METHODS OF CREDIT CONTROL IN COMMERCIAL BANKS IN NIGERIA ( A CASE STUDY OF UNION BANK)
ABSTRACT
The objective of this project work is to provide an insight on the method of credit control in commercial banks. The findings are based on the outcome of going through First Bank publications, newspaper and reports and other corresponding reports of the first Bank office. The study work is divided into five chapters as follows; chapter one, the background of the study was presented specifically on the role of commercial banks and the scope of the study. Chapter two discusses the loans and advances, chapter three contains methodology and research designs, chapter four talks about presentation and analysis of data, chapter five contains summary, conclusion and recommendation made on how to solve the problem of credit control commercial banks.
TABLE OF CONTENT
Title page i
Declaration ii
Approval page iii
Dedication iv
Acknowledgment v
Abstract vi
Table of content vii
CHAPTER ONE
1.1 Introduction 1
1.2 Brief historical background 4
1.3 Statement of the problem 5
1.4 Purpose of the objectives of the study 6
1.5 Scope and delimitation 7
1.6 Research questions 7
1.7 Definition of terms 8
CHAPTER TWO
2.1 Literature review 12
2.2 Loans and advances 12
2.3 Maturity pattern of bank loan and advances 16
2.4 Pattern of credit collateral securities 18
2.5 The need for credit control 20
2.6 Basic principles of lending 22
2.7 Credit risk management 24
CHAPTER THREE
3.0 Introduction 30
3.1Research methodology 30
3.2 Methods of Data collection 32
3.3 Sources of data 34
3.4 Types of data 36
3.5 Summary and conclusion 37
CHAPTER FOUR
4.0 Introduction 38
4.1Presentation of data38
4.2 data of AnalysisMethods of controlling
credit in bank 42
4.3 Research findings 44
4.4 First bank credit repayment or recovering 50
4.5Commencement of recovery process 53
CHAPTER FIVE
5.0 Summary conclusion and recommendation 55
5.1 Introduction 55
5.2Limitation of the study57
5.3 Recommendations 59
5.4 Summary of the study 62
Bibliography 63
CHAPTER ONE
1.0 INTRODUCTION
The banking system is an important sector of the economy because it acts as an agent for mobilizing funds from those who wish to deposit their money and allocating the same to those who want to borrow, thus facilitating the efficient functioning of commercial and .manufacturing activities.
The credit allocation and control policies are required by the bank and other financial in particular development activity. Control of advances are usually targeted at reducing unwise spending and promoting industrialization with a view to reviewing the economy through generation of employment to promote development.
Government gives a directive by constituting a forum of control for bank to recover all loans advances disbursed on reduction basis so that funds available would be channeled to more preferred sectors specifically agro-based, agro-alhed, agro-chemicals industries and exports. Most of the times, the control of credit at the head office and at the branch levels are essentially. On the same basis. The only difference is that the head office and regional administration are completely detached form the scene, and this takes a more realistic approach in appraising proposals with limited and defined power, whereas as a branch often makes a hurried assessment, which in most cases is completely full of sentiment, pressure and influences. As stated above, the banking and financial sector plays the role of intermediary. The sector mobilizes funds from small and big savers who have no immediate need for such funds and provided such funds for users who are basically business entrepreneurs and investors who need such funds.
These surplus funds owners may deposit their funds in the banking sector in the form of investment and they are generally referred to ultimate savers of funds. On the other hand, the users are the business entrepreneurs and individual who have brilliant ideas on how to create additional wealth in the economy, but lack the necessary capital to execute their plan and concretize their ideas from the above this group is referred to as the ultimate users of funds. Ti must be noted that one of the basic objectives of any bank is the generation of profit, which is realized through the banks ability to attract new deposits while retaining the old ones and putting them into profitable use. Such deposits funds in the opinion of the management is not immediately required for everyday working needs of the depositors and so it must be channeled appropriately to places where they are needed for economic development.
However, for any bank to achieve its objectives it must be able to manage or control its credit portfolio effectively. If the spate of bad debt now engulfing the banking industry is to be abted, these speculative tendencies on the part of the customers and passive approach by lending officers towards credit control like administration process require a process of action, analysis and follow up.
1.2 BRIEF HISTORICAL BACKGROUND OF FIRST BANK OF NIGERIA PLC
First bank of Nigeria plc was founded by Alfred Jones, a shipping magnate form live pool, who started the business of banking in Lagos with emerging of the African banking corporation (ABC) established in 1891. it was first incorporated with the name. Bank of British west African (BBWA) as a limited liability company in London on March 31st 1894 having its head office in Liverpool, started business of banking with a paid – up capital of twelve thousand pounds stipulated ($12,000) in 1957, the name was changed form Bank of Nigeria Ltd.
