors. Credit
management can be seen as an integral part of lending and as such in its
absence, good loans can turn into bad one. It is expedient to note that the
important of credit management cannot be over emphasized and good credit
management required the establishment of Adherence to and of sound and
efficient credit policies of government.
For
banks to be successful their corporate credit policies must be sound procedures
for monitoring and repayment, must be ensured adequately for credit appraisal
disbursement. But experiences over the year has shown that inadequate credit
analysis and sound judgement of loans application has resulted to outperforming
loans. Provision of credits which are in the form of loans and advances are the
total amount of money a given bank lends out to its customers at any given
period of time. The bank usually charge the borrower interest for bank using
its money. These loans and advances usually have maturity period.
Such
credit facilities provided by banks are usually in the form of short term
facilities.
THE OVERALL RESULTS
OF THE ABOVE ARE:
(i)
It exposes the bank to various problems of debt recovery.
(ii)
Consequently expenses are incurred in form of provision made.
1.11
PURPOSE/OBJECTIVE OF THE STUDY
1.
To investigate on the bad and doubtful debts in Nigeria Commercial Banks?
2.
To examine the effects of bad and doubtful debt in Nigeria Commercial Banks
Profitability.
3.
To assess the incidence of bad debt on the banking industry and the economy in
general.
4.
To identify the possible measure of preventing the occurrence of bad debt in
the Nigeria Commercial Banks.
1.12
RESEARCH QUESTIONS
(1)
Does in appropriate loan supervision cause bad doubtful debts.
(2)
What are the effects of bad and doubtful debt on your banks profitability?
(3)
At what rate is the incidence of bad debt on the banking industry and the
economy in general?
(4)
What are the likely possible measures of preventing bad debt?
1.13
RESEARCH HYPOTHESIS
(1)
Ho: Inappropriate loan supervision and monitoring
is not the najo
cause of bad debt.
Hi: Inappropriate loan supervision and
monitoring is the major
cause of bad debt.
Ho: Bad debt does not adversely affects the
profitability of a bank.
Hi: Bad debt adversely affects the
profitability of a bank.
Ho: The incidence of bad debt on the banking
industry and the
economy in general is not high.
Hi:
The incident of bad debt on the banking industry and the economy in general is
high.
1.6
SIGNIFICANCE OF THE STUDY
The
significance of this study is to make contribution on the going study of
problem loans in the Nigerian commercial Banks. The study will also add to our
understanding of how Nigerian commercial banks grant their credits.
This work is also relevant in educating the readers on the basic and conflicting
rudiments of Nigeria commercial Banks Credit operations and the causes of bad
and doubtful debts, stating also those who stands to benefit from the study and
how.
The Beneficiaries of
this study are:
(i)
The practicing bankers.
(ii)
The credit and loan officers,
(iii)
The bank directors/managers
(iv)
The investors etc.
Moreover, this study
could be of immense help to students of banking and finance to equip them when
they go into the field of the course they read.
1.8
DEFINITIONS OF TERMS:-
(a)
CREDIT: This is financial assistance in form of loans and advances
granted by banks to their customers.
(b)
LOANS: A borrowed sums of money at an agreed rate at interest, usually
for a specified period of time and repayable in line with the terms of the loan
agreement.
(c)
C.B.N: Central Bank of Nigeria; This is the apex regulatory authority of
the financial system.
(d)
CREDIT GUIDELINE: An annual monitoring circular (guiding Principle for
Commercial and Merchant Banks lending published by the C.B.N.
(e)
CREDIT POLICY: This rules and regulations guiding banks in their lending.
(f)
BAD AND DOUBTFUL DEBTS: This offers to all the non-performing credit
facilities to reflect such specification in the C.B.N prudential guidelines.
(g)
OVER - DRAFT: This is a less formal credit facility by which a current
account customer is allowed by a bank to write cheques in excess of the
existing balance in his/her account.
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