Evaluation of bank lending and credit management in nigeria ( a case study of first bank)

Project Abstract

The banking sector plays a crucial role in economic development by providing financial services such as lending and credit management. This study focuses on evaluating bank lending and credit management practices in Nigeria, with a specific case study of First Bank. The research aims to assess the effectiveness of lending practices at First Bank and examine the credit management strategies employed by the bank. To achieve the research objectives, a mixed-methods approach will be used, combining both qualitative and quantitative data collection methods. Primary data will be collected through interviews with key bank officials, while secondary data will be gathered from financial reports, publications, and existing literature on banking practices in Nigeria. The study will evaluate various aspects of bank lending, including the loan approval process, risk assessment techniques, interest rate determination, and collateral requirements. Additionally, the research will analyze the credit management framework at First Bank, focusing on loan monitoring, delinquency management, and recovery procedures. By examining the bank lending and credit management practices at First Bank, this study intends to provide insights into the overall effectiveness of these processes in the Nigerian banking sector. The findings from this research will not only contribute to the existing literature on banking practices but also offer practical recommendations for improving lending and credit management in Nigerian banks. Overall, this research is significant as it addresses a critical aspect of banking operations that directly impacts the economy. Effective bank lending and credit management are essential for ensuring financial stability, promoting investment, and facilitating economic growth. Therefore, by evaluating these practices at First Bank, this study seeks to enhance understanding of the challenges and opportunities in the Nigerian banking sector and provide valuable insights for policymakers, regulators, and banking institutions.