In 1979 and 1991, the bank of Nigeria changed to first Bank of Nigeria Ltd, and first Bank of Nigeria Ltd, and first Bank of Nigeria Plc” respectively. First Bank is having the largest network of branches in Nigeria. Today it has one of the largest portfolios of diversified loans and credit facilities to various sectors of the economy in the country. Lending is the main business of first Bank of Nigeria plc, in this process of lending money is created in a way of loans and advances usually disbursed to customers with interest and a sties pulsated terms of repayment
1.3 STATEMENT OF THE PROBLEM
There are some problems faced by some banks today, which a manager or credit officer must lay more emphasis on. The research will take a look into the ways by which the problem of lending and credit control can be eradicated in banking ( if this is a reality in the banking sector) what are the problems of leaning in banks? What problems does the credit control manager en manager encounter, in problems in granting, monitoring,
supervising and recovering of loans? All of these form a basis for this research work.
1.4 PURPOSE OR OBJECTIVES OF THE STUDY
The objectives of the research work are as follows
1. To examine the credit allocation and the credit control policies which are required by the work.
2. To know the general performances of the bank on credit control.
3. To examine the security pattern of the bank in advances and loans and in what form?
4. To examine the basic principles employed by the bank managers in granting, monitoring, supervising and recovering of loan.
5. To know the role of the central bank in the management of credits by commercial and merchant bank.
1.5 SCOPE AND DELIMITATION
This research has a special emphasis on first Bank of Nigeria plc, Yakubu Gowon way branch, Kaduna and it focuses on the control of advances on credit in the banking industry with special effort made at discovering if the procedure of credit control is still in existence or complied with in banks. Due to the nature of the organization and the inherent secrecy associated with it, the researcher and problem of getting the necessary records that should have been of great assistance in the course of the research area of study.
1.6 RESEARCH QUESTIONS
These research questions constitute the areas the researcher intends to examine, which are as follows
1. Is an effective credit control system important to the progress and development of a banking business?
2. Should collateral securities be presented for the managers when making prepositions.
3. Does the procedure for monitoring, supervision and repayment of loans vary from manager to manager?
4. Are there major procedures for following up of loan repayment?
5. Is the procedure of credit central still in existence
6. Is the credit control procedure effective?
7. What are the requirements for loans to customers?
1.7 DEFINITION OF TERMS
LOAN: it simply means that the bank lends, usually with interest and at a stipulated time and terms of payment.
ADVANCE; it can be called overdraft, it is usually on a continuous basis with fluctuation balances within a given limit.
COLLATERAL: it is insurance evaluate: at the background to make or substitute at the borrowing that the bank wants to make if the unexpected happens there by jeopardizing the safety of the lending. It will therefore minimize the risk of defaulting in the repayment of the credit on maturity.
CREDIT: an avenue in which loan able fund is made available to a prospective borrower, which is to be repaid in a determinable future date. The bank control the loanble fund.
RISK: a measurable uncertainty involved in any decision making, be it granting of loans or an advances
BANK: A bank is a financial institution which collects and from dividends or organization, safeguard them and undertakes to surrender them to their owners which required but also at a certain time, lends some of these funds to those who needs to borrow it and pay back with interest.
CONTROL: Performance evaluation that provides feed back of the result.
SECTOR; it is a branch of the banking industry or area within the banking sector for the purpose of controlling operation.
AGRO-ALLIED INDUSTRIES: These are industries that use agricultural procedures to produce with order identity dependents on others
AGRO-BASED INDUSTRIES: They are the industries that have their by – products used specifically in the agriculture sectors.
AGRO-CHEMICALS: These are industries that produce chemicals e.g insecticides in the agriculture sector.
DIRECTIVES: These are instructions given by the governments so as to control ministries in the affairs of different sector.
PREFERRED SECTOR: this is sector to which government allocates either finance as other resources more than the remaining sectors. Hence, their sector that needs attention by government.
FINANCIAL INSTITUIONS: these are institutions that deal with finance as the name implies. They are concerned with receiving and disbursement of funds or money.
FINANCIAL INTERMEDIARIES; These are people that go in better the lenders and the borrowers or they act as people that go between the financial institutions and those that want to transact business with the institutions.
EFFICIENCY: The degree to which inputs are used in relation to a given level of output.
PROFIT: Revenue minus cost
ECONOMY: The management of an administration of the material resources of a country.
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