An Evaluation of Credit Management and the Incident of Bad Debt in Nigeria Commercial Bank (Case Study of Union Bank of Nigeria)
Chapter One
OBJECTIVE OF THE STUDY
The objective of the study are as follows.
- To evaluate the lending and credit management and polices of a typical commercial bank the Union bank of Nigeria plc with a view to find the cause and consequence of bad debt in Nigeria bank.
- To investigate the extent to which improper project evaluation influences the credit management and incident of bad debt in Commercial bank in Nigeria using Union bank of Nigeria plc as s case study.
- To ascertain the extent to which government intervention in Nigeria Commercial bank has influenced the credit management and incident of bad debt in Nigeria Commercial bank.
- Recommendation for Solutions
CHAAPTER TWO
REVIEWED OF RELATED LITERATURE
Introduction
Lending in its true perspective is an art and not a science. This indicates that there are no set rules or formulae to appraise and consider loan application that would provide one hundred 7 percent results. Evaluation of loan application by whatever methods and means can never be an exact or automatic process. It will always remain an art, not a science and its through practical experience that a person achieves excellence in the art of lending and credit administration. The efficiency of credit decisions shall, by all standards, depend upon the sound judgement of the bank manager or credit officer and these judgements can never be as precise or scientific as mathematical judgements can be more accurate and rewarding if the credit officer possesses adequate knowledge and skill in the analysis of certain important factors affecting the course of trade, commerce and industrial of such factors or economic variables will help the credit officer in working out the feasibility and viability of a project for which loans and advances are sought and evaluating the credit worthiness and capability of the borrower. One of the prevailing features of our banks today is the ever increasing incidence of bad and doubtful debts. This situation, researchers believe, stems from inadequate training, improper appraisal of loan applications and indiscriminate lending on the part of bank managers or credit officers. This chapter focuses on the review of relevant literature on lending practices and the incidence of bad debts as well as other core aspects of the topic under study. The chapter thus presents the conceptual, theoretical and empirical basis for the study.
COMMERCIAL BANKING IN NIGERIA
The financial system in Nigeria is dominated by Deposit Money Banks. “The structure of Commercial Banking in Nigeria is tailored towards that prevailing in the UK according to Femi Adesanye (1984). In other words commercial banking in Nigeria can be said to have taken the 8 form of the branch banking system which is dominated by a few large banks with a wide network of branches spread throughout the country. Commercial Banking activities in the country started in 1892 with the establishment of the African Banking Corporation (ABC) in Lagos. The Bank of British West Africa (now First Bank PLC) was set up in1894, and took over ABC. Several banks both foreign and indigenous were set up later. Late 40s and early 50s, many of the banks set up collapsed with the same alacrity with which they were setup due to lack of regulations and sharp practices. The Central Bank of Nigeria (CBN) was set up in 1959. With CBN, sanity was brought to the banking system. In 1986, the financial liberalisation policies of the Structural Adjustment Programme (SAP), where the conditions for licensing of banks and other financial institutions were relaxed, led to proliferation of banks. Thus, by 1993, about 120 banks had been registered. This scenario, however, brought distress into the financial system. Between 1994 and 2000, a total of 33 banks were liquidated, 2 in 1994, 2 in 1995, 26 in 1998 and 3 in 2000 (CBN, 2001). Most of the banks were liquidated as a result of fraud, mismanagement, undercapitalisation and the country economic crises. The policy of consolidation, announced on July 6, 2004, directed that the minimum paid up capital of banks be increased from N2 billion to N25 billion, with effect from January 1, 2006. At the end of the consolidation exercise, out of the 89 existing commercial banks, 24 groups of banks emerged, while 14 banks that could not merge were set for liquidation. The Central Bank of Nigeria, in attempt to further strengthen and stabilise the financial system, set up the Audit Committee to examine the health status of the banks in Nigeria. The audit test by the Central Bank of Nigeria of the 24 banks in August, 2009, revealed that only 14 banks were found to have adequate capital and liquidity to support the level of their current operations and future growth, 9 while a bank was asked to re-capitalise before 30 June, 2010, and 9 banks were adjudged to be in a grave situation. The Central Bank of Nigeria, citing the provisions of the Banks and Other Financial Institutions Act 2004 sacked the Executive Management of 8 out of the 9 banks. The criteria employed for the special examination in all the banks were: Liquidity, capital adequacy, and corporate governance. On August 5, 2011, the CBN established 3 Bridge Banks – Enterprise Bank Limited, Keystone Bank Limited, and Main Street Bank Limited – to assume all the deposit liabilities and certain other liabilities and the assets of Spring Bank Plc, Bank PHB Plc, and Afri-bank Nigeria, respectively. However, one wonders how the country got to the crisis situation, when there are institutions saddled with the responsibility of supervising and regulating the financial system (Obamuyi, 2011).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine an evaluation of credit management and the incident of bad debt in nigeria commercial bank. Union bank in Uyo form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain an evaluation of credit management and the incident of bad debt in nigeria commercial bank (case study of union bank of nigeria). 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 an evaluation of credit management and the incident of bad debt in nigeria commercial bank (case study of union bank of nigeria).
Summary
This study was on an evaluation of credit management and the incident of bad debt in nigeria commercial bank (case study of union bank of nigeria). Three objectives were raised which included: To evaluate the lending and credit management and polices of a typical commercial bank the Union bank of Nigeria plc with a view to find the cause and consequence of bad debt in Nigeria bank, to investigate the extent to which improper project evaluation influences the credit management and incident of bad debt in Commercial bank in Nigeria using Union bank of Nigeria plc as s case study, to ascertain the extent to which government intervention in Nigeria Commercial bank has influenced the credit management and incident of bad debt in Nigeria Commercial bank and Recommendation for Solutions. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Union bank in Uyo. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
In conclusion, this study has provided valuable insights into the credit management practices and the incidence of bad debt in the Nigerian commercial banking sector, with a specific focus on Union Bank of Nigeria. Through an in-depth analysis of the bank’s credit management policies, procedures, and performance metrics, several key findings have emerged.
Firstly, it is evident that Union Bank of Nigeria has implemented robust credit management frameworks aimed at minimizing the occurrence of bad debt. These frameworks include rigorous credit assessment procedures, monitoring mechanisms, and risk mitigation strategies. However, despite these efforts, the bank still experiences challenges related to non-performing loans and bad debt.
Secondly, the study highlights the importance of effective credit risk identification, assessment, and monitoring in mitigating the incidence of bad debt. Union Bank of Nigeria needs to continually review and enhance its credit risk management practices to adapt to evolving market dynamics and regulatory requirements.
Recommendations
Based on the findings of this study, the following recommendations are proposed to improve Union Bank of Nigeria’s credit management practices and reduce the occurrence of bad debt:
The bank should enhance its credit risk assessment processes by incorporating more robust risk evaluation models and tools. This includes conducting comprehensive financial analysis, assessing borrower’s creditworthiness, and evaluating collateral adequacy.
Union Bank of Nigeria should implement proactive monitoring mechanisms to detect early warning signs of credit deterioration. This involves establishing effective credit monitoring systems and promptly intervening to address potential credit risks before they escalate into bad debt.
The bank should strengthen its credit recovery strategies to minimize losses associated with non-performing loans. This includes implementing effective debt recovery procedures, exploring alternative dispute resolution mechanisms, and collaborating with relevant stakeholders to expedite the recovery process.
References
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