Bank is an organization that
provides various financial services as well as keeping or lending of money to
customers. Banks also perform their credit function by extending loans and
credit to meet the needs of the customers, as well as earn profits and returns
that would increase the wealth of shareholders. This has led to accumulation of
bad debts in the banking industry since some of these debts are not only
un-collectable, by the banks, but un-payable by the customers, most of which
have had great resultant examination on banks over along period of time. A
number of factors are responsible for these and will be discussed in details in
this project. Debt defaults constitute a loss to the bank, individuals and the
society at large. Therefore, concerted efforts must be made to ameliorate this
problem to enable the bank to perform their roles in the economy. In
determining the examination of bad debt or debt default as the project suggest,
United Bank for Africa (UBA) will be used as case study to determine to what
extent debts defaults affects bank. At the end of the research work, skills of curbing
defaults would be suggested to help the banks and the government to work
together to promote investors and shareholders confidence.
TABLE OF CONTENT
Chapter one- Introduction
Statement of the problem
Objectives of the study
Chapter Two – Literature
Historical Background of Commercial Bank
Origin of lending
Development of commercial banks in Nigeria
Role of banks in Nigeria
Lending principles and canons of lending
Concept of credit
Types of bank credit facilities
Risks in lending
Default in repayment
Causes of debt default
Cost of debt default to commercial banks
Instrument for data collection
Data presentation, Analysis and
Profile of UBA Plc
Analysis of data
Analysis of questionnaire
Chapter five – summary,
recommendations and conclusion
In Nigeria, as in most other developing countries, the financial system
consists of number of institution which include the central bank, commercial
bank, federal saving, merchant and mortgage banks as well as the community
banks, the stock exchange securities commission. These commercial banks carry
out their day to day activities they mobilizes funds (savings), these savings
are a pool of funds on which the banks on the one hand pay interest to the
owners of such funds and then lend these savings or funds to investors in the
form of loan, credit, overdraft and advance for the development purposes, these
pay back with interest of every lending. The loans and advances constitutes the
most important components of a banks asset port-folio and this is why it is in
the interest of every lending institution to make sure that it does not acquire
any bad or doubtful debts, even though allowances are usually made for it. The
cash flow problem which are currently experienced by many businesses under the economic
recession have severally reduced by the ability to service bank debts.
(according to Nigeria economist 1988:24). Most clients fails to pay in interest
and as a result the interest plus the principals accrues, thus making the
possibility of repayment remote. There is no banking institution in the
country, including the United Band for Africa (UBA) as a case study that is no
threatened by the effect of debt defaults on their banking activity (Endeavor
1990.28). In the recent times, debt default has been one of the main set backs
experienced by commercial banks in Nigeria and for these reason the provision
for bad debts have been so enormous that they attract attention from both
general public and the government. Thus, debt default causes great concern to
In the cause of their lending policies banks give loan and advances to
customers who for one reason or the other re viable to pay back in such away,
the bank are costly unwilling to go into litigations which are costly and time
wastage so they write off such monies as bad and doubtful debts. Bad debt are
simply loans, which have proven difficult or impossible to recover. The most
surprising things is the length of time it takes before the banks cry out for
action, this is an indication of how tolerant the system is to fraudulent
borrowing. If its existence were not at stake, it can be argued that this
sudden attention is the examination of bad debt default on commercial bank in
Nigerian might never have arisen. Thus, this research is therefore centred on
United Bank for Africa in relation to the examination of debt default on its
GIVE A BACKGROUND IN NIGERIA
Default means failure to do something that must be done by law especially
paying a debt. Nigeria has said it can no longer afford to service its $33bn
foreign debt because of plunging oil revenues and the failure of some of its
privatization plans. Consequently, the country has suspended payment on some of
its debt as it tries to reschedule payment, said central bank governor Josph
Sanusi. Nigeria is one of the word’s largest oil producing nations held foreign
exchange reserves of only slightly more than $8bn, down about a fifth since
December. Mr. Sanusi said he had decided to halt all debt repayment rather than
to eat further into the reserves. But information minister Jerry Gana was quick
to try and downplay fears of along lasting default.
CAUSES OF DEBT DEFAULT IN NIGERIA
Most of Nigeria’s debt is owed to foreign government, members of the Paris club
of official creditors. Earlier this year Nigeria parted company with the
international monetary fund about how best to achieve a turn around in its
economic fortunes. Nigeria’s finance minister Adamu Ciroma told the BBC that
the country was unable to pay because parliament had only approved a limited
amount to funding for the current financial year. Nigeria has been asking
official creditors for substantial debt relief but apart from a modest amount
of debt rescheduling, has not had much success, says the BBC’s Dan Isaacs in
the commercial capital Lagos.
This is because is has failed to
demonstrate the required track record of sound economic management, our
correspondents says. Nigeria is spending faster than it is earning and
therefore falling deeper into deficit.
The debt suspension was announced just as
president Olusegun Obasanjo was faced with possible impeachment by both houses
of Nigeria parliament. Mr. Obasanjo stands accused of failing to curb the
country’s spending of ignoring budget, of allowing corruption to remain and of
ignoring spending laws.
BACKGROUND OF UBA
The United Bank for Africa (UBA) was established in 1961, it is the largest
financial services group in Nigeria and West Africa, with a balance sheet size
in excess of N1, 64 trillion, the first Nigerian bank ever to achieve this feat
in the history of the Nigeria and West African Banking Industry. UBA has grown
from more than just a bank to a one-stop-shop financial services institution,
providing solutions to more than 6 million core and walk-in customers through
its expansive retail network of over 630 business offices. Having presence in
all the commercial centers and major cities in Nigeria, UBA is often referred
to as the neighborhood bank, which aligns with the banks strategic intent and
brand strap “Africa’s Global Bank”. UBA’s aim is to deliver what the customer
wants and expects; closeness and proximity, choice, convenience and customization.
