Assessment of Risk Management and Credit Administration in Union Bank
Chapter One
OBJECTIVE OF THE STUDY
The central objective of the study is to assess risk management and credit administration in Union Bank Plc, Kaduna. The specific objectives are:
- To examine the risk management system in Union Bank Kaduna Main Branch.
- To assess credit administration in Union Bank Kaduna Main Branch.
- To identify the constraints militating against risk management and credit administration in Union Bank.
- To proffer workable solutions to the identified problems.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Credit risk is the major risk for commercial banks and it requires very vigil oversight and extensive policy debate. It is typically defined as the risk of loss resulting from failure of obligors or borrowers to honor their payment (Pesaran & Schuermann, 2003). Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its maturing obligations in accordance with agreed terms (BCBS, 1999). Lopez (2001) defines credit risk as the risk that the value of loan will decrease due to a change in borrower’s ability to make payment. The health of a bank’s loan portfolio can be affected by the variation in the credit risk affecting the overall performance of the bank (Sufian, 2009). This argument was further supported by Duca and Mclaughlin (1990) as cited in Owojori, Akintoye and Adidu (2011) that a large scale variation in bank’s profitability can be ascribed to variations in credit risk management. Banks that are largely exposed to credit risk resulting to reduction in their profitability. Miller and Noulas (1997) are of the view that so long as the banks has exposure in risk loans, bad or doubtful debts (otherwise referred to as non-performing loans) tend to rise which ultimately reduces the profitability of the bank. Bobakovia (2003) asserts that the profitability of a bank depends on its ability to foresee, avoid, monitor risks and cover losses brought about by risk arisen. This has the net effect of increasing the ratio of substandard credits in the bank’s credit portfolio and decreasing the bank’s profitability (Mamman & Oluyemi, 1994). The banks supervisors are well aware of this problem, it is however very difficult to persuade bank mangers to follow more prudent credit policies during an economic upturn, especially in a highly competitive environment. They claim that even conservative managers might find market pressure for higher profits very difficult to overcome. According to the journal issued by the Central Bank of Nigeria (2006), an early 1990s witnessed rising non-performing credit portfolios in banks and these significantly contributed to the financial distress in the banking sector. Also identified was the existence of predatory debtor in the banking system whose modus operandi involved the abandonment of their debt obligations in some banks only to contract new debt in other banks. Furthermore, the use of status enquiries on bilateral basis between banks was characterized by some weaknesses. Status enquiry regarded as business courtesies to which some banks either did not respond to or give vague replies. In spite of the systematic weakness, many banks continued to extend fresh facilities to customers who already had hardcore and un-serviced debts with other banks and financial institutions. On the part of the regulators, the paucity of credit information had inhibited consistent classification of credits granted to certain borrowers and their associated companies (CBN, 2006). Consequently, the need for a central database from which consolidated credit information on borrowers could be obtained became imperative. CBN (2006) explained that it was against this background that the CBN credit risk management system or credit bureau was established. Thereafter, it was given a legal backing by the CBN Act No. 24 of 1991{section 28 and 52} as amended. The enabling legislation empowered the CBN to obtain from all banks, returns on all credits with a minimum outstanding balance of ₦100,000 (now ₦1.0M and above of principal and interest), for compilation and dissemination by way of status report to any interested party (i.e. operators or regulators). The Act made it mandatory for all financial institutions to render returns to the credit risk management system (CRMS) in respect of all their customers with aggregate outstanding debit balance of ₦1,000,000.00 (One million naira) and above.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to assessment of risk management and credit administration in union bank
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on assessment of risk management and credit administration in union bank. 200 staff of Union bank in Kaduna state was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain assessment of risk management and credit administration in union bank
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of risk management and credit administration in union bank
Summary
This study was on assessment of risk management and credit administration in union bank. Four objectives were raised which included: To examine risk management system in Union Bank Kaduna Main Branch, to assess credit administration in Union Bank Kaduna Main Branch, to identify the constraints militating against risk management and credit administration in Union Bank, to proffer workable solutions to the identified problems. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Union bank in Kaduna state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up HRMS, accountants, customer care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
This study covers risk management in Union bank PLC. An event study methodology was employed to examine the effects of deposit, asset quality and credit risk exposures on the growth and profitability of Nigeria commercial banks. The study concluded that deposit, asset quality and credit risk exposures have significant positive impact on the growth and profitability of Nigeria commercial banks.
Recommendation
- Commercial banks risk management departments should be more prudent in identifying and evaluating risks so as to enhance growth and profitability of financial institutions.
- Banks should be careful in their lending habit by making proper channeling of their funds to the supposed sectors of the economy.
- Adequate measures should be taken by the bank managers to avoid bank fragility or distress.
- Effective control measures should be taken also by the risk management department of the banking sector to avoid bankruptcy.
- Banks are to analyze the credit portfolio of a customer before giving loan a customer
REFERENCES
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