CREDIT MANAGEMENT AND THE INCIDENCE OF BAD DEBT IN   NIGERIA MONEY-DEPOSIT BANKS. (A CASE STUDY OF UNION BANK OF NIGERIA PLC)

 

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ABSTRACT

This research work was undertaken to assess the credit management and the incidence of Bad debts in Money-Deposit Banks.This work was intended to achieve the following objectives: to appraise and determine the lending procedure of banks, to highlight the extent to which improper project evaluation influence  bad debt of Money-Deposit Banks. Relevant data were collected from both primary and secondary sources. Questionnaire was the main primary data collected instrument employed while data from various relevant publications constituted the sources of secondary data. Upon the analysis of data, the following conclusions were drawn; that sound lending requires a clear-well articulated and easy accessible policy document which spells out the philosophy of lending. On the basis of the above findings, it was recommended that banks should ensure that loans given out to customers should be backed by adequate collateral security. Finally, it is the opinion of the researcher that the management of the Money-Deposit Banks should prevent the incidence of bad debts in Nigerian Banks.

CHAPTER ONE: INTRODUCTION

1.1    Background of the study                                                                        1

1.2    Statement of the problems                                                                      2

1.3    Purpose̸ Objective of the study                                                               3

1.4    Research Questions                                                                                 4

1.5    Research Hypothesis                                                                              5

1.6   Significant of the study                                                                          6

1.7    Scope of the study                                                                                  7

1.8    Limitations of the Study                                                                        8

1.9   Definition of terms                                                                                 9

CHAPTER TWO: LITERATURE REVIEW

2.1     Theoretical Framework                                                                        9

2.2     Government control over credits                                                         23

2.3     Credit Administration in Union  bank of Nigeria plc                            26

2.4     Lending and Credit Analysis                                                                 29

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY

3.1      Research Methodology                                                                               36

3.2     Research Design                                                                                           36                                                                                                                                                  3.3      Area of Study                                                                                               36

3.4     Population for the Study                                                                                36

3.5     Sample Size Used                                                                                     36

3.6    Instrument For Data Collection                                                                38

3.7    Validation of the instrument                                                                    39

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1    Data presentation and summary of findings                                              41

4.2   Provision and Analysis of Data Question                                                   46

4.3  Test of Hypothesis                                                                                      51

CHAPTER FIVE:  SUMMARY OF FINDINGS,

RECOMMENDATIONS,CONCLUSION.

5.1  Summary of Findings                                                                                       59

5.2  Recommendations                                                                                            60

5.3  Conclusion                                                                                                        62

Appendix                                                                                                                 64

Bibliography                                                                                                             66

 

 

 

 

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

In a modern economy,there is distinction between the surplus economic units and the deficit economic units and inconsequence a separation of the savings investment mechanism.This has necessitated the existence of financial institution whose jobs include the transfer of  funds from savers to investors.one of such institution is the money deposits banks,the intermediating roles of the money-deposit banks places them in a position of “trustees´´ of  the saving of the widely dispersed surplus economic units as well as the determinant of the rate and shape of the economic development.The techniques employed by bankers in this intermediary function should provide them with perfect knowledge  of the outcomes of lending such that funds will be allocated to investments  in which the probability  of full payment is certain.However,in practise no such tool can be found in the decision of the lending banker.Virtually all lending decisions are made under creditors on uncertainty.The risk and uncertainty associated with lending decision, situation are so great that the concepts of risk and risk analysis need to  be employed by lending bankers in order to facilitate sound decision-making and judgement.This statement implies that if risks are to be objectively assessed,lending decisions by the money-deposit banks should be based less on quantitative data and more on principles too subjective to provide sound and unbiased judgement.Furthermore,the banks depend heavily on historical information as a basis for decision making.

Apparently aware of the inadequacies of his decisions base,the lending banker has often sought solace in tangible and marketable assets as security giving the impression that lending against such securities is an insurance against bad debts.this makes the banker complacent with  his loan portfolio.The increasing trend of provisions for bad and doubtful debts in most money-deposit banks is a major source of concern not only to management but also to the shareholders who are becoming more aware of the dangers posed by these debts.Bad debts destroy part  of the earning assets of banks such as loans and advances which  have  been described as the main source of earning and also determines the liquidity  and solvency which generate two major  problems, That is profitability and liquidity, has to earn sufficient income  to meet its operating costs and to have adequate return on its investments.

1.2    STATEMENT OF THE PROBLEMS

The problem for this study is to appraise the lending and credit management policies of a typical Money-deposit bank(the Union bank of Nigeria Plc) with a view  of finding the causes,consequences  of bad debts in banks.Year after year,banks suffer much from the part of full loan extended which has  for one reason or the other proved unrecoverable.Banks lose millions of Naira in various  bad debts yearly and despite efforts by bank management, committee of chief inspectors and the bankers committee on the other hand,the wave of bad debts in banks is still on alarming proportion.This is gathered from a combination of literature reviews on the topic.

On the other hand,many banks experienced a lot of bad debts when the new government abandoned the