CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
It has become necessary to take a cursory look at the concept of debts, its ramification and problems associated with management. The issue of problem associated with loans advance management prompts the this central bank of Nigeria (CBN) to reduce the guidelines in a circular entitled “prudential guidelines for licensed Banks” the main purpose of this, is to ensure that the financial guideline ensure conformity with stand to facilitate comparison across banks. The true financial position of bank is often obscured by the accounting period involving its assets and liabilities. The prudential guidelines focus o the assets side of banks balance sheet i.e. loans and advances. In the past, bank different scientifically on the condition under which loan is classified recoverable, doubtful or lost. As such conditions were inherently judgment and there were high potentials for substantial under provision implying that many banks could appear healthier than they really are.
Total saving deposit in the commercial banking system represented 85.3% and 8.3%. such saving deposit in the financial system in this period respectively consequently, it is obvious from forgoing, that commercial banks occupy a strategic position in the economy and are able to influence the course of event in the economy. However, numerous complaints have been made against them by the general public (especially their customers) and the monetary authority as regard their inability to meet the demand for credit by their non-challant attitude in respect of the various monetary policies and their non- fulfillment of the credit guidelines on the hand. The techniques employed by banks in this intermediary function should provide them with perfect knowledge of the out comes of lending such that funds will be allocated to investment in which the profitability of full payment is certain. Virtually all lending decisions are made under creditors on uncertainty, the credit and uncertainty associated with lending decision. The statement implies that if credits are to be money deposit banks should be based less in quantitative data and more on principles too subjective to provide sound and unbiased judgment. Furthermore, the banks depend heavily on historical information as a basis for decision making. Apparently aware of the inadequate of his decision base, the bank lending has often sought solace in tangible and marketable assets as security is an insurance. The increasing trend of provisions for doubtful in most money-deposit banks is a major source of concern not to management but also top the shareholders who are becoming more aware of the dangers posed ,by these credits. Credit destroy part of the dangers posed by these credit. Credit destroy part of the earning assets of banks such as loans and advances which have been described as the liquidity and solvency which generate two major problem, that is profitability and liquidity, has to earn sufficient income to meet its operating costs and to have adequate return on to its investments.