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Problem Of Credit Management In Nigeria Banking
[A CASE STUDY OF AFRIBANK PLC ILORIN BRANCH]
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CHAPTER ONE
INTRODUCTION
The financial structure of any
economy constitutes one of the most important if not the most vital
sector of the economy. An ideal financial system is needed for linkage
between economic development and the existence of a good and efficient
financial system. The financial system, which constitutes a forum which
serves to channel loanable funds from the excess of one sector to the
lacking sectors in the economy.
The Nigerian financial system
comprises of the money and capital market, at the top of bother market
is the central bank which operates as an active participant in the money
and capital markets.
A money market is a market for short term
funds. It allows borrowing or lending on short term basis, there include
commercial banks and savings and loan houses. The instrument used in
this market in transferring funds from savers to borrowers are Treasury
Bills. Treasury certificates and Bill of Exchange.
In addition,
the money market consist of two markets which are (1) Coordinated and
centralized market (2) Non centralized market.
The coordinated
and centralized market includes all commercial banks, merchant bank,
development banks, while non-centralized market includes group of
individuals of the same profession e.g landlords, Retailers e.t.c the
feature which distinguishes the coordinated and centralized market from
the non centralized market are, flexibility of interest charges, mode of
transaction, form of keeping record of account6 and its maintenance and
harmonizing money lending with either economic activities.
The
coordinated market is competitive with rigid financial laws that go for
all and sundry, even with institution dealing or operating in the
market. The capital market on the other hand is a market for long term
funds. The market which finance long term investment. The main dealer in
the market are development banks, serving banks and stock exchange
houses, building societies, insurance companies, merchant banks and
investment banks. The main instruments used in the market are stock and
shares, company bonds and government bonds.
In conclusion, the
two nation. The market help to mobilize the savings of a country for
development, encourage growth of one another, mobilige the general
public to participate in running the private sector of the economy and
give the government the opportunity to borrow long term capital regained
for development.
BACKGROUND OF THE STUDY
Financial
institutions play a dominant role in the allocation of funds to
individuals and business organization in the society. Among several role
performed in the banking institution is credit creation. This involves
the distribution, the disbursement of funds to potential users at
favourable terms sure that funds are effectively utilized to ensure the
anticipated benefit to the borrower and the lending banks.
Credit
analysis in financial institutions cannot be viewed without trying to
consider the risk to lender from such credit relationship. Credits are
based on future payment, the future is uncertain and this form of
uncertainty implies or entails an element of risk. Even with the level
of risks involved in credit management, the function of granting loans
and advances cannot be overruled by financial institutions.
Financing business operation involves risks and they are risks, which
automatically transmit or cbb its way into the operations of the
financial institution that exist to finance the business. The risk of
repayment await the lender for such risk to be cleared or be reduce to a
reasonable level banks should strictly adhere to the lending rules and
regulations laid down by the Central Bank of Nigeria Deposit insurance
corporation.
In addition, lending principle should be followed.
As an illustration, the three (3) basic principles behind all banks
lending that should serve as a guide for banks.
One of the principle
is safely, this which entails the safely of loans and advances as
should be of paramount importance to the bank.
Suitability here banks
should ensure that the purpose of loans not in conflict with the
economic and monetary policies of the business.
Profitability since banks are profit oriented, all facilities granted are expected to yield profit or interest for the banks
The central bank of Nigeria (CBN) which is the apex banking
institution in the country is responsible for stipulation guidelines and
directives on banking operations in the country.
The credit
portfolio of banks are directed by the CBN Guideline individual bank’s
credit policy and carious statues of the federal Government of Nigeria
regulating the banks industry. Despite the monetary policy guidelines of
the CBN and various security and collateral put in place by banks for
lending, a portfolio of bid and doubtful debt does exist. These are
major area of concern among credit analysts, bankers investors,
businessmen and the government.
The success of a bank depends on
solely sound corporate loan portfolio policy and a well-articulated
lending portfolios are in line with the objectives and aspirations of
government and the immediate community the bank serves.
Banks
have been described as giving among other functions as institutions that
regulate the flow of money and credit in economy and channeling savings
into productive uses. From the origin of banking, it is evident that
banks primary business consists of getting money from depositors in form
of savings and thereby lending it out borrowers in form of loans and
advances.
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