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THE ADMINISTRATIVE PROCEDURE PROBLEM ASSOCIATED WITH THE MANAGEMENT OF CREDIT

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

 The banking industry has been known for its intermediary role in proving financial assistance (credit) needed in the economy. This role of financial intermediation is carried out in so many ways. First to be mentioned is the granting of loans and advances to customers which constitute the major part of bank lending apart from loans and advances them are other form of bank credit like bond issued by banks for or on behalf of the customers.

        In providing credit for business venture bank should as a matter of importance take all necessary  steps to ensure that advances are granted to those customer who can make judicious use of them so that repayment will not be a problem. Therefore bank as a matter of importance must make use of the “five Cs” of credit which are character, capital, capacity, condition and collateral to asses their customer before granting them loans. Affairs of the bank can explained by reference to the fact that “loan and advances are the largest asset structure of Nigeria commercial Banks; it also constitute  the major source at the operating income of bank and also the most profitable asset for the employment of bank funds.

        Credit (loans and advances) are important to the bank balance, they account for the large portion of bank income; such operating income produce from sound investment and effective management enables the bank to:

i.      Pay depositors intrerest

ii.     Pay investors dividend

iii.    Pay government tax

iv.    Have further investment and

v.     Maintain adequate reserves.

        However, irrespective of how prudent a bank may be in its lending, the fact remains that every year provision for bad and doubtful debt should be provided for. Not all loans should be granted, a profitable loan which is not safe should not be granted.

        For banks to be successful their corporate credit policies most be of sound procedure for monitoring and repayment, must endure adequate credit appraisal disbursement.

1.2   STATEMENT OF THE PROBLEM

        Many banks have failed due to many reasons. The most apparent of these reasons is poor credit management. It has been observed that bank do fail as a result of inefficient and inexperience manager and staff who are found in the credit department of a bank. Untrained and unqualified personnel in the banking industry is also another problem that affect the proper management of credit. The question that bother the researcher is how bank can effectively and efficiently manage their credit (loan and advents) for viability and profitability.

1.3   PURPOSE/OBJECTIVE OF THE STUDY

i.      To investigate on bad and doubtful debt inNigeriacommercial banks.

ii.     To examine the effect of bad and doubtful debt inNigeria      commercial banks profitability.

iii.    To assess the incidence of bad debt inNigeriabanking   industry and the economy in general.

iv.    To identify the possible measures of preventing the        accurance of bad debt inNigeriacommercial banks.

1.4   RESEARCH QUESTIONS

i.      Does appropriate loan supervision cause bad debt?

ii.     What are the effects of bad and doubtful debt on banks profitability?

iii.    At what rate is the incident of bad debt on the economy         in general?

iv.    What are the likely possible measure at preventing bad debt?

1.5   RESEARCH HYPOTHESIS

Ho: Inappropriate loan supervision and monitoring is not the         major course of bad debt.

Hi: Inappropriate loan supervision and monitoring is the major      course of bad debt.

Ho: Bad debt does not have adverse effect on bank         profitability.

Hi:  Bad debt have adverse effect on bank profitability.

Ho: The incidence of bad debt on the banking industry and the     economy in general is not high.

Hi: The incidence of bad debt on the banking industry and the      economy in general is high.

1.6   SIGNIFICANT OF THE STUDY

        The significant of this study is to make contribution on the going of the problem of loans in Nigeria commercial bank the study will also add to our understand of how Nigeria commercial banks grant their credits.

        This research work is also relevant in educating the reader on the basis and conflicting rudiment ofNigeriacommercial bank credit operation and the causes of  bad and doubtful debt, stating also these who stand to benefit from this study.

The beneficiaries of this study are:

i.      The practicing bankers

ii.     The bank managers/directors

iii.    The credit and loan officers

iv.    The investors etc

        More over, this study could be of immense help to student of banking and finance to equip them when they go into the field of the course they studied.

1.7   SCOPE, LIMITATION AND DECLIMITATIONS OF THE STUDY

        Basically, this study covers the credit department of a commercial bank in Warri namely first bank of Nigeria PLC; it aimed at finding out the administrative procedure problems associated with the management of credit, course of the problem of loan and the impact of CBN prudent guideline on their credit management and profitability.

        Limited resources, inadequate availability of finance due to inflationary pressure posed a problem to the researcher as this type of research require a lot of money and time to enable the researcher visit the necessary placed and collect the appropriate data.

        Meanwhile, the completion of the findings of data supplied by the respondent are based on assumption that they are correct to the best of their knowledge, and representation of their opinion about the subjected of the research.

1.8   DEFINITIONS OF TERMS

i. BANKS: These are financial institution that accept credit    from the public and in turn give loans and advances to   the   public.

ii.     CREDIT:  This is a financial assistance in form of loans         and         advances granted by banks to their customers.

iii.    LOAN: A borrowed sum of money at an agreed rate of     interest, usually for a specified period of time and     repayable in line with the term of the loan agreement.

iv.    C.B.N: Central bank ofNigeria; this is the apex       regulatory authority of theNigeria financial system.

v.     CREDIT GUIDELINE: An annual monitory circular        (guiding         principle for commercial and merchant bank lending)   publish by C.B.N.

vi.    CREDIT POLICY: This are rules and regulations    guiding bank and their lending activities.

vii.   BAD AND DOOBTFUL DEBTS:This are debt that may   not be recovered or cannot be recovered by a bank or an   organization.

viii.  OVERDRAFT: This is less credit fertility which a    current customer is allowed by a bank to write unique in       access of the existing balance in his/her account.

ix.    ASSET: It is an item of property-belonging to a person or       an organization which can be given value in monetary         terms.

x.     PROFITABILITY: This is the maximum profit or increase       in a company or an organization met assets.

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