BACKGROUND OF STUDY
Credit policies are rules and regulations as well as other consideration that guide a bank or other financial institution credit decision taking includes who receives the credit, the amount of credit and organization structure for it’s distribution, Robere (2007), states that a bank credit policy should set out the bank lending philosophy and objectives including, appraisal for implementation, monitoring, appraisal and review.
In a rational profit maximizing world, banks should maintain a credit policy of lending if only if borrowers have positive net present value projects. Why then are changes in credit policy seemingly correlated with changes in condition of those demanding credit? . this paper argues that rational bank managers with short horizons will set credit policies that can be influenced by other banks and demand side conditions. Nwakwo (2008) to facilitate lending, reduce risk and maintain standard in economic development, the loan policy or bank should specify the quantity of loan to be made, which loan should be secured and which should not, the type and quality of acceptable securities and the loan security that are in admissible, some of the factor to consider in drawing up a credit policy include the risk associated with various types of loans, the need for diversification to spread the risk liquidity consideration, type of customers, the capability of the personal and the relative profitability of the various types of loans.
STATEMENT OF THE PROBLEM
Despite the effort made at providing finance and ensuring that regulating environment in conducive, through the repealing of regulations that where inimical to orderly growth and development of Nigeria economic there are still areas that have not beer addressed. These are the credit delivery of financial system to the economy. This instability of the banking sector is adversely affecting business. This is because they lack adequate collateral securities for the credit facilities as such as credit policy affect the development of the economy.
PURPOSE OF THE STUDY
The purpose of the study is to examine the effect of credit policies of financial institution and its relevance to economy development and to further examine the following:
To examine whether credit policy of financial institution affect aggregate output and productivity in Nigeria economy.
To know whether credit policy of financial institution is favorable to economic development.
To identify the various credit policies scheme and their effect on the growth at economic development.
To examine whether lack of collateral security has hindered business from credit facilities.
To examine whether government policy on credit administration is favorable to business.
For the purpose of this study, the following research questions were raised
Does the credit policy of financial institution affect aggregate output and productivity in Nigeria economy?
Does the credit policy of financial institution favorable to economic development?
Does government policy on credit administration favorable to business growth?
Does small and medium scale enterprises have any contribution to the growth and development of country’s economy?
STATEMENT OF HYPOTHESIS
H1: There is relationship between credit policy and financial institution and economic growth.
H0: There is no relationship between credit policy and financial institution and economic growth
H1: Credit policies of financial institutions has led to better performance of the institution.
H0: Credit policies of financial institution has not led to better performance of the institution.