The Credit Management And The Incidence Of Bad Debt In Nigerian Money- Deposit Banks

The Credit Management And The Incidence Of Bad Debt In Nigerian Money- Deposit Banks

Chapter One

Preface

Background Of The Study

In a ultramodern frugality, there is distinction between the fat profitable units and the deficiency profitable units and immateriality a separation of the savings investmentmechanism.This has needed the actuality of fiscal institution whose jobs include the transfer of finances from saviors toinvestors.one of similar institution is the plutocrat deposits banks, the intervening places of the plutocrat- deposit banks places them in a position of trustees ´ ´ of the saving of the extensively dispersed fat profitable units as well as the determinant of the rate and shape of the profitabledevelopment.The ways employed by bankers in this central function should give them with perfect knowledge of the issues of advancing similar that finances will be allocated to investments in which the probability of full payment iscertain.However, in practise no similar tool can be set up in the decision of the lendingbanker.Virtually all advancing opinions are made under creditors onuncertainty.The threat and query associated with lending decision, situation are so great that the generalities of threat and threat analysis need to be employed by advancing bankers in order to grease sound decision- timber andjudgement.This statement implies that if pitfalls are to be objectively assessed, advancing opinions by the plutocrat- deposit banks should be grounded less on quantitative data and further on principles too private to give sound and unprejudicedjudgement.Furthermore, the banks depend heavily on literal information as a base for decision timber.

supposedly apprehensive of the crunches of his opinions base, the lending banker has frequently sought solace in palpable and marketable means as security giving the print that advancing against similar securities is an insurance against baddebts.this makes the banker perfunctory with his loanportfolio.The adding trend of vittles for bad and doubtful debts in utmost plutocrat- deposit banks is a major source of concern not only to operation but also to the shareholders who are getting more apprehensive of the troubles posed by thesedebts.Bad debts destroy part of the earning means of banks similar as loans and advances which have been described as the main source of earning and also determines the liquidity and solvency which induce two major problems, That’s profitability and liquidity, has to earn sufficient income to meet its operating costs and to have acceptable return on its investments.

Statement Of The Problems

The problem for this study is to estimate the lending and credit operation programs of a typical plutocrat- deposit bank( the first bank of Nigeria Plc) with a view of chancing the causes, consequences of bad debts inbanks.Year after time, banks suffer much from the part of full loan extended which has for one reason or the other provedunrecoverable.Banks lose millions of Naira in colorful bad debts yearly and despite sweats by bank operation, commission of principal inspectors and the bankers commission on the other hand, the surge of bad debts in banks is still on intimidatingproportion.This is gathered from a combination of literature reviews on the content.

On the other hand, numerous banks endured a lot of bad debts when the new government abandoned the design awarded to the contractors by mercenarygovernment.These contractors espoused to execute the design awarded to them but couldn’t repay the loan, due to government action on reramping the frugality thereby abandoning theproject.Other gests were during the time of draught or poor downfall andpest.These still led to low crop which didn’t give the growers enough time to repay their debt.

Again, experience may arise in respect of setbacks on the part of the banks creditofficers.For case, there may be surpluses over approved installation, unformatted installations and expired installations not renewed ontime.In each of these cases the client may fluently deny indeed owing the bank all or part of theamount.Money.deposit banks have always borne the burden alone, but this may not continue in future as the banks may be unfit to take the threat of advancing further but when ultimately they do, they would seek the stylish way they come out of the threat with a realistic price which they’re easily failing to achieve at present.

THE MAIN ideal OF THIS STUDY

To determine and estimate the lending procedure of banks using first bank of Nigerian plc as a case study- with a view to pressing the effectiveness and acceptability or else the credit operation policy of Nigerian banks in reducing the circumstance and consequences of bad debts.

The other objects are

i) To punctuate the rate at which shy collateral security provision by borrowers increases the frequentness of bad debt in Nigerian.

ii) To determine whether fund diversion has any effect on bad debt of plutocrat deposit banks in Nigerian.

iii) To ascertain the extent to which government intervention in advancing programs of plutocrat deposit banks has told bad debts in Nigerian plutocrat deposit banks.

iv) To punctuate the extent to which indecorous design evaluation influence bad debt of plutocrat deposit banks in Nigerian.

Exploration Questions

In view of the consequences of bad debt in Nigerian plutocrat deposit banks, it is neccessary to formulate some exploration question which will enable the experimenter formulate statistical tables for testing thesis.

1. Does shy contributory security provision by borrowers caused bad debt infirst bank of Nigeria plc?

2. Does fund diversion have any effect on bad debt of first bank of Nigeria Plc?

3. To what extent has government intervention in advancing programs of plutocrat deposit bank told bad debt in first bank of Nigeria Plc?

4. To what extent does indecorous design evaluation told bad debt of first bank of Nigeria plc?

Exploration Thesis

The following thesis were drawn as follows.

1. Ho shy collateral vittles by borrowers doesn’t increase the prevalence of bad debt in first bank of Nigeriaplc.

Hi shy contributory vittles by borrowers increases the prevalence of bad debt in first Bank of Nigeria.

2. Ho Fund diversion doesn’t affect bad debt in first Bank of Nigeria

Hi Fund diversion affects bad debts in first Bank of NigeriaPlc.

3. Ho Government intervention in advancing programs of plutocrat- deposit banks

has no influence on first Bank of Nigeria Plc bad debt.

Hi Government intervention in advancing programs of plutocrat- deposit

banks have direct influence on first Bank of Nigeria Plc, bad debt.

4. Ho indecorous design evaluation has no significant relationship with bad debt in first Bank of Nigeriaplc.

Hi indecorous design evaluation has direct relationship with bad debt in firstBank of Nigeriaplc.

Significance Of The Study

It’s hardly an magnification that the difference between the success and the failure in the banking assiduity is in the effective operation of the banks loans andadvance.Efficient loan operation is vital to the protection of means and the achievements of acceptable returns toinvestment.Though important work pullulate in the literature of the techique of lending, the styles of securing similar lending and the risks that await the unwarybanker.By comparison it appears to be veritably little in point on the subject of loan operation and recovery.

A study of this subject will thus be a welcome addition to the being volume of banking literature.

Effective loan operation honored that beyond the operation of sound banking principles whenever a loan is made, there is need for urgency in appreciating the point when a loan begins to look doubtful, in arriving at a decision as to the applicable action and in taking thataction.This will enable the bank to at least gain full payment including accrued interest or at worst to alleviate the capital loss in the face of increased competition among banks, unborn gains are likely to be harder to come in and ago bad debts are a charge against gains, it is applicable that we review the styles, proportions and perimeters of lending to bad and doubtful debts.

Hence the significance of this study to bankers will enable them to appreciate an appraisal of their lending and control medium now that they’re anticipated to advance under tight financialconditions.The frugality as a total will profit from the study because if the position of bad debts is reduced, banks will be left with further gains to enable them make the anticipated benefactions to the development of the frugality.

The Compass Of The Study

In the study of credit operation in Nigeria, first Bank of Nigeria Plc was used for myanalysis.All references thus relate to first Bank of Nigeriaplc.

A Six- time period covering 1988- 1993 will be studied.

The Limitations Of The Study

The limitations of this study include some of necessary constraints and problems encountered in theprocess.They’re as follows

i) FINANCE The problem of finance wasn’t left out in the course of exploration to this study. This type of study needed acceptable plutocrat and time to enable the experimenter visit the necesssary places for collection ofdata.Insufficient fund hindered an in- depth study of this exploration since it was financed from stingy fund plutocrat of the experimenter.

ii)NON-AVAILABILITY OF RECORDS This is one of the most important limiting factors in the course of thestudy.This includes the problems of fluently getting the applicable data due to bureaucracy which hinders the information inflow in the country.

iii)NON-CHALLANT station OF BANK officers The disinclination of bank officers to reveal information on the need for this study, for fear of breach of duty of secretiveness to guests exposure of banks executive short- appearances.

iv) IGNORANCE OF Replier/ BORROWERS utmost bank guests weresemi-illiterates and most frequently it was veritably delicate to collect acceptable data needed from them.

v) TIME Since this study is one of the numerous courses offered by the experimenter, the experimenter was constrained by time to carry out an indent exploration on the study.

Description Of Terms

DEBT This is what one owes to another person.

LOAN A Loan is a credit arrangement, a security is pledged and must be repaid with interest over a quested period of time.

OVERDRAFT This is a credit arrangement by banks to their client to withdraw plutocrat over and above that what he has in the account.

dereliction This means failure to pay one ´s debt for credit extended which has fallen due.

thesis This is a conditional statement ofconclusion.It’s a statement of claim which is to be proved right or wrong having been verified with data.

Ho Null thesis the thesis that’s being tested.

Hi Indispensable thesis the thesis that will be accepted if the null thesis is rejected.