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.
TABLE
OF CONTENTS
Title Page
i
Approval Page
ii
Certification
iii
Dedication
iv
Acknowledgement
v
Abstract
vi
Table of Contents
vii
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 project awarded to the contractors by civilian government.These
contractors borrowed to execute the project awarded to them but could not repay
the loan,due to government action on reramping the economy thereby abandoning
the project.Other experiences were during the time of draught or poor rainfall
and pest.These however led to low
harvest which did not give the farmers
enough time to repay their debt.
Again, experience
may arise in respect of lapses on the part of the banks credit officers.For
instance, there may be excesses over
approved facility,unformatted facilities and expired facilities not renewed on
time.In each of these cases the customer may easily deny even owing the bank all or part of the
amount.Money.deposit banks have always borne the burden alone,but this may not
continue in future as the banks may be
unable to take the risk of lending more but when eventually they do,they would
seek the best way they come out of the risk with a realistic
reward which they are clearly failing to achieve at present.
1.3
PURPOSE/OBJECTIVE OF THE STUDY
(i)
To determine and appraise the
lending procedure of banks using Union bank of Nigerian plc as a case
study-with a view to highlighting the effectiveness and adequacy or otherwise the credit management policy of Nigerian banks
in reducing the occurrence and consequences of bad debts.
(ii)
To highlight the rate at which inadequate collateral security
provision by borrowers increases the incidences of bad debt in Nigerian.
(iii)
To determine whether fund
diversion has any effect on bad debt of money deposit banks in Nigerian.
(iv)
To ascertain the extent to
which government intervention in lending policies of money deposit banks has
influenced bad debts in Nigerian money deposit banks.
(v)
To highlight the extent to
which improper project evaluation influence bad debt of money deposit banks in Nigerian.
1.4
RESEARCH QUESTIONS
In view of the consequences of bad debt in Nigerian
money deposit banks,it is
neccessary to formulate some research question which
will enable the researcher formulate
statistical tables for testing hypothesis.
- Has inadequate
collateral security provision by borrowers caused bad debt in Union bank
of Nigeria plc?
- Does fund diversion have
any effect on bad debt of Union bank of Nigeria Plc?
- To what extent has
government intervention in lending policies of money deposit bank influenced
bad debt in Union bank of Nigeria
Plc?
- To what extent does
improper project evaluation influenced bad debt of Union bank of Nigeria plc?
1.5 RESEARCH HYPOTHESIS
The following hypothesis were drawn as follows.
1.
Ho: inadequate collateral provisions by borrowers does not
increase the incidence of bad debt in Union bank of Nigeria plc.
Hi: Inadequate collateral provisions by borrowers increases the incidence of bad debt in Union
Bank of Nigeria.
2.
Ho: Fund diversion does not
affect bad debt in Union Bank of Nigeria
Plc.
Hi: Fund diversion affects bad debts
in Union Bank of Nigeria Plc.
3.
Ho: Government intervention in lending policies
of money-deposit banks
has no influence on Union Bank of Nigeria Plc bad debt.
Hi:
Government intervention in lending policies of money-deposit
banks have direct influence on
Union Bank of Nigeria Plc,bad debt.
4.
Ho: improper project evaluation
has no significant relationship with bad debt in Union Bank of Nigeria plc.
Hi: improper project
evaluation has direct relationship with bad debt in Union Bank of Nigeria plc.
1.6 SIGNIFICANCE
OF THE STUDY
It is hardly an exaggeration that the difference between the success and
the failure in the banking industry is
in the effective management of the banks loans and advance.Efficient loan
management is vital to the protection of assets and the achievements of
adequate returns to investment.Though much work abound in the literature of the techique of lending,the methods of
securing such lending and the pitfalls that a
