Credit Management and Issues of Bad Debts in Commercial Banks in Nigeria

Credit Management and Issues of Bad Debts in Commercial Banks in Nigeria

Content Structure of Credit Management and Issues of Bad Debts in Commercial Banks in Nigeria

The abstract contains the research problem, the objectives, methodology, results, and recommendations

• Chapter one of this thesis or project materials contains the background to the study, the research problem, the research questions, research objectives, research hypotheses, significance of the study, the scope of the study, organization of the study, and the operational definition of terms.
• Chapter two contains relevant literature on the issue under investigation. The chapter is divided into five parts which are the conceptual review, theoretical review, empirical review, conceptual framework, and gaps in research
• Chapter three contains the research design, study area, population, sample size and sampling technique, validity, reliability, source of data, operationalization of variables, research models, and data analysis method
• Chapter four contains the data analysis and the discussion of the findings
• Chapter five contains the summary of findings, conclusions, recommendations, contributions to knowledge, and recommendations for further studies.
• References: The references are in APA
• Questionnaire.

Introduction Of Credit Management and Issues of Bad Debts in Commercial Banks in Nigeria

THEORETICAL FRAME WORK
The need and criteria for lending have been extensively discussed in the literature review.
U.B.S Dictionary of Banking and finance(1981) defined bank credit as the ability to borrow money on the promise of future  repayment.The prudential guidelines(1990) succintly convey a more comprehensive definition of credit,it defines credit facility as the aggregate of all loans,advances,overdrafts,commercial papers,bankers acceptances,bill discounted,leases, guarantees and other loss contingencies connected with a bank´s credit risks.Also,the definition of credit proposed by the CBN Monetary policy  circular(1992) agrees  with the view above.Generally,we could conclude that credit includes all commitments by a bank that has risk exposure and that may result in financial loss to the bank.Mandel (1974) described credit simply as the right of a lender to receive money in the future in return for his obligation to transfer the use of funds to another party in the interim.  The facility is as old as man, though in the primitive society it was known as “mutual aid”, because it was based on ancient customer of ensuring substance of all members of the community. Credit therefore arises out of the need to bridge the gap between the surplus and deficit economic units such that the highest level of satisfactory function is performed by the financial institutions notable among which are the Money-deposit  banks.
In agreeing with this view, Corley (1970) and Adeniyi (1985) stated that credit is a crucial factor in growth process of any economy and that by lending banks provide a valuable  services to the community as they serve to channel money from those who have idle fund to those who put the money in to constructive use.
Furthermore, Acher and O.Ambrose opined that Money-Deposit   banks are in business to make loans. They however, added that the loan should work out in such a way that it will not seriously endanger the loan  portfolio and solvency of the bank . This view that appreciates  that though some dangers may arise , lending is, and should  be a major activity of Money-deposit  banks. The techniques and complexities of lending have been changing with growth in the society.
Perhaps that is why Mather (1955) describes   banking as an art as well as a science. He went further to say that in addition to the wealth of technical and legal knowledge, a bank manager should develop the aptitudes to assess every request for an advance according to innumerable factor pertaining to the political borrower. He then identified three basic principles that should guide all bank lending viz, safety ,profitability and suitability. In addition to the principle enunciated by matter, other important guiding factors include the character and integrity, management accounting and technical skill of  the borrower as well as his capacity for hard work and his experience in the particular field for which the finance is required and the possibility of the  proposed investment generally sufficient profits. To  ensure repayment of the advance.
The importance of these traditional cannons of lending not withstanding ,Pitcher (1970) criticized undue radiance emphasis on them by the lending banker. He argued that the character  of the borrower must be a prime factor in any lending decision. He also said  that the integrity of the borrower must be undoubted especially where the security is inadequate to cover the maximum amount to be advanced. He however, wondered whether honesty is simply enough to ensure the success of an enterprise,in this difficult demanding conditions of our time. The answer is obviously  “No” for instance all the integrity in the world will be little helpful  to the managers of a company that are rapidly sinking into oblivion perhaps,because they did not adopt their products to meet the needs of  a changing market or take appropriate corrective action to counter a disproportionate risk in over head costs and fall in trade. Therefore we could not but agree with him(pitcher) when he advocated that the banker should also consider the capital and capability of the customer  and also enlist the aid of management accounting and other newer  technique of credit analysis to improve their lending decision.
Bad debts are emotive words of bankers because they present losses to the banks. However,for the purpose of this study,there are various reasons for the occurrence  of bad debt in money-deposit banks.Experience of bad debt has its impact  on the banking operations.
CAUSES OF BAD DEBT
The causes of bad debt could be based on four main classified causative agents.They are as follows´´

BORROWERS OR CUSTOMER
Ignorance: Customers are ignorant of the fact that bank like other commerical ventures, are out to make profit by selling their products(loan) instead,they understood it to be a place where government and other well-to-do people store their money.Consequently,they  regard amount borrowed to be“ National cake´´rather than as an article purchased which must be paid for.On the part of our elite in white,they regard money borrowed as part of their gratuity which should not be paid.Furthermore, it is the improper evaluation of projects for meeting borrowers needs.
ii.  some customers because of  inadequate preparation or technicalities inherent in the purpose for which the loan is taken,do not properly assess their loan requirements  and as a result,loans approved fall short of actual needs.Consequently,the customer cannot operate on a level profitable enough to enable repayment occasioning at time in bad debt on a serious note.

BANKS: This  concerns efficient disbursement and amortization schedule by banks.This relates to:
1)  Poor evaluation of customer: the first point which readily comes to mind for the  bad debts is poor before giving out loan to them.The pre-requisite for giving out loan to the customer is the consideration of the following:
CHARACTER: The likelihood that a customer will try to honour  his obligation.
CAPACITY: The subjective appraisal of the customer´s ability to pay.
CAPITAL: The general position of the customer.
COLLATERAL: Assets that customers may offer as security to obtain credit in case of bad debt.

inadequate  for projects.This affects the loans resulting to bad debts.
GOVERNMENT(POLITICAL INSTABILITY)
Political instability contributes indirectly to bad debts in banking industry by the government refusing to pay contractors in some projects awarded but there abandoned by a new government of many projects in an attempt to revamp our economy,incapacitate the contractors and affects repayment  of the loan borrowed.
NATURE RELATED FACTOR:(NATURAL HAZARD)
Nature contributes in creating bad debt in our banking industry. Natural hazards include something like fire engulfing the factory where the loan is invented,in the case of agriculture,poor rainfall and pest may cause low harvest which will not give the farmer enough to repay the debt.
For these purpose the research shall appraise lending procedure and loan management of Union bank.
CONDITION: Impact on general or specific economic trend.

Both  loan complication and risk of loss are hardly divorced from the lending operations. Proportion of the total loans  and advances made by the banker would usually become sticky. That is why even the best managed banks provide for bad and doubtful debts in their normal course of business. The best option for a banker wishing to avoid bad debts would not lead.
However, this is not so, since interest carried on lending constitute a great proportion of banks earnings. Agreeing that bad debts are  emotive. Words to bankers , Dandy (1975) enumerates some factors that may  cause bad and doubtful debts to arise. These factors include: