The main aim of this research work is to establish that all things being equal
the loan will be safe, properly used and repaid on schedule. But this is gamble
in the future. All things may not be equal and things may go wrong such that
basis for optimism established and expected do not materialize.
This is why the banker should not be left uncovered. The purpose of the
research is to evaluate the extent to which commercial banks in Nigeria desire
securities for loans in bank in Nigeria desire securities for loan in bank
lending – The findings of this study will help to make recommendation and
suggestions on how best to improve the situation. In conducting this research
work, references were made to works of other authors on allied subjects. But it
was discovered that the text dealt more on theoretical and academic aspect of
the issue, to the neglect of what is often experienced in dealing with most
Thus relevant data were obtained from primary sources and oral interviews were
conducted and research questionnaire administered to select persons in the
bank. These data were carefully evaluated, classified and summarized into
tables appropriate for the statistical testing of the postulated hypothesis.
The test of hypothesis employed from the primary sources. Based on the facts
that emerged from the analyzed data, it was discovered that there is no effect
of securities on Bank lending, despite the fact that lack of security cannot
prevent a bank from lending.
Recommendations made are in respect of re-introduction of deregulation in the
economy by the Federal Government to improve and to diversify bank lending in
order to foster rapid economic development.
of the study
of the study
of the study
2.0 REVIEW OF RELATED LITERATURE
2.1 History of Commercial Banking in Nigeria
2.2 Bank credits / facilities and the economy
2.3 Lending, a function of the commercial Bank
2.4 CBN credit policy guidelines as it affects borrower.
3.0 RESEARCH DESIGN AND
3.1 Sources of Data
3.2 Sample and sampling procedure
3.3 Method of Investigation
PRESENTATION AND ANALYSIS
4.1 Data presentation and analysis
4.2 Test of Hypothesis
5.0 SUMMARY OF FINDINGS, CONCLUSION AND
is the main function of commercial banks through lending banks strives to
satisfy the credit needs of the economy as well as enhance its profitability.
One of the cardinal principles of classical banking is to ensure effective
Lending is the major product of every commercial banking activity, and it also
provides the larger part of the bank’s profit. Banks in Nigeria have found it
necessary to increase their lending ability and at the same time increase
policies to establish the direction and use of fund from shareholders,
depositors and creditors to control the composition and size of the loan
portfolio and to determine the general circumstances under which it is
appropriate to make and advance.
A banker’s decision will be influenced by many factors. Some of these factors
include the character of the borrower, the risk involve the profitability of
the transaction to the bank, the lending policy of the government, the best
interest of the borrower and of the community generally.
The perfect advance or lending will be safe liquid and profitable. “it will for
a suitable purpose. Needless to say, these requirements will not always be
present at the same time and banker will therefore search for an acceptable
Lending is considered effective if it successful reconciles the banks’
objective of maximum profitability to the shareholders of the banks and maximum
liquidity to meet the transaction and precautionary needs of the banks
customers and investing public. But for obvious reasons, this principle cannot
be regarded entirely satisfactory in a developing economy like ours (Nigeria)
where we have a lot of new generation banks, which lends to a conflict (severe
conflict) between, the profitability and liquidity needs of banks. Against this
background “effective lending in a developing economy may be defined as the
quantum of lending which maxims the banks objectives of liquidity and
profitability and the economic objectives of development. This is because
highly profitable lending which also ensure liquidity may not always be
effective. “for the instance lending for commerce may be effective in the
profitability and liquidity sense, but may be ineffective in terms of maximum
contribution to economic development”, similarly, although lending to
Agriculture, Road construction or House, it may well be very effective
lending in a development sense. Thus effective lending in a development
economy must combine the classical view”. It is therefore important to note
that lending should not be seen by the two parties involved bankers and
borrowing customer as a hide and seek game, but as partners in progress. The
baker should equally market his product and make adequate profits. The loan
should be adequate and recoverable at maturity together with interest. The loan
should be properly secured to make up for any liability in case the borrower
defaults or facility goes bad. Security is a kind of insurance. The real security
is the character of the borrower unsecured borrowing in the shape of balance
sheet that is, advances to big established limited companies may account for
nearly half of the banks lending in any particular year. These advance, made to
trusted borrows are usually for less troublesome than the secured advanced,
which require a certain amount of work before the advance is taken, to see that
the security is perfected, that the bank has control over it.
STATEMENT OF PROBLEM
The critical issues on the problems and prospects in extending credit
facilities by commercial banks to their customers and the investing publics for
investment purposes are many. Banks do not give their customers loan because
they need it. Certain factors should be taken into consideration. Commercial
banks as we know, by their very nature in terms deposit liabilities are
traditionally short-term order. They do not participate in the provision of
long-term lending, until recently when commercial banks under section 21 of the
banks and other financial decree (BOFID) No. 25 of 1991 which permits
commercial banks to acquire shares in small and medium scale industries and
The commercial banks the change (as collateral security) on the most easily
marketable securities of their client, e.g. stock of raw materials, finished
goods and credit to customers. The collateral securities may equally include
fixed assets in the form of landed property with good tithe documents and financial
assets in the form of ordinary share, insurance policies.
