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CREDIT MANAGEMENT AND INCIDENCE OF BAD DEBTS IN NIGERIA COMMERCIAL BANKS

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Banks economic purpose is to act as financial intermediary. It facilitates the process of channeling savings into investment and one of the avenues of realizing this objective is by lending effectively. Lending is considered effective if it is successfully reconciles with the banks obligation to maximize liquidity to the depositor and maximum profitability to the shareholder. It involves environmental analysis of banks objectives, resources possibilities and constraints economic environment. The resources flow and potentials in the economy as well the government, therefore involves a thorough appraisal of the position including the analysis of the financial statement, analysis of security to be offered and management competence specifically.

Lending requires development of clear-cut loan policy. Strong department organization loan review programme comprehensive credit files among other things. In the light of the above, a bank being under obligation to the shareholders and realizing the fact that the interest accruable from advance constitute the largest chunk of the annual income declared by bank considering also that banks lend to meet the economy in general. They should constitute religious commandment rather than mere techniques and guidelines, which have serious limitations. Political interference may go contrary to the laid down policy guideline.

From the fore going, it was recommended amongst others the state owned commercial banks should be effectively managed. Banks should use the services of external consultants/professionals to manage and collect debts on the account classified as doubtful and to avert the diversion of funds by some borrowing. The bank should try as much as possible to deal directly with contractors or suppliers of the borrowers, as the case may be. Much of the occurrence of bad debts cannot be eliminated totally its hope that the suggestion made in this treatise will in no small measures reduce its incidence by a wide margin. In the ordinary course of lending however, bankers unavoidably remain uncollectible and hence, charge against the income generated with the obvious afar matters of depleting profit and in some severe circumstance liquidates the affected bank. All business regrettably, experience bad debt but bankers whose stock in trade is money view debt incidences with dread.

1.2 STATEMENT OF THE PROBLEM

i. African continental bank closed down by central bank of Nigeria because of the incidence of bad debts resulting from inefficiency of the bank workers and dishonesty.

ii. This unfortunate trend in the Nigeria banking industry had left creditors of the bank loose their money and their dividends as bad debts.

iii. Conflicts between boarders and management banks or among members of the board and management. This caused dissipation of bank resources and the entrenchment of inimical operating parties.

iv. African continental bank was also closed down due to doubtful debts, which gave rise to fraud and other unethical practices represent the most dominant factor responsible for its distress. It can often be traced to the very high incidence of bad debts and loan losses. This could be called fraud and unprofessional conduct.

v. Weak internal control most operational problems are by and large symptomatic of poor quality management. The quality of management often makes the difference between success and failure in banking as in most often frauds of economic end eave.

1.3 PURPOSES AND OBJECTIVE OF THE STUDY

1. The objective of this study is to critically analyze the incidence of bad debt in our banking sector.

2. How credit are being managed in Nigerian commercial banks.

3. The affected growth and profitability of commercial banks with view of finding

4. The lasting solution to regular occurrence of bad debts in Nigerian commercial banks.

1.4 SIGNIFICANCE OF THE STUDY

In the study relating to African continental bank, a conscientious bank investigation will be undertaken on the lending issued that led to its collapse. An overview of the mancour, view institute meaningfully to the achievement of its objective, while leaving behind a source of reference to other banks who and probably in similar difficulty, the relevance of the study is under come in its desire to assist banks confirm the multifarious help about and account operation through the flagging position of his account, account could be easily.

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