ABSTRACT
This made efforts to assess the management of Loans and Advances in Nigeria Commercial banks. The research was prompted by the growing rate of bank loans and advance default cases that result to collapse or disaster and se4rious situation led to distress of many banks institution in our country. However, the objectives set of this study includes; to ascertain the best conditions that will be appropriate to manage and checkmate the granting of loans and advances in the Nigeria commercial banks, to determine the causes of repayment failure and defaults of loans and advances, to investigate the factors that influence high degree of bad debt and doubtful debts etc. The researcher equally formulated hypotheses in line to the objectives and research question. The primary data was collected using questionnaire that was distributed to the four banks of the study at the end 180 questionnaires was returned. The data was presented using percentage frequency and the hypotheses were tested using the z-test statistical tool. Then the study discovered the following, – that honesty of the credit applicant, provision of adequate collateral security, economic condition prevailing in the country, banking regulatory guideline of transparency and accountability, strength of the applicant business and the viability of the project are the pre-requisite factors banks considered before granting loans and advances, that the major causes of failure and default of loans and advance repayment include, fund diversion, risk/ unstable environment, fluctuation of exchange rate and inflation, poor evaluation and inadequate managerial skills, poor supervision and monitoring, poor sighting and hasty investment, illiquidity of financial instrument and high interest rate, and that the factors that influenced high degree of bad debt and doubtful debts in the bank includes, poor record-keeping and transaction, over-the counter (OTC) trading and excessive insider abuse, poor transparency and honesty excess load non-recovery, favouritism and incompetence & poor management etc. While the following suggestions were given – there should be an increased and renewed vigour on training continuously the workforce on the measure to curtail incompetence in their operation, there should be an improve laws, regulations and conditionalties that must strictly enforced and uphold to minimized load repayment default, and distress, there should be strengthened attempt to regulate, measure appraisal commercials banks regularly to discover and punish any bank that “abuse” the prudential guidelines for loans etc.
The general and pertinent view of the study support the statement that the success or failure of the commercial banks in achieving their objective of maximizing profit depend s on how well the loans and advances are managed.
TABLE OF CONTENTS
Title page……………………………………………………………… i
Approval page………………………………………………………… ii
Certification………………………………………………………….. iii
Dedication…………………………………………………………….. iv
Acknowledgements…………………………………………………… v
Abstract………………………………………………………………. vi
Table of content ……………………………………………………. vii
CHAPTER ONE
1.0 Introduction………………………………………………………… 1
- Background of the Study ………………………………………. 1
- Statement of the problem……………………………………….. 3
- Objective of the Study,…………………………………………. 4
- Research hypothesis ……………………………………………. 6
- Significance of the Study ………………………………………. 7
- Scope of the Study…………………………….. ………………. 8
- Limitation of the Study…………………………………………………………. 9
CHAPTER TWO
2.0 Review of Related Literature ……………………………………… 11
2.1 The Introduction………………………………………………….. 11
2.2 The basic commercial Bank’s Lending and Advances principles…15
2.4 Objective and policies of Lending …………………………………17
2.5 The sources of Commercial Banks Funds………………………….20
2.6 Lending principles and practices in Commercial Banks………….. 23
2.7 Classification of Bank Loans……………………………………… 26
References ………………………………………………………… 30
CHAPTER THREE
3.0 Research Design and Methodology ……………………………… 31
3.1 Introduction ……………………………………………………… 31
3.2 Research Method used…………………………………………….. 31
3.3 Sources of Data …………………………………………………… 31
3.4 Population of the Study …………………………………………… 33
3.5 Method of Data Analysis ………………………………………….. 33
References …………………………………………………………35
CHAPTER FOUR
4.0 Data Presentation and Analysis ……………………………………. 36
4.1 Introduction …………………………………………………………36
4.2 Data presentation Analysis ………………………………………… 37
4.3 Hypotheses Testing ……………………………………………. 45
CHAPTER FIVE
5.0 Summary of Findings, Conclusion and Recommendations ……….. 55
5.1 Summary of Findings……………………………………………. 55
5.2 Conclusion ……………………………………………………… 57
5.3 Recommendations………………………………………………. 58
Bibliography…………………………………………………….. 59
Appendix …………………………………………………………
61
CHAPTER ONE:
1.0 Introduction
1.1 Background of the Study
Commercial banks are “retail banking institutions” that accept deposits and make short-term, medium-term, and long-term credits available to government, public/private business enterprises, and individuals. Some of their functions include accepting deposit through current and savings accounts; fixed deposit and others, granting of loans and advances, equipment leasing, loan syndication; financing advisory services; trade and export finance; other investments and foreign remittances. The relationship between Commercial bank and others financial institutions in terms of functions, limits, and modus operandi are spelt out in the Bank and other financial institutions Decree 25 Banking and other financial matters decree (BOFID)of 1991. The Banking and other financial matters decree (BOFID) Decree 25 of 1991 in particular permits some other financial institutions like Merchant Bank, Development Bank and Insurance companies to engage in granting loans through mostly medium and long- term in nature.
This research work is mainly done on the management of loans and advance (short, medium-term, and long-term) granted by the Commercial bank in Nigeria. Granting of loans and advances is an integral part of the functions of the Commercial Bank but one of the most risky one. It is based on its risky nature that made it an interest of study focus in terms of its management by the commercial banks.
Filder (1982:249), states that it is a known fact that loans and advances are granted at a profit. Most loans and advances are granted out of the deposits accepted by the commercial banks or funds borrowed at a lower interest rate. The difference between the interest paid out plus share of management cost and the loan interest received makes up the profit to the commercial bank.
The success or failure of the Commercial Banks in achieving their profit objective very much depends on how well the loans and advances are managed.
An efficient lending policy will in every ramification reduce the incidence of bank distress and generally increase the wealth of the owners of the bank as a business. It will equally help in revitalizing and boosting the economic activities in the country.
According to Teriba (1990:21), a situation where the bank lending policy is weak and inadequate makes loan and advances management difficult and this result to shoot-outs of several problems in the development of the economy. Any economy with inadequate level of loan and advances, stringent lending policy and obvious huge bank bad-debts and provisions has a dull future in terms of its overall development. It is this incidence of poor management of commercial bank loan and advances in the Nigerian economy that has promoted my idea of instituting this scholarly investigation as a way to findings lasting solution to the problems.
1.2 Statement of the Problem
As earlier noted, that granting of commercial bank loans and advances is one of the most risky businesses entered into by the commercial banks. The risk nature of commercial bank credit on customer who fail to meet up with their credit facilities results to huge amount of bad-debts and provisions for bad-debts.
The following fundamental problems rise from poor handling of commercial bank loans and advance:
