While granting of loan is been described as the Power Point in banks; the battle with the non-performing loans (debts) remains one of the most serious issues in banking sector across the globe, particularly in developing countries like Nigeria. Despite the strict considerations of cannon of lending applied in loan appraisal of customers, there is still no single bank that is not confronted with non-smooth repayment of loans. Non compliance with the terms and conditions of loans by borrowers is what is leading to the huge portfolio at risk (PAR).
However, sequel to the big effects of debt on bank in particular, the researcher makes effort to carry out research on debt recovery procedures and strategies in commercial banks in Nigeria, using United Bank for Africa (UBA) Plc, Ekpoma, as a case study.
The research will contain five chapters. the chapter one contains the introductory part, which consist of; background of study, statement of the research problems, research questions, objectives of the study and significance of the study. The chapter two contains the detailed literature review of the research topic. The chapter three comprises of methodologies. Chapter four consist of methods of data collection and analysis of data gathered and finally chapter five embodies the summary, findings, conclusion and recommendations.
TABLE OF CONTENTS
Title page i
Table of Content v
1.1 Background of the Study 1
1.2 Statement of Research Problem 3
1.3 Research Questions 4
1.4 Objective of the Study 4
1.5 Significance of the Study 5
1.6 Statement of Hypothesis 6
1.7 Scope of the Study 7
1.8 Limitation of the Study 7
1.9 Definition of Terms 8
2.1 Introduction 12
2.2 Meaning of Debt in Bank 14
2.3 Causes of Debts in Bank 15
2.4 Impacts of Debts in Banks and Entire Economy 20
2.5 Debt Recovery Challenges 22
2.6 Preventives Measures of Debt in Banks 23
2.7 Debt Recovery Procedures and Strategies in Banks 26
3.1 Introduction 31
3.2 Sources of Data 31
3.3 Sample Size 32
3.4 Data Presentation and Analysis 33
3.5 Restatement of Hypothesis References 38
DATA PRESENTATION AND ANALYSIS
4.1 Introduction 40
4.2 Data Analysis and Presentation 42
4.3 Test of Hypotheses
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Finding 47
1.1 BACKGROUND OF THE STUDY
One of the core responsibilities of banking institutions in Nigeria and all over the world is the granting of facilities (loans) to borrowers after successful mobilization from the surplus unit to the deficit units of the economy. The lending to individualsor corporate bodies can either be by way of loans and advances.
The degree of extension of loans and advances to customers determines the level of returns on loans and advances. This enables the bank to advance towards the achieving of the main objectives of profit maximization.
However, although the service of granting loan is the vehicle that move the bank to it stage of success, it is observed, that they are not without problems of bad debt. The high risk banks takes is the approval of loans for borrowers. Whatever form of lending is granted by commercial banks to borrowers, the main issue is that a debt is inevitably created between the bank (creditor) and borrower (debtor). The bank automatically becomes the creditor and borrower, the debtor.
Today, no single commercial bank in Nigeria can proudly declared that it has not been affected by the problems of loans and bad debts or will never be confronted with the issue. Many loans falling into the class of bad debt accounts and proffering the possible way of recovery, is way of life in banking sector today.
In this research work, debt recovery procedures and strategies in commercial banks in Nigeria will critically be examined with area of coverage limited to United Bank for Africa (UBA) Plc, Ekpoma Branch.
According to the CBN Prudential Guidelines, (2010) non-performing loans and advances interest are not part of the bank’s income because it’s not realistic until debts and interest are realized by the bank. Bad debts are regarded as negative contributors to the profitability of commercial banks. The only possible way the bank can make these debts and it’s accumulated interest realizable, is if the bank has in place an effective debt recovery procedures and strategies
1.2 STATEMENT OF THE RESEARCH PROBLEM
Lending is the engine on which banking activities moves because it provides the largest part of the profit. The banking has to be efficient in its credit administration in order to ensure effective and efficient allocation and utilization of the loan able funds. With well managed credit administration, economic development and growth is guaranteed. However, the banks in Nigeria are faced with issues of bad debt and how they can eventually be recovered. Bad debt occurred when the borrowers are unable to amortize their loans and when this occurred; it brings heavy burden to the bank on recovery these debts. (Adebayo 1990; 1)
It is very important to state clearly some of the prevailing problems of loans and debt recovery, how it has impeded the smooth operations of the commercial banks and thereby hindering the banking sector the golden chances of rendering its unique objectives to the entire economy.
