APPRAISING THE EFFECTIVENESS OF CREDIT ADMINISTRATION AND MANAGEMENT IN BANKING INDUSTRY

ABSTRACT

This research work was undertaken in order to appraise the effectives of credit administration in banking industry.

We narrowed or investigation to four (4) commercials bank in Nigeria (Union Bank, UBA, Afribank and Bank PHB)

The method of study adopted includes data obtained from both primary and secondary sources. The primary data mostly involves personal interviews, and questionnaire administered to the respondents of the management and staff of these banks. The secondary data was mainly information collected from textbooks, journals, magazines, unpublished monograms and various works of professional in the related fields to aid our inquiry.

The total number of questionnaires administered to both management and staff of the banks amounted to 98 and a total of 80 questionnaires were recovery showing about 82%, out of which 18 was void representing 18%.

The Spearman Rank order correlation co-efficient was sued as a statistical tool in testing the three (3) Hypotheses.

The out come of the study proves that loans and advances constitute major component of the asset s portfolio. That proper and adequate attention must be given to administration and management of credit.

Review of credit guideline frequently is generally a more effective control credit.

The summary of the findings revealed that the fundamental skill and knowledge of customers and the economy enable the banker to make rational decision when lending. 

TABLE OF CONTENT

Chapter one

Introduction                                                                                                           

1.1                    Overview

1.2                   Statement of problem                                                                          

1.3                  Purpose of study                                                  

1.4                  Research question                                                

1.5                  Research  Hypothesis                                                                          

1.6                  Significance of the study                                                                     

1.7                  Scope of the  Study                                                                                              

1.8                  Limitation of the study                                                                          

1.9                  Definition of Terms                                                                                                               

1.10                Organization of the study.                                                                                    

Reference

Chapter Two.

Literature review                  

2.0 Introduction                                                                                                    

2.1 Bank Credit Deposit                                                                                         

2.2TheLegal and Regulatory framework for Granting Credit

2.3 Knowledge of Customer                                                                 

2.4 Establishing a Credit Policy                                                                           

2.5 Forms of Credit Facilities                                                                              

2.6 The Principles of Lending                                                                               

2.7 Credit Documentation                                                                                    

2.8 Source of Credit Information                                                                        

2.9 Credit Review or Supervision                                                                       

2.10 Internal Cause of Bad Credit                                                                        

2.11 Identification of Problem Loans                                                     

2.12 Management of Problem Credit                                                    

2.13 loan Growth and Quality                                                                                

2.14 Constitution in credit Creation                                                     

2.15 Scope of Credit Investigation                                                                                       

2.16 Functions of Credit Department                                                                   

2.17 Loan Recovery Strategies                                                                                            

2.18 Loan Insurance                                                                                                                              

2.19 Summary                                                                                                                       

                Reference

Chapter three

3.0 Research Methodology                                                                                  

3.1 Introduction                                                                                                                     

3.2 Research Design                                                                                                            

3.3 Population of the Study                                                                                                 

3.4 Determination of Sample Size                                                                                       

3.5 Method/Instrument of Data Collection                                                         

3.6 Data analysis and techniques

3.7 Decision rule                                                                                                                   

3.8 Operationalization of Major Variables                                                           

Chapter four

4.0                Data  presentation and analysis.                                                         

4.1            Introduction                                                                                                           

4.2           Data  Presentation                                                                                                

4.3           Distributed  Questionnaire                                                                                   

4.4           Questionnaire Analysis                                                                                        

4.5           Testing of Hypothesis                                                                                           

4.6           Summary of Description.                                                                     

Chapter five

5.1                  Discussion of finding                                                                                                            

5.2                Conclusion                                                                                                                             

5.3                Recommendation                                                                                                  

References

Bibliography

Appendix One

Appendix two

CHAPTER ONE

1.0                 INTRODUCTION

1.1            OVERVIEW

Credit Administration and management in any financial market is one basic function of banks that accounts for her large share of income. That banking   operation  in Nigeria and the world over  still come alive  today is a function of how effective this key role of banks is being  played.

B.C.  Okocha (2000) “The level of performance of service and   realization of objective for which  the organization is set up is a function of the quality of management polices and procedures followed  to achieved  these set  objectives.

                Banking Institutions are created with the fundamental or cardinal function  (objectives)  of deposit acceptance and  credit extension for  the development and expansion of the real sector of the economy.

Banks can  only remain as a veritable tool for economic growth and  wealth maximization if there is a positive correlation  between management and objective.

The  aggregate economic growth in both micro and macro economy induced investors, government and corporate bodies to appreciate  the significance of bank credit a s a major source  through which  business could be effectively  financed for wealth  maximization.

 The growing concern  about business growth which has been dwindled by inaccessibility of credit  occasioned  by stringent  conditions  attached, the  untold hardship of loan interest, banks sharp practices and non adherence  to credit guidelines are   basic issues  the researcher seek  to address.

Abasss A. Shiro (2004) “Credit creation presents  a good maximization  opportunity  to the  banking industries  to achieve its objectives as the basis by enlarging the money supply base  and raising the general investment level of the country’. Lending  and credit administration is very vital to banks which, if not property carried out can hinder the effective operations of the banks, improper lending decision which leads to accumulation of huge  bad  debts  that adversely affect banks effectiveness however.

                Therefore, it is  expedient   that bank  managers  should  be equipped with better information, principles and techniques required for effective lending rather  that regarding them as a mere guidelines which have limitation. Lending is highly subjective in nature, the final  analysis depends on the judgment of the lender, hence  in making final judgment ,the lender must review all the techniques, principles, and knowledge acquired  through  environmental and projects analysis. The credit  character and prospects of the borrower  must also be scrutinized.

