Bank plays important roles in the
economic life of a country particularly a developing nation through the
provision of banking services. As agent of development, they provide
loans and advance including a variety of contingent facilities, which
could either be short term or long terms. This explains why credit
guidelines contained in government’s monetary circulars stipulate
aggregate calling on credit creation as well as the sectoral allocation
which bank and other financial institutions must comply with during a
In recent time, bank have witnessed a
phenomenal growth sin terms of loans in their portfolios a s a result of
equity interest, which of federal government has in most bank and the
need to finance industrial project in line with the nation’s rapid
growth / industrialization.
Some of the facilities generally
provided by bank include: short term finance medium term finance, long
term finance, building / mortgage loans advance against produce etc.
When bank are providing these kinds of
facilities and some other are exposed to some risks. Lending has some
other are exposed to some risks. Lending has become a vital function in
banking operations because of its direct effect on economic growth and
In this paper, we shall consider lending policy and careful study and proper analysis of securities and how it’s been perfected.
Through a banker is expected too
exercise consideration skill, use his experience and techniques in
analyzing credit proposal and assessing the risks, it has been
established from experience that unforeseen situation sometimes affect
the borrowers ability to pay and his has led bankers to insure
themselves in case the unexpected happens, by demanding some from
Securities and perfection are
particularly relevant to our situation in this court. Where some
customer showing are financial impedance resulting in overtrading, poor
management, capability, loan morality in business affairs, conflicts of;
objectives in corporate and lack of proper accountability in financial
Bad debts simply means loans or
facilities granted to a customer but cannot be re-couple by the bank
from the customer after all efforts has intensified. Bad debuts are
emotive to banker whose stock in trade is money, view them with dread.
There can never be an exhaustive and debts as they are as multifarious
as there are diseases.
1.1 STATEMENT OF THE PROBLEM
In the years past, it has been observed
that undocumented / unperfected loans accounted mainly of the collapse
and hear-collapse of many banks both in Nigeria and broad (First Bank of
Nigeria Bi-Journal review Vol 6 1998 December).
Thus in a savannah bank Nigeria plc and
Anor Vs Ajilo and Anor 1969 help that the plain lift having failed to
properly documented and perfected. The loan document and security could
not enforce repayment against the defendant. The loan became
irrecoverable. This case highlights the importance of security
perfection and the cost that could arise therefore if it is left undone.
This write up focuses on documentation of loan agreement and its effects on bank and by extension the whole financial system.
1.2 OBJECTIVES OF THE STUDY
The main objective of this project is to
appraise the effect securities per function and debt recovery in
banking industry in Nigeria.
1.3 RESEARCH QUESTION
The research questions of this study
were born out of the huge debts which come about as a result at bank
inability to realize the security pledged due to poor credit
documentation and perfection. The question therefore are:
- What are the affects of poor credit documentation on bank credits?
- What are the types of acceptable securities and documentation procedures for the purpose of lending?
- What are the various types of method adopted for debt recovery?
- What should bank do when they notice any sign credits becoming doubtful?
1.4 STATEMENT OF HYPOTHESIS
There are a lot agitation on the
significance of good securities to bank lending prior to this write-up.
Some bank customers complained that their bank deprived them from
financial assistance in time of need for investment purpose due to their
inability to procedure reasonable collaterals not minding their long
standing good record with them.
In the same vein, bank have also in
their bitter experiences in loan recovery argued their position even
securities are taken for loan and advances.
What then are the cause of these
incidents, is it loan documentation and repayment problem or are there
any other salicut reasons.
The hypothesis is then to test that:
Ho: That there is a relationship between poor credit documentation and defaults in loan repayment.
Hi: That there is no relationship between poor credit documentation and defaults loan repayment.
1.5 DEFINITION OF TERMS
This section embraces a brief
explanations on specific terms not of common usage that appeared in the
body of this work such terms includes.
Credit: This term used
for an amount of money granted by bank (lender) to a customer (Borrower)
in from of loan and advance in order to finance capital
Perfection: This is the
process of investigating the true owner of a security, its
documentation and obtaining the governors consent (in case of legal
Documentation: This is the term used in obtaining security in the legal from and the process of recording, perfecting and security.
Security: This terms denotes property pledge by a borrower as a means of guarantee for the credit grantee e.g lands, shares etc.
Default: This is a term
sued when a borrower fails to fulfill his obligation or when he fails
to repay the amount granted to him as credit.
Debenture: It denotes
an instrument issued by a company or individual acknowledging the
indebtedness of a specified (sum outstanding from time to time) and at a
stated time with interest there of.
Stamping: This term is
used as an evidentiary purpose on the mortgage created. The mortgage
created should be stamped within 30 days of the execution.
connotes the document created must be required in compliance with either
case law or statute and is done at Corporate Affairs Commission within
Insured: This terms is used by insurance company, which means, “Risk Against Loses”
Uberrimae Fidel: This is an insurance term, which explains that every information required must be given in utmost good faith.