EFFECT OF CREDIT MANAGEMENT IN BANKS PROFITABILITY AND GROWTH IN NIGERIA ECONOMY (A CASE STUDY OF CENTRAL BANK OF NIGERIA ILORIN BRANCH)

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EFFECT OF CREDIT MANAGEMENT IN BANKS PROFITABILITY AND GROWTH IN NIGERIA ECONOMY (A CASE STUDY OF CENTRAL BANK OF NIGERIA ILORIN BRANCH)

CHAPTER ONE

INTRODUCTION

Bank lending evolved from the beginning when the goldsmith discovered that only small proportion of the money kept with him to save was in fact required by the depositor at any point in time and that he could safely lend the rest to borrowers and charge interest thereon.

Commercial Banks hinged their consistent existence in the profession on profit making or profitability. Hence, it is chiefly regarded as aspect of financial operation system with a very high risk business. In definition, commercial banks are seen as a financial institution setup by individual(s) and even the government for keeping and lending money to their respective customers with the view of making profit from such transaction.

The place of commercial banking in the national polity is so peculiar such that the banks engaging in commercial activities are very important in the achievement of most governmental, economic and fiscal policies objectives. One of the major aspects of the business of commercial banks is that of extending credit to other sectors of the economy for their smooth operation. The process of extending their credit is however known as “LENDING”

However, undertaking the lending function exposes the commercial banks to several risks, particularly credit risk, which is the risk that bank will lose either the whole of the principal of part of it or the interest thereof.

Lending services by banks is being managed by the credit management portfolio of the bank. To ensure proper management therefore, credit management cannot be overemphasized.

According to “PANDY” (2008) Credit Management can be defined as the procedure, steps and action taken in the loan recovery and lending a stated in the credit. Policy manual. Credit management concern itself with the formulation of credit policies with frame work of banks overall corporate objectives.

Credit policy influences the management of credit. A good policy must adequately provide and state procedure in granting different types of credit, credit portfolio and policies for lending officers.

Apparently, the role of commercial bank is basically intermediation. This involves the act of mobilizing fund the surplus areas as deposits and passing of these funds to the difficult area as loans and advances. The depositors that keep their money with the banks do so, based on trust they expect to credit their money back on demand or as agreed upon.

Consequently, the commercial bank is faced with the responsibility of not only ensuring that the loans and advance are repaid as at when due, but also ensuring the depositors can have their funds on demand or as agreed upon, the way and manner the lending function is carried out in any commercial bank may have far reaching implications on the liquidity of the banks. More so, the lending functions also affect the profitability of the bank as well as its continued existence and future survivals.

STATEMENT OF THE PROBLEMS

Lending through very profitable and important to the bank and customer posses some risk. Distress in the commercial banking industry can be attributed to poor credit management and loan policy, many loans have proven bad due to non- repayment by the customers. Inconsistency and inefficiency of lending officers to make appropriate judgment in the allocation of loans.

As a result of the complexity and inefficiencies in the lending function of the banks, this study is intended to examine how a well articulated credit policy and credit management can reduce to a considerable extent. The research study provides answer to the following questions:-

What are the practices of Nigerian banks in their lending function and in the management of loans and advances?

What are the general principles and concept of lending in banking?

What benefit and impact can efficient and effective lending function can have on the bank, the customers, the banking system and the economy at large?

What significant steps and action can be taken to drastically reduce the incidence and the causes of bad problem loans, and also to reduce bad lending?

What are the importances of lending?

OBJECTIVES OF THE STUDY

To highlight the general principles and concept of lending banking industry.

To determine and know whether commercial banks follow the general acceptable principle and practices of lending in Nigeria.

To examine the benefits and impacts an efficient and effective lending function can have on the banks, the customers and the economy at large.

To discuss significant steps and action that can be effective completion and quality of the research work.

To discuss the importance of lending and credit management.

SIGNIFICANCE OF THE STUDY

Finding from this study will be used to commercial banks, in the sense that it would let the bank clearly understand and appreciate the appropriateness of proper lending and credit management on banks profitability growth, as a useful means for banks to be able to meet their day to day obligations.

Also, effective credit management help in enforcing government, laid down rules and regulations pertaining to lending of a certain amount of money and also at a particular point in time.

The study will also be benefit to the students in knowing the rules and principles guarding lending and credit management for future career.

Lastly, the study will also be of benefit to the public (Bank-Customer) to let them know that there are principles for lending; this will make them to be prepare for any future borrowing.

LIMITATIONS OF THE STUDY

This study has chosen Central Bank of Nigeria out of the twenty four mega banks to critically examine the effect of lending and credit management on banks profitability growth

However, the research work has been constrained as to time, lack of recent and adequate materials. Lack of corporation of the case study. Hence, effort has been made to ensure the above limitation did not hinder effective completion and quality of the research work.

RESEARCH METHODOLOGY

The research work on the effect of the lending and credit management on the banks profitability and growth. The research work were gathered from two main sources of data i.e. primary and secondary sources of data.

The primary data employed include questionnaire and interview, while the secondary data include textbooks, internet, journals, current annual reports e.t.c.

DEFINITION OF TERMS

LENDING: – It involves the granting of loans and advances to various customers of the bank.

CREDIT: – It is the transaction between two parties in which one, the creditor or lender supplies goods money return for promised future payment by the other known as the debtor or borrower.

MANAGEMENT: – This is the process of designing and maintaining an environment in which individual working together in group efficiently accomplishes selected aim.

CREDIT MANAGEMENT:- Is the process of ensuring that all loans and advances, banking or accommodation granted to a customer by a bank are well managed to ensure that the facility run to a satisfaction according to the term governing them are ultimately on the due data.

LIQUIDITY: – This is the ability of banks to convert assets into case with minimum risk cost and delay.

PROFITABILITY: – This is the ability of banks to make profit for its shareholder and the ability to have left over after all expenses have been deducted with out any liability.

RISK: – This is the situation whereby the outcome of an occurrence hence a known or estimable probability.

BAD DEBTS: – These are debts that are irremovable or uncountable and no longer bankable assets, they are debt that have not been and are not expected to be paid.

NON-PERFORMING LOAN: – These are loans and advances upon which the bank has experience default from customer in terms of repayment of the principal amount or interest.

PLAN OF THE STUDY

Chapter one is the introduction aspect while chapter two is the literature review.

Chapter three deals with the research methodology and chapter four include the data presentation and analysis.

Finally, chapter five contains the findings, summary of the study, conclusion based on the data analyzed and recommendations of the study.

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