Thesis Abstract

Abstract
The incidence of bad debts and credit management in Nigeria's commercial banks is a critical issue that has significant implications for the stability and profitability of the banking sector. This research aims to investigate the causes of bad debts in commercial banks in Nigeria and evaluate the effectiveness of credit management practices in mitigating this problem. The study utilizes a mixed-methods approach, combining quantitative analysis of financial data with qualitative interviews with bank managers and credit officers. The findings reveal that the primary causes of bad debts in Nigerian commercial banks include weak credit risk assessment practices, inadequate collateral requirements, poor loan monitoring mechanisms, and economic factors such as fluctuating interest rates and inflation. These factors contribute to a high level of non-performing loans in the banking sector, which not only erode bank profitability but also pose systemic risks to the financial system. In terms of credit management practices, the research identifies several areas where improvements can be made to enhance the effectiveness of risk management and reduce the incidence of bad debts. These include strengthening credit risk assessment processes through the use of advanced credit scoring models and stress testing techniques, implementing robust loan monitoring systems to track borrower performance, and enhancing collateral valuation practices to ensure adequate security for loans. Furthermore, the study highlights the importance of effective collaboration between credit officers, risk managers, and senior management in developing and implementing sound credit policies and procedures. It also emphasizes the need for continuous training and capacity building for bank staff involved in credit management to enhance their skills and knowledge in assessing credit risk and managing loan portfolios effectively. Overall, the research underscores the critical role of credit management in safeguarding the financial health of commercial banks in Nigeria. By addressing the root causes of bad debts and improving credit risk management practices, banks can enhance their profitability, strengthen their resilience to economic shocks, and contribute to the stability of the banking sector. The findings of this study provide valuable insights for policymakers, regulators, and bank management in formulating strategies to address the challenges of bad debts and enhance credit management practices in Nigerian commercial banks.

Thesis Overview

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

In a modern Economy, there is a distinction between surplus economics units and the deficit economics units and in a separation of the saving investment mechanism. This has necessitated the existence of financial institutions whose jobs includes the transfer of funds from savers to investor. One of such institution is the commercial Bank.

The commercial Banks are regarded as banks because they create money. They do this by establishing chequing account for their customers for whom they create demand deposited and pay out cash on demand.

Traditionally, the essential features of a commercial bank lies on the service it renders to its numerous customers. These services basically includes deposited stabilization, credit management money transmission, and consultancy services etc. however their most vital function and which has a great impact on the economy as a whole is credit.

The primary function of commercial bank is the extension of credit to worthy borrowers.

Commercial bank are rendering a great financial services. Through their actions production is increased, capital investments are expanded and a higher standard of living is realized.

Additionally, this functions are very important in that they distinguish bank from all other financial institutions and very unique position to manipulate the level and volume of demand deposited by limiting borrowing.

Credit extension management is one of the most intricate function performed by banks. This is so because loan portfolio is the greatest risk in the banking activity. Hence if due care and prudence is not exercised, it might result in bad debts. Bad debts are normal business expense and must be charged as such when calculating the profit and loss for the period.

Besides, business sin the other hand cannot exist without debt. It is now impossible to achieve any thing weather as an individual or as a group of person without going into some form of debt or the other. It seen to be generally agreed that debt is essential to business.

1.2       STATEMENT OF PROBLEM

The volume and value of bank loans which have became classified has continued to increase even a faster rate than the increase in bank lending. This has adverse effect on banks since it effects their cash flow and impairs their profitability. It is believe that most debts go bad because of the inadequacy of loan management and recovery procedure of banks.

The problem of this study is to appraise the lending and credit management policies of a typical commercial bank union bank of Nigeria Plc with a view of finding the cause and consequences of bad debts in banks.

1.3       OBJECTIVE OF STUDY

The main objective of this study is to appraise the lending procedure and loan management of banks using union bank of Nigeria plc as a test case with a view for highlighting the effectiveness and adequacy or otherwise of the credit management policy of Nigeria Banks and in reducing the occurrence and consequences of bad debts.

1.4       SIGNIFICANCE OF THE STUDY

The difference between success and failure in the banking industry’s is in the effective management of the banks loan and advance efficient loan management is vital to the protection of asset and the achievement of adequate return to investments on the technique of lending the methods of securing such lending and the pit falls that awaits the unwary banker; bys comparison there appears to be very little imprint on the subject of loan management and recovery. A study on this subject will therefore be a welcome addition to the existing volume of banking literature.

Effective loan management recognize that beyond the application of sand banking principles whenever a loan is made, there is need for urgency in appreciating the point when loan begins to look doubtful arriving at a decision as to the appropriate action and in taking that action. This will enable the bank to at best obtain full repayment including accrued interest.

In the face of increase competition among banks, future profits are likely to be harder to come and since bad debts are a charge against profit. It is appropriate that we review the methods proportions and margin of lending to bad and doubtful debts.

Hence the significance if this study to bankers. Beside the bankers more than ever before will appreciate an appraisal of their lending and control mechanism now that are expected to lend under tight monetary conditions, with it negative effects on investment outcomes.

The economy as a whole will benefit from the study because if the level of bad debts is reduced, bank will be left with more profits to enable them make the expected contribution to the development of the economy.

1.5       SCOPE AND LIMITATION OF THE STUDY

The standard of which this research is written is to cover a wide and reasonable ground. This wide coverage will help us to understand fully the study of credit management. To under score this point efforts were made to cover such are, as that will make the work meaningful.

In view of these the research has connived on the knowledge gathered from textbooks of accountancy and finance ad some relevant Journals magazine. These were really explored by considering the ideas gathered in the write-up.

1.6       DEFINITION OF TERMS

Bad debt:- These are loans that the borrowers are unwilling or unable to repay due to one reason or the other.

Credit management:- It is a money transmission and consultancy services etc.

Commercial Banks:- A bank means any firm incorporated and licensed by the central bank of Nigeria to carry on the business of banking.

FUNCTION OF COMMERCIAL BANKS

Deposit Acceptance

Agency services

Standing order

Foreign Exchange facilities