– Sound Credit Management as a Survival Strategy for Commercial Banks in Nigeria (2005-2010) –

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ABSTRACT

The growing cases of classified debt and the increasing trend in the yearly provision for bad and doubtful debt in commercial banks suggest that there may be errors in the administration of credit by commercial banks in Nigeria. With this background, the tending polices and credit management, in a typical commercial bank.

The union bank of Nigeria plc was appraised with a view to ascertain the cause of consequences of bad debts as well as to find ways and means of reducing the incidence of bad debt thereof. The researcher thought test techniques are intended to determine the extent to which inadequate collateral security provision by borrower increases the incidence of bad debt in the bank of Nigeria plc.

He also investigated whether fund diversion has nay effect on bad debts of union bank from (2005-2010). A questionnaire was used to collect a debt; this was supplemented with oral interviews and published reports. Two hypotheses were formulated and tested with chi-square. The result of the test shows that inadequate collateral provision by borrowers increased the incidence of bad debt in union bank.

Base on these, the researcher made his recommendations and conclusion that banks should lend to the viable projects and ensure that it is backed by adequate collateral. Ti is suggested that further research in this area should examine community bank like federal mortgage bank of Nigeria (FMBN).

TABLE OF CONTENTS

Title page                                                             i

Approval page                                                   ii

Dedication                                                         iii

Acknowledgement                                            iv

Abstract                                                              v

Table of content                                                vi

CHAPTER ONE

1.0 INTRODUCTION                                  1

1.1 Background of the study                            1-2

1.2 Statement of problems                               3

1.3 Objectives of the study                               4

1.4 research questions                                      5

1.5 Statement of hypothesis                            6

1.6 Significance of the study                            6

1.7 scope of the study                                        6

1.8 Limitation of study                                     7

1.9 Definition of terms                                    8-9

CHAPTER TWO

2.0 REVIEW OF RELATED LITERATURE          10-12

2.1 Government control over credit                                   13-17

2.2 Provision and types of credit                                       18-25

2.3 Determination and granting credit facility             26-33

2.4 Securities for lending and perfection                       34-41

2.5 Credit control and analysis                                        42-46

CHAPTER THREE

3.0 RESEARCH METHODOLOGY                        47

3.1 Introduction                                                                  47

3.2 Theoretical framework                                               47

3.3 Sources of data                                                         48-49

3.4 Sample size                                                                  50

3.5 test techniques                                                            51

3.6 Data analysis                                                              52

CHAPTER FOUR

4.0 PRESENTION AND ANALYSIS OF DATA    53

4.1 Introduction                                                            53-6

  1. 2 PRESENTATION OF DATA 64

4.3 Analysis of data of test                                          65-67

4.4 TEST OF HYPOTHESIS

4.5 INTERPRETATION OF RESULT                       68-69

CHAPTER FIVE

5.0 SUMMARY OF FINDING, CONCLUSION AND RECOMMENDATION

5.1 Summary                                                                 70-71

5.2 Conclusion                                                              72

5.3 Recommendation                                                    74

Bibliography

Appendix

INTRODUCTION

The primary function of a commercial bank is the extention of credit to worthy borrower. In making credit available, commercial banks are rending a great social service, through their actions production is increased, capital investments are expanded and a higher standard of living is realized. Banks make it possible for industries to produce a layered quality of goods and services which many remain in stock as or reprocessed into another form.

A good example is the food industry where the quality produced maybe for in excess of what can be consumed immediately. When credits are granted, they are expected to be paid at the expected schedule time. But when deadlines are not met, the result is bad debt. Bad debt is a debt which is unlikely to be paid which are written off from the account.

To minimize the incidence of bad debt which are in most cases caused by poor credit management, there has to be adequate knowledge of credit management by thee vested with the responsibility of granting loans to customers. In the past when regulation and control were inadequate, there was a high incidence of classified debts (doubtful debt), and many of these were later written off as bad debts which eventually reduce profit.

Today, the central bank has woken up to the challenges of poor credit management which has brought about the “distress syndrome” in many banks. It has issued out many circulars and guidelines to commercial banks and a lot of returns firm weekly, monthly, quarterly, yearly and bi-yearly are expected to be rendered to the central bank of Nigeria.

STATEMENT OF PROBLEMS

Poor credit management could be attributed to the talk of adequate credit policy adopted by the management. Every banker should, as a matter of routine design its supervision and follow- up forms in such as way that all relevant and critical information would be collected at any given point in time in order to reduce bad debt. Bad debt has been the major outcome of poor credit management and not properly regulated will affect the bank greatly.

Credit administration should involve follow up exercise, physical examination and supervision of end-use of funds provided by the bank as loan or overdraft whereas advances control shuts returns in academic exercise detail of which are copied from customer valance files and other records in the bank. Credit managers must be well knowledgeable in the entire process of granting loans and must adhere strictly to the rules governing the granting of such credit. The reason for giving out credit must be well stated.

StudentsandScholarship Team.

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