ASSESSMENT OF CREDIT MANAGEMENT IN NIGERIA COMMERCIAL BANKS

posted on September 12, 2018

ASSESSMENT OF CREDIT MANAGEMENT IN NIGERIA COMMERCIAL BANKS

ABSTRACT

The purpose of this research is to examine the impact of credit management on commercial banks. The introduction of the prudential guideline in banking industry, the volume and value of loans and advances classified into non-performing account ahs continued to increase in bank lending. Obviously this has adverse effect on banks since it affects their cash flow and impair profitability.
Most loans and advances go bad because of the inadequacy in credit management and recovery procedure of banks. Appraisal of lending vis a vis the credit management of banks and the impact of the application of prudential guidelines on credit, form the major objective of this study. Union bank of Nigeria Plc Okpara Avenue Enugu was used as a case study with a view to highlight the effectiveness, the adequacy or otherwise of the credit management policy of Nigerian commercial banks with a view to finding the causes and consequences of non-performing loans and advances. The causes are excessive lending on security values and bad management of borrowers. Having analysed the data, the following findings were made, the principal objective of bank lending is to generate revenue, the loan deposit ratio affects the liquidity position of commercial banks, non- performing account kept on increasing the frequent occurrence of non- performing accounts was discovered to be as result of the banks inability to put in place an effective process of loan recovery, implementation of prudential guidelines by Nigerian commercial banks reflect the real income of banks. In conclusion, the prudential guidelines reduced the profitability of commercial banks and made banks classify their loans clearly. In the recommendation, the researcher suggested that the provisions of the prudential guidelines should be adhered to and an effective loan monitoring unit should be set-up in al commercial banks.

CHAPTER ONE

1.0 INTRODUCTION
1.1 BAKGROUND OF STUDY
Banking is essentially an international business especially now that domestic financial markets in many countries are being internationalized. In modern economy there is a distinction between the surplus and economic units and the deficit economic units. Consequently, there is a separation of savings and investment mechanism. This has necessitated the existence of financial institutions whose job includes the transfer of funds from savers to investors. One of such institutions is the commercial banks.
The intermediating roles of commercial banks places them in a position of ‘Trustees’ of the savings of surplus economic development. The techniques employed by bankers in this intermediating functions should provide them perfect knowledge of the out-come of a lending such that funds will be allocated to investors in which the probability of full repayment is unity.
However, in practice, the reverse has always been the case. Almost all lending decisions are made under condition of uncertainty, the risk and uncertainty associated with lending decision situation are so great that the concepts of risk and risk analysis need to e employed by lending bankers in order to facilitate sound decision making and judgement.
This implies that all risks should be objectively assessed. Unfortunately, many commercial banks have based their lending decision on subjective principles. In most cased emphasis is placed more on security offered for the loan rather than paying attention to the proper monitoring of the loans and the insisten that recovery potential of credit should be from the projected cash flow.
This has led to the increasing cases of non-performing advances.
The structural adjustment programme (SAP) introduced in 1980 had led the adoption of a wide range of economic liberalization and de-regulation measures which in turn had resulted in the emergence of more banks and other financial intermediaries.
Consequently, it became imparable to strengthen and extend the powers of the central Bank of Nigeria to cover these new institutions in order to enhance effectiveness of monetary policy and the regulation and supervision of banks and non-banks financial institutions.