An Analysis of Credit Management in the Banking Industry.

An Analysis of Credit Management in the Banking Industry.

ABSTRACT

Credit extension is an essential function of banks and strives to satisfy the legitimate credit needs of the community it tends to serve. This study is aimed at analyzing the in the banking industry in Nigeria with particular reference to the first bank of Nigeria PLC.

The importance of credit in the economic growth and development of a country cannot be overemphasized.

Despite the important role played by credit in the economy, it is associated with a catalog of risks. The Nigeria banking industry witnessed some failures prior to the consolidation era due to imprudent lending that finally led to bad debt and some ethical facts.

The issue of non-performance of assets and declaring of the fictitious projects has become the order of the day in our banking system as a result of poor credit management leading to bank distress in the industry. Three hypotheses were formulated and tested through the use of chi-square on questionnaires administered to various respondents.

From the data collected and the tested hypothesis, results showed that: (i) Inadequate feasibility study affects loan repayment in the banking industry, (ii) The diversion of bank loans to unprofitable ventures affects loan repayment, and (iii) The problem of poor attention given to the distribution of loan has a negative effect on banks performance.

Amongst several recommendations were the following:

(a) Banks should establish sound and competent credit management unit and recruit well-motivated staff (b) Banks should ensure that the chief executive avoid approval in principle in the credit management, and

(c) Banks should have a monitoring and control unit or department to carry out a sort of post-modern exercise by way of controlling and monitoring credit facilities and also ensuring completeness of all conditions precedent to drawdown.

TABLE OF CONTENTS

Title page i
Approval Page ii
Certification iii
Dedication iv
Acknowledgment v
Abstract vi

Chapter One
1.0 Introduction 1
1.1 Background Of Study 1
1.2 Statement Of The Problem 2
1:3 Objectives Of Study 3
1.4 Research Questions 3
1.5 Statement Of Hypotheses 4
16. Scope Of Study 4
1.7 Significance Of Study 5
1.8 Definition Of Terms 6

Chapter Two
Review Of Related Literature
2.0 Introduction 7
2.1 Theoretical Review 7
2.2 Empirical Reviews 51

CHAPTER THREE
Research Methodology 54
3.1 Introduction 54
3.2 Research Design 54
3.3 Sources And Techniques Of Data Collection 55
3.4 Descripti0n Of Population And Sample Procedure 55
3.5 Method Of Data Analysis 56
3:6 Determinations Of Critical Values 57

Chapter Four
Data Presentation, Analysis, And Interpretation.
4.1 Introduction 60
4.2 Presentation Of Data 60
4.3 Analysis And Interpretation Of Data 60

Chapter Five
Summary, Conclusion, And Recommendation
5.1) Introduction 64
5.2 Summary Of Findings 64
5.2 Conclusion 65
5.4 Recommendation 65
Questionnaire 72
Appendix 71
Bibliography 69

INTRODUCTION

BACKGROUND OF THE STUDY

Credit management in our banking sector today has taken a different dimension from what it used to be. The banking industry has adopted a lot of strategies in checking credit management in order to stay in business.

Thus the banking industry in Nigeria has lost a large amount of money as a result of the turning source of credit exposure and taken interest rate position. Nigerian banks are being required in the market because of their competence to provide transaction efficiency, market knowledge, and funding capability.

To perform these roles, the banks act as the most important participants in their transaction process of which they use their own balance sheet to make it easier and making sure that their associated risk is absorbed.

Credit extension is essential to the function of banks and the bank management strives to satisfy the legitimate credit needs of the community it tends to serve. This credit advance by banks as a debtor to the depositor requires exercising prudence in handling the funds of depositors.

The Central Bank of Nigeria established a credit act in 1990 which empowered banks to render returns to the credit risk management system in respect to its entire customers with an aggregate outstanding debit balance of one million naira and above (Ijaiya G.T and Abdulraheem A (2000).

This made Nigerian banks universally embark on upgrading their control system and risk management because this coincidental activity is recognized as the industry’s physiological weakness to financial risk.

 

The researcher, a New yolk-based, said that 40% of Nigerian banks that made up exchange rate value in west Africa, has reduced the operating lending as a result of bad debts which hit more than $10 billion in 2009 and this has led to a tied-up questioning asset that is holding almost half of Nigerian banks. The central bank of Nigeria fired eight chief executive officers and set aside $ 4.1 billion in order to bail out almost 10 of the country‟s lenders.

The reform which was introduced by the Central Bank of Nigeria (CBN) in 2010 has made Nigerian banks resume lending supporting assets management companies and set up the requirement which will allow Nigerian banks to make full provision for bad debts that will boost the market.

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