INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A bank could be described as a major
financial institution which include finance houses, insurance companies
mortgage companies etc. the main function of these financial institution
are to provide financial support to those who are in need. Apart from
this function, banks perform other function like rendering advice and
counseling, acceptance of deposits, provision of loans and advances and
also providing a safe keeping place for peoples variables.
Many banks play intermediary roles in the financial sector.
v Moderation of the rate of inflation
v Reduction of pressures on the eternal sector so as to achieve a sustainable balance of payment position
v Establishing the naira exchange rate in Nigeria
Banks could be classified into the following categories
v Central bank
v Commercial bank
v Merchant bank
v Development bank
v Community bank
Obviously with an observer first
contract with a developing economy, all these categories of bank play
important role in stimulating the economy, they deal with members of the
public, first they all provide first information and investment advice
to willing customers. Community banks for instance were established
primarily to spread banking service to the grass roots; considering the
act that greater percentage of the countries population reside in the
rural area.
Development bank by
implication tend to carryout their function effectively because they
diversity into specialized areas, such as agriculture and industry, an
example is the Nigeria agricultural and commercial bank (NACB) and
Nigerian industrial development bank (NIDB0 hence the development of the
economy is stimulated through these agency function.
In order to achieve their set
out objective all these banks rely on certain instrument and policies
which include reserve requirements, stabilization of securities,
interest rate policy (lending policy) exchange rate and foreign exchange
management. Discount rate policy among other which Nigeria developing
country are put in place and over seen by the government owned central
bank.
Lending has over the years
become one of the most important function in baking operation. It
provide money for investment which in turn yield turnover and increase
the liquidity in circulation. Due to this direct effect it has no the
economy and business development, it is being pursed in many developing
countries where bank and their lending activities have been usefully
integrated into government policy formulation in the national economy
development process.
In Nigeria for example where
majority of the population are in object poverty, fund are very
difficult to come by for investment purposes.
Lending is giving something to someone
else for use over a short period of time (in this case money with
interest when being paid back) . in the objectives of lending activity
the banks in the country have come up with policy guidelines which
basically provides the framework for dealing with loans and advances.
Some of these policies are designed to
have relevance to the internal constraints of each bank for instance
sector performance, deposit base risk existing exposure while the other
are derived mainly from the guidelines issued.
A lending policy if properly
articulated could provide a guide for safe, sound and profitable banking
activities, if on the other hand the lending policy is not properly
formulated it could lead to the banks liquidation.
Irrespective of the amount of
liquidity available in a bank it may find it practically impossible to
satisfy all the requests it gets for loans since the requests may
outstrip available resource. The bank thus has to decimate in the
decision to lend. Funds available for loans must be judiciously applied
strictly along the bank policy.
Lending procedures which act as checks toward making sure that the objective of policy guidelines are achieved include
v How loans are to be processed
v What document are required
v Necessary securities
v Where various document should be send
v Recommendation to be forwarded etc
Due to improper lending, most
bank make provision for bad debts but on the other hand what is known as
recovery procedures in savoring doubtful debts. They include the step
by step action by its specialized units either legal or other wise to
this effect.
In summary this intend to take
a critical appraisal at these lending policies and procedures for loan
recovery these policies and procedure play important roles in achieving a
good and effective banking system.
1.2 STATEMENT OF THE PROBLEM
The purpose of having guidelines and
policies on lending and recovery procedure in bank is to achieve a
certain objective of economic growth and development. Normally, if these
policies are not strictly followed, is expected that some effects will
be felt on the economy.
Bad debt and its management is among the major problem encountered by banks in their lending and recovery operations.
Non – adhence to the established
guidelines and policies on lending and recovery procedures on lending
and recovery procedures in banks makes it more difficulties for the
banks to overcome the problem of bad debts.
1.3 OBJECTIVE OF STUDY
This study aims at evaluating the
effectiveness of commercial banks credit policies and guidelines as
directed by the central bank of Nigeria. This study also determines the
extent to which these policies and guidelines help commercial banks in
stimulating economy growth and development
1.4 SIGNIFICANCE OF THE STUDY
The study will be of help to loan
administration and those who work in areas of credit assessment and
control in various commercial bank – also it is hoped that this study
will be of immense help to the banking institution particularly the
school library and future product researcher