It is against this background that the bank decides the quantum of lending appropriate to the prospective demand. This quantum has to be optimum volume in terms and conditions that  would satisfy the banking objectives of the lender.

The qualities of credit administration have direct impact on the banks  effectiveness, and this  could be measured with  various parameters as profitability, customer satisfaction, and shareholders satisfaction, volume of bad debts, employee motivation and attainment of the general objectives of the bank.

1.2            STATEMENT OF PROBLEMS

Today the increasing financial improprieties, insolvency, non-performing loan, distress  in banks and near collapse of the financial system accounted for the cry and quest by business community for total economic recovery.

This study  identified the following problems and suggest ways of solving them.

1.     Stringent conditions for accessibility  of credit.

2.     Unbearable financial burdens that bank customers bear in the  course of repaying these loans.

3.     The unbearable interest charges, penalties and unclassified charges.

4.     Banks indulge in all sort of sharp practices, cutting of corner and non-adherence to policy  guidelines set out for credit management.

5.     Bank managers do not adhere to  internal rules and mechanisms  in lending credit, it  translates to non-performing loans as lender and beneficiary connivance  to short-cut procedures.

6.     The Apex bank lacks adequate surveillance and strategy to forestall discipline and enforce compliance with these regulations and guidelines.

1.3            PURPOSE OF THE STUDY

                The rate of banks failure in recent past, has called for great concern by depositors, government, financial regulators and stakeholders who advocate for strong and viable economy based on sound financial sector   to provide most needed lubricant in terns of credit lending to aid economic growth and development.

However, the major reasons advanced for these failures  are  basically related  to improper lending habit of the banks, couple with slow industrial development, inflation and unemployment which  make it impossible  to either secure the credit facility.

Therefore, in view of the problems highlighted above the purpose of this study is to:

a)       Identify how banks manage credit facility effectively to ensure prompt repayment as at when due, and various reasons for default.

b)       Reveal the problem associated with the effective and efficient management of credit, and find out the impact of effective management in an economy.

c)       To initiate or suggest method of improving credit management in line with banks internal and external factors (monetary  guidelines).

1.4   RESEARCH QUESTIONS

                In view of this research topic, a wide and extensive form of             research questions would be asked so that various data collected could be analyzed using statistical method. The following are the research questions in this study.

1.     What impact and action do banks take in managing their credit facilities effectively to ensure prompt repayment as at when due?

2.      What is the suggested method of improving credit management inline with banks internal and external factors (monetary guidelines).

3.     How do the banks reveal the problem associated with the effective and efficient management of credit?

4.     What are the  reasons  for increase in non-performing loans and non-security of loan facility in the financial sector of the economy?

1.5           RESEARCH HYPOTHESIS

                The following hypothetical statement are necessary to guide us in determining the answers to the above stated problems and  questions.

HYPOTHESIS 1

H₀:           There is no significant relationship between accountability in credit management and the profitability and total output  in       banks.

HYPOTHESIS 2

H₀:           There is no significant relationship between Quality/quantity of      loan asset and bank’s sustainability and development

HYPOTHESIS 3

H₀:           Regulation and supervision of bank has no significant       relationship with overall  growth and development.

1.6                 SIGNIFICANCE OF THE STUDY

Olowe R.A (1997): “banking Industry  in Nigeria does not operate in isolation of global banking system that are  facilitated by information technology  which make bank services and products customer oriented”. Therefore, its present level of  operations and development is far below expectation in terms of products ,services and effective resource mobilization for her lending as banks  are globally viewed as necessary medium to propel other sectors through investment and credit lending to achieve desired  growth development.

                Therefore management of credit is an aspect of banking services that has been grossly abused and mismanaged.

                This  study is therefore  expected to provide useful suggestion and recommendation to most problems affecting effective  and   efficient credit management in banks, most importantly this study will be useful to managers of banks, prospective facility seekers  to expose them  to the necessary requirements by banks in terms of security, financial information for analysis, project prospects etc. This study will be of immense benefit to the government and its agencies that are responsible for banking supervision.

                This work  will also be important to students, lecturers of   social science involve in research work on the area of banking in general secondary data source.

1.7            SCOPE OF THE STUDY

                This study is limited to the credit administration and management in deposit money banks in Nigeria.

                The study is also limited to the information obtained from the geographical area of the study (ABA) as a basis for making general assumption on the performance of Nigerian deposit money banks in terms of credit management and administration.

                The reluctance of the top management and staff of the banks in giving out some relevant information due to oath of secrecy poses constraint to the research work.

1.9           DEFINITION OF TERMS:

Ø  Monetary Policy:  This is policy initiated by government  to regulate  the volume of money in circulation.

Ø  Credit Limit: This is a ceiling beyond which a bank will not grant additional facility to customers.

Ø  Global  Banking: This connotes the interface of banking services  and products through information technology network, which is more customer oriented than traditional banking.

Ø  Credit Management: This involves planning and  controlling collection of loan and advances in line with management corporate plan of maximizing shareholders wealth.

Ø  Distress Bank: These are banks with problems of liquidity. Poor earnings and high volume of non-performing assets.

1.10                          ORGANIZATION OF THE  STUDY

This work  is arranged  into five  chapters.

Chapter one examines the introduction; purposes, here is discussed the overview, statement of the problem,  purpose of the study, research questions, scope of the study, significance of the study, limitation of  the study and definition of terms.

                Chapter Two deals with the review of related literature, in other words it views  the works   of other researchers in the  field. This is mostly from textbooks, journals, internets and other relevant materials.

                Chapter three is on the research methodology. It covers the research design, sampling procedures/sample size determination, data collection methods and data analysis techniques.

                Chapter four is on the presentation and analysis of data, the hypothesis formulated   in chapter one is tested statically and recommendations with reference to the problems studied.