Project Overview

<p> </p><div><p><b>INTRODUCTION</b></p><p><b></b></p><b><p><b>&nbsp;</b></p><p><b></b></p><b><p>Commercial<br>Banks operate to mobilize deposits from the populace and<b></b></p><b><p><b></b></p><b><p>keep. Some in trust payable on<br>demand. Through the performance of this role, Banks act as reservoir for<br>surplus funds and thus lend safe portion of these funds to clients that have genuine<br>needs for them. The banks have special responsibility to ensure effective<br>management of these funds kept in trust with them by depositors. Chester A Rude<br>puts it that the way and manner in which funds are handled “determines whether<br>they are laying a sound foundation or creating future problems for either the<br>borrower, themselves or the economy” If bankers unnecessary withhold credit,<br>the business suffer and so do the economy.</p><p>Lending activities are<br>prominent at all levels of our economy, which gave rise to loan management and<br>credit administration. This credit analysis, documentation, disbursements and<br>monitoring of loan to ensure repayment of both principal and interests on due<br>dates becomes pertinent.</p><p>One of the goals credit extension is to achieve<br>prompt repayment on due dates thus loan management typically involves credit<br>appraisal and administration.</p><p>Lending carries a reasonable portion of resource exposure<br>of commercial Banks in Nigeria. Therefore, the ability of a bank to generate<br>much profit is largely a function of effective and efficient management of its<br>lending portfolio. Due to its trustee status and in order to protect the<br>depositors Nigerian banks are being</p></b></b></b></b></div><b><b><b><div><p>xi</p><p>guided in their operations by so many regulatory bodies in<br>order to avert bad lending and liquidity problems. Operations and prudential<br>guideline by the Central Bank of Nigeria are always in place.</p><p>Inspite of measures, which is<br>aimed at protecting depositors and other public interests, the incidence of bad<br>and doubtful debts resulting from lending activities has been on the increase<br>in commercial Banks in Nigeria. This is as a result of negation in the primary<br>objectives of granting credit and profit objectives of banks, hence the need<br>for an appraisal of the present lending and credit administration techniques.</p><p>1.1 &nbsp; &nbsp; &nbsp; &nbsp;<br><b>STATEMENT OF THE PROBLEM</b></p><p>Most Commercial Banks in<br>Nigeria are currently being threatened by huge bad debt burden. This incidence<br>has eroded the confidence in the industry and eroded shareholder funds in most<br>cases. Have BOFID (1993) and prudential guidelines helped in arresting these<br>trends? The roles of regulatory framework is analysed to ascertain level of<br>assistance to the financial system.</p><p><b>1.2 &nbsp; &nbsp; &nbsp; &nbsp;<br></b><b>OBJECTIVES OF THE STUDY</b></p><p><b></b></p><b><p><b>&nbsp;</b></p><p><b></b></p><b><p>In<br>the light of credit polices of commercial Banks vis-à-vis regulatory<b></b></p><b><p><b></b></p><b><p>guidelines,<br>this research work has the objectives to evaluate or appraise various<br>techniques in the Administration of Bank lending from the point of disbursement<br>to the point of recovery at the same time identify causes of increased level of<br>bad debt profanation. The research has also identified reasons</p></b></b></b></b></div><b><b><b><div><p>xii</p><p>for<br>bad debts provisioning and recommend appropriate strategies that may be<br>appropriate in reducing debts write off.</p><p>The study also has objective<br>of ascertaining credit appraisals and the effect bad debt provisions on income<br>of Commercial Banks.</p><p><b>1.3 &nbsp; &nbsp; &nbsp;<br></b><b>HYPOTHESIS:</b></p><p><b></b></p><b><p><b>&nbsp;</b></p><p><b></b></p><b><p>1. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>There is high correlation between lending and<br>Bad debt portfolio in Nigerian Commercial Banks.</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>The credit policies of Banks and regulatory<br>guidelines if properly implemented can help reduce bad and doubtful portfolios<br>in Nigeria Banks.</p><p><b>1.4 &nbsp; &nbsp;<br></b><b>SIGNIFICANCE OF STUDY</b></p><p><b></b></p><b><p>The current spate of liquidity problem<br>vis-à-vis distress syndrome being experienced in the Banking industry is a<br>function of lending policies and poor credit management. This trend has given<br>rise to colossal losses of shareholders fund and depositors had earned savings.</p><p>Therefore this research work is apparently<br>going to be useful to top level managers who may find the recommendation and<br>suggested strategies useful in managing credit portfolios. In similar manner,<br>branch and credit managers will be guided on loan disbursement to ensure strict<br>adherence to lending guidelines and economic analysis of environment.</p><p>Banks shareholders would be<br>able to acquaint themselves on the adverse effect of bad debts hitherto covered<br>by management of their respective Banks.</p></b></b></b></div><b><b><b><div><p>xiii</p><p>Again students of Finance will find this piece of academic<br>work useful in their academic pursuits.</p><p><b>1.5 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br></b><b>SCOPE OF STUDY</b></p><p><b></b></p><b><p>The research work limit itself to one<br>case-study i.e FIRST BANK PLC. The investigation was conducted at Branch level<br>and annual reports material made available to the researcher.</p><p>The research focused on lending process before<br>and after disbursement up till final repayments with emphasis on effects,<br>causes and remedies of Bad Debt.</p><p>The assumption of this research include<br>the following</p><p>(i) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br>That all Commercial Bank grant facilities to<br>worthy clients with high expectation of 100% repayments of principal plus<br>interests</p><p>(ii) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>That all Commercial Banks in Nigeria are<br>governed by same operational guidelines offered and professional conduct as<br>issued by Central Bank of Nigeria in addition to their internal policies</p><p>The study is limited to<br>facility with repayment tenor of between 1 – 5 years duration.</p><p><b>1.6 &nbsp; &nbsp; &nbsp;<br></b><b>DEFINITION OF TERMS</b></p><p><b></b></p><b><p>In order to have a common knowledge and understanding<br>between Research work and the meaning transmitted to its targeted<br>beneficiaries, it beholds that a clear and unambiguous definition of words<br>often used in the study be given. Although the words may have numerous<br>meanings, the one given</p></b></b></div><b><b><div><p>xiv</p><p>herein should be regarded<br>as those referred to their usage in this research work.</p><p>Some of the “words” are<br>defined as follows.</p><p>i) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br><b>LENDING</b>: A process by which a<br>Bank customer is founds for specifiedpurpose and specified period of<br>time with a promise to repay the amount borrowed and applicable interest.</p><p>ii) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br><b>CREDIT</b>: This involves giving<br>(receiving) goods or purchasing powernow in return for a promise to<br>receive or re-pay the goods or purchasing power later. It is the sale of goods,<br>services or money claims in the present in exchange for promise to pay (usually<br>money) in the future. It includes a power to to repay both principal and<br>interest instalmentally or in lump – sum in the future. BAD AND DOUBTFUL DEBT.<br>This may be defined as a loan or debt, which has become irrecoverable at date<br>of maturity. A loan may be termed bad or doubtful on event of borrowers failure<br>to repay the loans in accordance with terms and conditions of the agreement.</p><p>iii) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br><b>ANTICIPATORY DEFAULT</b>: On<br>the other hand recognizes thehappening of certain events which are ipso<br>factor conclusive evidence of default whether or not the loan or the interest<br>has fallen due”</p><p>(Banking<br>digest and Finance Vol. 5).</p><p>iv) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br><b>FINANCIAL INTERMEDIATION</b>: This<br>is defined as financialtransactions, which bring savings surplus units<br>together with savings deficit units so that savings can be redistributed into<br>their most productive uses.</p></div><p>xv</p><p>v) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>SECURITIES: This may be defined as something<br>that provides safety, freedom, from danger or anxiety, something valuable for<br>example a life insurance policy given as pledge for the repayment of a loan or<br>fulfillment of a promise or undertaking.</p><p>vi) &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<br><b>COLLATERAL SECURITY</b>: This<br>is any security deposited by a thirdparty to secure the indebtedness of<br>the customer with the advantage that in the event of bankeupty or liquidation<br>of the borrower, the value of such securities may be ignored in the proof of<br>dividend against the fail estate.</p></b></b></b></b></b></b></b></b></b></b></b> <br><p></p>