CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Credit management in banking sector is
an important issue in the economy of a country. It is important in the
scene that success or failure in the management of credit determines the
continued existence of any retail bank in the country.
It is also important to the economy
because the success or failure of any retail banks, that provides retail
banking services (which can accept or grant loan as low as W100 to its
customers) to the general public will have direct effect on the deposit
that is collected from their customers.
Bank is one of the many institutions
that perform financial intermediary role in the Nigeria economy. The
word "credit can be defined as belief, trust or faith. More elaborately,
credit is a means by which people are enable to acquire commodities,
such as goods and services, the sales of credit facilities is not the
final, because it is expected to be repaid at a future time with
interest. There are quite a number of thing which the bank should take
into consideration in order to make control and management of credit
easy.
Retail bank ability to provide large
credit depend on depositor's money, because retail bank are financial
intermediary between surplus (depositors) and deficit, sector
(Borrowers) of the economy.
In order to protect the confidence that
depositors have in banks, there is need for the proper management of
credit facilities which are disbursed to borrowers to avoid default or
delay in repayment of their facilities together with interest.
Where bank fail to perform its duty and
subsequently became distressed or liquidated, it is not only the share
holder's equity that will be lost, but customer's deposits will also be
affected. This is the reason why the federal government, the Central
Banks of Nigeria and the Nigerian Deposit Insurance Co-operation (NDIC)
did not leave the management on banking activities particularly in the
area of credit facilities to the operator in the banking industry alone
but also monitor the activities through directive and policies from time
to time.
Credit comes in different forms and
terms according to customer's need and nature of business. A high light
of this is taken from prudential guidelines for licenses bank, credit
facilities which include loans advance, overdrafts, commercial papers,
bankers' acceptance and guarantee.
According to Seyi N. Athem (1994), "the
process of optimal credit management therefore, entails the creation and
administration of facilities to wards a full and satisfactory repayment
within the agreed time frame". Credit management has become a major
issue facing lender of today.
The achievement of a hundred percentage
repayment of credit facilities with interest within agreed time and
condition is more or less an illusion in the banking industry recently.
Optimal credit management is therefore one that on credit is risk, that
is those granted customers, privates, corporate, and government be it
local, state or federal.
Optimal credit performance also
recognized that credit facilities have to manager with an acceptable
balance in the mix-safety, liquidity and possibility requirement. Under
such condition, repayment could still be achieved at a slightly longer
period without loss of financial; through there may be an acceptance
interest, discount or waivers.
1.2 STATEMENT OF PROBLEM
We may have effect of credit management
policy on bank performance. A variety of factors can cause the operation
of banks to fail to achieve its objectives.
In conducting the research,
questionnaires, such as these are asked, what are the resultants effect
of credit management on bank performance and how has effect of credit
management improve in the banking sector.
1.3 OBJECTIVE OF THE STUDY
The task of this study is to examine credit management process carried out by the retail banks.
The following are the objectives of the study.
- To critically examine credit management with a view of finding out
loopholes which debtor usually exploit to default or delay in repayment
of credit facilities granted to them.
- To highlight the main causes of poor credit management banking sector.
- To state the basic conditions/principles that win faster good credit management in financial institution.
1.4 RESEARCH QUESTIONS AND HYPOTHESIS
There are many area on which
question could be raised in credit management. Among these areas are
preparation and appraisal of feasibility report, monitoring and control
of customer activities after the disbursement of the facilities and
which sector of the economy is most convenient or risky to lend. When
managing credit to make maximum profit without faulting the liquidity
ratio imposed by the Central Bank of Nigeria.
Hypothesis could be described as a conjectural statement which could either be null or alternative that is:
Null hypothesis is represented by Ho; and alternative hypothesis is represented by Hi.
Ho: Customers did not find it difficult to obtain credit from the bank
Hi: Customers find it difficult to obtain credit from the bank
Ho: Bank manager does not lend money without collateral security.
Hi: Bank manager lends money without collateral security.
1.5 SIGNIFICANT OF THE STUDY
In recent times, a range of commercial
bank have been distressed and same liquidated. The major cause of this
problem could be traced to poor credit control and management. To
reverse mis trend, this research work is very relevant and should be
strictly adhered to also. If any country is to develop economically,
socially and in other aspects, there is need for efficient money and
capital market. The study will concentrate and focus on the control and
recovery of credit granted to bank customers while it maintains its
liquidity position.
1.6 LIMITATION OF THE STUDY
Time and resources have been the
limitation of the research. This has caused us to limit our finding only
to Sky Bank P.L.C, which is believed to the representative enough being
a leading retail bank with several branches all over the country.
1.7 DEFINITION OF TERMS
- 1. Bank: The bank is a
commercial institution which performs various financial activities
e.g. Acceptance and handling of deposit of its customers.
- 2. Borrowers: A borrower is a
person who collects money or asset from the lender (bank) and who enters
into legal agreement to repay the principal and interest in future
period.
- 3. Banking industry: All banks in general, rendering banking service to the public.
- 4. Distress: Distress is the inability of the bank to meet the financial demand of its customers.
- 5. Industry: This is an enterprise where goods and services are rendered to the public in return for revenue.
- 6. Lender: A lender is a
person (bank) who gives financial obligation (money) by way of loan or
overdraft to the borrower (customer) to enable him fulfils certain aims
and objectives relating to its business or domestic problems.
- 7. Liquidity Ratio: Liquidity
ratio is the percentage of cash that the bank must hold in liquid form
in order to meet the future demands of its customers.
- 8. Retail banks: Commercial
Banks are otherwise known as the retail banks because they can grant or
accept as one hundred naira (N100) to or from their customers.