1.3 RESEARCH QUESTIONS
The following research questions are addressed in the study;
1. What debt recovery techniques can be employed by commercial banks in Nigeria?
2. What debt recovery challenges exist in commercial banks in Nigeria?
3. What relationship exist between bank profitability and returns on loans and assets.
4. Which techniques can be employed to minimize bad debts in commercial banks in Nigeria?
1.4OBJECTIVES OF THE STUDY
The specific objective of the study is to critically examine debt recovery procedures and strategies in commercial banks in Nigeria. The objectives are:
1. To find out debt recovery techniques employed bycommercial banks in Nigeria (case study of UBA)EkpomaBranch.
2. To identify debt recovery challenges of commercial banks in Nigeria.
3. To examine the relationship between bank profitability and returns on loans and assets.
4. To recommend techniques to minimize bad debts in commercial banks in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
The significance of the study includes:
a) To provide additional material to carry out future research in this area.
b) To increase and widen the scope of the researcher’s knowledge
c) To educate and enlighten the general public and especially the credit and debt recovery departments in commercial banks in Nigeria on debt recovery procedures and strategies in commercial banks towards accomplishing the bank’s objectives.
d) To assist the banks in some problemsof loans and proffering steps in recovery such debts.
1.6 STATEMENT OF HYPOTHESES
Ho: bank customers do not often divert borrowed funds to other purpose different from original motive for the request.
Hi: bank customers often divert borrowed funds to other purpose different from original motive for the request.
Ho: CBN credit guidelines do not have influence on the bank liquidity and profitability.
Hi: CBN credit guidelines have influence on the bank liquidity and profitability.
1.7 SCOPE OF THE STUDY
In this researchwork the researcher decided to narrow down the area of study to the credit and debt recovery departments in United Bank for Africa (UBA)Ekpoma Branch in Edo State. Hence, the experience encountered by this branch, as regard loans, are similar to other branches in the state and other banks in Nigeria.while various head office of banks are mainly in charge of administration of their branches.
1.8 LIMITATION OF THE STUDY
In every research embark upon by the researcher; must have its own peculiar externalities which brings about some limitations against the smooth operations. In respect of this research work, the researcher is faced with some constraints, the constraints includes:
i) Financial constraints, the high level of corruption which results to misallocation of funds in the country imposes economic hardship on the people; as a result, the limited financial resources available at a time are inadequate to meet all the researcher needs. For example at moment of the research, the fuel price hike limited the smooth movement of the researcher for the purpose.
ii) Time constraints, academic work for the last semester and responsibilities in the office as a public servant occupied most of the time required for the research work allowing limited time for the research work.
iii) Facts and vital information’s regarded as confidential are been hoarded from the researcher, thereby limiting the information’s required.
iv) Problem of busy schedules, rescheduling or booking appointments, for social engagements and receiving phone calls also affected the time.
1.9 DEFINITION OF TERMS
The terminologies used in this study are defined below to enables readers that are non Banking or Accounting Profession oriented have a clear and better understanding of such terms in the studyfor the clear and understanding of such terms by the readers.
This is known ascash or fixed assets pledge by customers to secure loan.
This is a reminder to the Client that a certain amount is due for repayment and the Client is advised to come along and meet his obligation.
This is a legal notice sent to the Client that he has certain period (usually three months) within which he must pay his loan.
FULL BACK ON GUARANTEE
This case applies in a situation where the loan is guaranteed by outside body.
Is a contract between a lessor (the owner) and the lessee (the user) for hire a specific asset selected from a manufacturer or vendor of such assets by the lessee.
This is a credit facility granted by bank to a customer at a specific rate, for a period of repayment, it could be for personal or commercial purposes; it is usually for short, medium or long terms.
Is simply the lending to one borrower by a group of banks or lending institutions.
Money given to a customer for later payment
The structure or arrangement put in place for repayment of credit facilities granted.
This occurred when the borrower is not able to meet the terms and conditions of loan borrowed.
Loan falls under this category if there is no hope of recovery the debt.
In this study, we mainly refers to the banking sector and other investment houses.