Today’s United Bank for Africa PLC (UBA) is the product of the Merger of
Nigeria third (3rd) and fifth (5)
largest banks, namely the old UBA and the erstwhile standard Trust Bank Plc
(STB) respectively and a subsequent acquisition of the erstwhile continental
Trust Bank Limited (CTB). Founding of the old UBA in 1961, and the erstwhile
STB and CTB both in 1990. although today UBA emerged at a time of industry
consolidation induced by regulation, the consolidated UBA was borne out of a
desire to lead the domestic sector to a new era of global relevance by
championing the creation of the Nigerian consumer finance market, leading a
private/public sector partnership at supporting the acceleration of Nigeria’s
economic development, and growing the institution from a banking to a one stop
financial services institution, while spreading its foot prints across Africa
to ear the reputation as the face of banking in the continent.
Today, the consolidated UBA is the largest financial services institution in
West Africa with a balance sheep size in excess of one trillion Naira (under
USD8b) and more than six million (6m) customer accounts, operating out of the
two most vibrant economic in the sub-region-Nigerian and Ghana it has over six
hundred and thirty (630) retail distribution centers across Nigeria, its main
operational base, and eight branches in Ghana outside Africa, it also has
presence in New York and Cayman Island. United Bank for Africa Plc, (UBA) is
the product of a merger of two of Nigeria’s top five banks, UBA and Standard
Trust Plc (STB). Today, consolidated UBA is largest financial services
institution in sub-saharan Africa (excluding south Africa) with a balance sheet
size in excess of 400 billion Naira (approx US dollar 3bn) and over two million
active customer accounts. With over 400 retail distribution outlets across
Nigeria, UBA has also a presence in New York, grand Cayman Island and Ghana.
STATEMENT OF THE
The basic objectives of most banks includes the survival and growing,
fulfillment of social responsibility and making of satisfactory profits. But
contrary to expectation, most of the commercial banks in Nigeria over the
recent past, have been making unusual high provisions for bad and doubtful debts,
which eats into the profits. Making one to question the whole essence of the
lending process. With the banks, clients believe that bank exists to divide the
national cake, coupled with a host of problems, banks have suddenly found
themselves with a catalogue of defaults in their hands. This inability of bank
to recover loans granted to their client, constitute a major factors in the
OBJECTIVES OF THE STUDY
Looking into consideration that problem stated above, the objectives of this
particular study involves.
The determination of low debt default has impeded the lending ability of
commercial banks and also affect their profit.
Determining the inherent risks associated with the lending activities of
To know how to require knowledge about bank lending policies on borrowing,
collateral and payments.
Although this discussion is
wide, the environment of this research is on commercial banks. It shall talk on
their financial statement. Because of time constraint and other factors which
could pose as a problem to the research of this project, only sectoral
performance of commercial banks for a period of 5 or 6 years would be taken
into consideration while an analysis of the financial would be used.
SCOPE OF THE STUDY
The extent of this research work will be limited to only one bank, United Bank
for Africa (UBA) it will cover loans, doubtful provision, shareholders interest
and this covers a general review of the whole system of commercial banks
In cause of stating the examination of debt defaults on commercial banks in
Nigeria, certain research questions need to be asked.
Does the commercial bank actually proper loan or credit granting procedure?
Does the management or board members guarantee loan or credit to certain
individuals of questionable character?
How much information on the use of the loan or credit does the recipient of the
loan actually have?
What is the extent of government policy in the banking activity?
How flexible is the interest rate on loan or credit granted to customers?
How much effect does debt default actually have on a banks profit?
How much effect does default actually have on stakeholders and shareholders
If proper attempts are made to
answer these questions, a careful result and recommendation will help banks to
find solutions to the problem of debt defaults.
Definition of terms
Commercial Bank: his is a
financial institution, which deals in the acceptance of money deposits and
making them available to investors and borrowers alike as loans and overdrafts.
It is other functions, which include discounting bills of exchange, foreign
exchange and providing safe custody for valuables. They lend money tyo private
sector business traditionally, for non-fixed capital purpose usually accounts
for greater pat of their profit.
Loans: This is the act of lending
something such as bank lends and somebody borrows. It is also all types of
advances granted by banks to customers with interest repayment programme and on
which interest is charged
Maturity dates for such loans
can vary from bank to bank and from loan to loan, as the case my be.
Loan can be classified into
Secured loans: These are loans
that are secured by a collateral usually assets like houses, landed property
Un-secured loans: These are
loans that are not secured by a collateral, but is made on the signature of the
borrower, however, if the borrower is not well known, a guarantor maybe sought.
Collateral: This is defined in
dictionary of banking and fiancé as a specific property, which a borrower
pledges as security for the payment of a loan, agreeing that the lender shall
have the right to sell or dispose the collateral for the purpose of liquidating
the debt if the borrower fails to repay the loan at maturity” (David 1980 pp
Maturity: This refers to the
time a loan is granted to the time of repayment falls due. Maturity of loans
could be classified onto three.
Short term maturity: usually a
period of up to one year.
Medium term maturity: refers to
maturity period ranging between one to five years.
Long term maturity: refers to
maturity period ranging over five years.
Default: it means failure to do
something that must be done by law especially paying a debt.
Bad debt: this is the among in
open accounts that have proved unrecoverable, it includes instances where the
borrower has refused to pay.
TERMS AND CONDITIONS APPLY
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