Experiences in banking industry have shown that most bank borrowers, especially
those that fall within the category of small and medium scale entrepreneurs, do
not know the purpose for which they are obtaining the loan. Therefore, they are
ignorant of the fact that the purpose of securing the loan must synchronize
with the amount and types of the loan. This factor increases the banks exposure
to risk of default.
Also on the part of government, concretionary monetary policies and the
stringent control through the central bank of Nigeria, make it extremely
difficult for banks to lend for the purpose of investments. This results in
discretionary bank lending and slow practices in the banking industry.
Stressing more on the above problems, the following questions need to be
i. How much does the borrower want?
ii. What is it for (purpose)?
iii. For how long does he want to borrow?
iv. What is the source of repayment?
It is these and other similar problems that this research studies
is designed to resolve.
PURPOSE OF THE STUDY
the 1960s and early 1970s most commercial banks had traditionally been
favourably disposed towards the extension of short-term loans. This in the main
is due to the liquidity it confers on the banks coupled with the fact that by
the very nature of the loan it must be repaid within one year.
However, this preference for short-term loan by banks have long been over-taken
by events hence banks have moved into long-term lending some of these factors
included here are not restricted to the following;
i. Increased lending capacity of banks: The
resources of banks have witnessed an upsurge in the recent past. Since banks
are bulging with excess liquidity there is the need to seek for profitable
investment outlets for their fund so as to improve their earnings.
ii. The establishment of Nigerian Deposit Insurance
Corporation (NDIC): - This Corporation is established to
protect depositors by insuring depositor’s fund for a maximum of N50, 000 in the event of bank running into
difficulties. Since the liquidity problems of banks are fairly reduced by the
establishment of the NDIC, banks felt that they cannot extend loans of longer
maturities as a way of boosting their earnings.
iii. Annual Policies: -
Annual policies of the Federal Ministry of Finance through the central bank of
Nigeria in recent years have been to ensure that commercial banks provide
needed capital to small and medium scale industries to help improve their
present state. This development resulted in the liquidity and profitability
trauma in the banking industry as the ceiling on the sectoral allocation of
credit exposes banks to a higher risk of default. The study therefore sets out
to ascertain the desirability of securities for loan in Nigerian’s commercial
banks and the findings will help to make recommendation for future improvement.
SIGNIFICANCE OF THE STUDY
study will be of great help to potential borrowers. It will enable them to have
an insight into existing opportunities in commercial banks for obtaining
financial assistance through loans and other financial services offered by
banks. It will also help them to know the types of loan that they will be able
to collect from the commercial banks.
It will equally be of help to practicing bankers regarding identification of
potential problems, which the banks have not yet recognized. This is because in
some cases, customers do not have enough time to discuss their problem with
their bankers; they may not disclose some facts, which will be a disadvantage
to the bank. The study may also present on identify some problems thus creating
another avenue for further research work.
1.4 STATEMENT OF HYPOTHESIS
this research is a case study which entails going to banks for direct
investigation. The researcher has however found it necessary to supplement this
approach with a statement of hypothesis.
The objective of this research work is to determine the degree of desirability
of securities for loan by commercial banks. Therefore the hypothesis is:
is an effect of securities on bank lending.
There is no effect of securities on bank lending.
securities on bank lending have not reduced the rate of fraudulent
malpractice in Nigerian commercial bank.
The securities on bank lending have reduced the rate of fraudulent malpractice
in Nigerian commercial bank.
1.5 DATA COLLECTION
data for this study will be collected from primary and secondary sources. For
the primary data, the specimens will e visited in order to make use of
authentic records for verification of the hypothesis already listed. The relevant
data will therefore be extracted from records of operations, annual reports and
of the banks.
The secondary data for the study will be sourced from other published materials
and literature such as textbooks, periodicals, financial and business
publications and newspapers.
1.6 DEFINITION OF TERMS
terms are defined here to enable one understand the research work more easily
some of the terms are:
a. Collateral: - Any
tangible assert pledged by a customer to obtain credit.
b. The bank: -
Afribank Plc used as the case study.
c. Investment: -
Loans, overdrafts and advances, which generate interest, income to the bank.
d. Project: -
The research work
e. The books: -
Financial books of the bank; profit and loss account, the balance sheet and
f. Credit: -
Any form of borrowing by the public which must be repaid.
g. Monetary Authorities: -
Federal ministry of finance and the central bank of Nigeria.
h. Bank Deposit: -
Demand deposit, short deposit and savings deposit.
i. Loan: -
Money borrowed at interest.
TERMS AND CONDITIONS APPLY
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