CREDIT MANAGEMENT AND ISSUES OF BAD DEBTS IN COMMERCIAL BANKS IN NIGERIA
2.1. THEORETICAL FRAME WORK
Credit management and issues of bad debts in commercial banks in Nigeria has been a topic of constant debate among economists and policy makers. The
need and criteria for lending have been extensively discussed in the literature review.
The Webster Dictionary of Banking (1987) defined bank credit as the process or ability to borrow money with a collateral with the promise of paying on an
agreed date. The prudential guidelines (1990) succinctly convey a more comprehensive definition of credit, it defines credit facility as the aggregate of all
loans, advances, overdras,
commercial papers, bankers’ acceptances, bill discounted, leases, guarantees and other loss contingencies connected with a
bank´s credit risks. Also, the definition of credit proposed by the CBN Monetary policy circular(1995) agrees with the aforementioned viw.. Generally, we
could conclude that credit includes all commitments by a bank that has risk exposure and that may result in financial loss to the bank. Mandel (1974)
described credit simply as the right of a lender to receive money in the future in return for his obligation to transfer the use of funds to another party in the
interim. The facility is as old as man, though in the primitive society it was known as “mutual aid”, because it was based on ancient customer of ensuring
substance of all members of the community. Credit therefore arises out of the need to bridge the gap between the surplus and deficit economic units such
that the highest level of satisfactory function is performed by the financial institutions notable among which are the Money-deposit banks.
In agreeing with this view, Corley (1970) and Adeniyi (1985) stated that credit is a crucial factor in growth process of any economy and that by lending banks
provide valuable services to the community as they serve to channel money from those who have idle fund to those who put the money in to constructive use.
Furthermore, Acher and O.Ambrose opined that Money-Deposit banks are in business to make loans. They however, added that the loan should work out in
such a way that it will not seriously endanger the loan portfolio and solvency of the bank . This view that appreciates that though some dangers may arise ,
lending is, and should be a major activity of Money-deposit banks. The techniques and complexities of lending have been changing with growth in the society.
Perhaps that is why Mather (1957) describes banking as an art as well as a science. He went further to say that in addition to the wealth of technical and
legal knowledge, a bank manager should develop the aptitudes to assess every request for an advance according to innumerable factor pertaining to the
political borrower. He then identified three basic principles that should guide all bank lending viz, safety, profitability and suitability. In addition to the
principle enunciated by matter, other important guiding factors include the character and integrity, management accounting and technical skill of the
borrower as well as his capacity for hard work and his experience in the particular field for which the finance is required and the possibility of the proposed
investment generally sufficient profits. To ensure repayment of the advance.