This research work was undertaken to assess the Loan granting and its recovery problems on Commercial Banks. The research was intended to achieve the following objectives: To find out the several problems facing loan recovery, the effects of loan default on commercial banks and the measures that will be used in reducing the incidence of loan default. Relevant data were collected from both primary and secondary sources. Questionnaires were the main primary data collection instrument employed while data from various relevant publication constituted the sources of secondary data. Upon the analysis of data, the following conclusions were drawn: That problem of loan default stemmed from the fact that there is unavailability of security to be disposed by banks to realize funds. And  also  customer’s  attitude  towards loan payment. On the basis of the above findings, it was recommended that commercial banks should use some risk control  measures to guide against loan default. Also, before granting loan, they should examine critically the project statement submitted by the customer or borrower which will help them to find out the realistic repayment pattern and also help them in knowing if the projects are realistic based on the customer’s past performance. Also, the Central Bank of Nigeria should create a conducive environment for the successfully operation of commercial banks in Nigeria.


Title page ii

Approval page iii

Certification iv

Dedication v

Acknowledgment vi

Table of contents vii-ix

Abstract x


Background of the study 1

Statement of problems 3

Objectives of the study 4

Research question 4

Research hypothesis 5

Scope of the study 5

Significance of the Study  6

Definition of terms                       6

Limitations of the study


Brief introduction8

The nature of loan and advances granted by banks9

Problems of loan default13

Causes of loan default14

Effects of loan default19


Research design21

Definition  Population21

Sample size                                                                                                                          21

3.4 Sources and method of data collection 22

3.5 Method of data presentation and analysis 26


4.0 Data  presentation  and  analysis                                                                                    23

4.1 Presentation and interpretation of data 23

Data analysis and findings31

Discussion of the findings32

Recovery measures33



Summary of findings39



Suggestion for further research42

Bibliography 43

Appendix A 45

Appendix B 46-48



Virtually, every business has a credit relationship with a financial institution, especially banks. Some rely on periodic short term loans to finance temporary working capital needs. Others primarily use long-term loans to finance capital expenditure, new acquisitions or permanent increases in capital. Regardless of the type of loan, all credit  request mandate a systematic analysis of the borrower‟s ability to repay as at when due.

Commercial banks carry on ordinary banking business with the general public, changing cash for bank deposits and bank deposits for cash,

transferring bank deposit from one corporation to  another,  giving  bank deposit in exchange of bills of exchange, providing of trustees and executor‟s services, providing safe custody of funds and valuables as well as foreign exchange remittance.

Though commercial banks differs from country to country, their profit and banking motives are the same. Their activities are of interest to their customers, workers (staff), and above all, shareholders. The commercial objective of the bank is to maximize profit, though other social  and economic functions tends to deflect banks from profit maximization.

The aims and objectives of commercial banks have therefore paved way for their customers to make and obtain credits, in form of loan of which the researcher is interested in.

Lending has become a vital function on operation because of its direct effect and impact on economic growth and business development.

In a market oriented economy,  there  are  two  main  participants  that  move the economic growth; these  are  the  suppliers  of  invisible  funds  and  the users of the funds for  productive  purposes.  These  two  participants  are spread widely in the economy and  may  not  have  direct  relationship  with each other. For this, there is the need to have an intermediary to link them up. The banking sector mobilize  surplus  funds  from  small  and  big  savers who have no immediate need for such funds. The users of these funds are

the business entrepreneurs and investors who have brilliant ideas on how to create additional wealth in the economy but lack the necessary capital to execute their ideas. These groups of people approach banks to obtain loan.

Subsequently, lending is a risky venture which banks only engage on after a rigorous and satisfactory analysis of the project for which lending is  being made. The main preoccupation of  banks  is  extending  loans  to  their customers. Thus, the  formulation  and  implementation  of  such  lending policies are some of the important responsibilities of the management of the bank. The lending policy of a bank must be specific on how much loan will be made available to whom, what period  and  for  what  reason.  For  this reason, lending policies should be well documented so  that  lending  officers will be able to know the areas of prohibition and the area of where they can operate. Also, such policies should be subjected to periodic review to make the banks keep abreast with the dynamic and innovation nature  of  the economy as well as competing with other changing economic sector.

Therefore, the basic objectives of credit analysis t=is to assess the risks involved in extending loans to bank customers. In financial circle, risk typically refers to the volatility in earnings. Lenders are particularly concerned with adverse fluctuation in net income or cash flows, which hinder the borrower‟s ability to service a loan. Some risks can be measured with historical and projected financial data, while others such as those

associated with borrower‟s character and willingness to repay a loan are not directly measurable.


Banks in recent times has failed as a result of loan recovery problems. Loan is the major source of bank profitability.

However, in going about their lending activities, banks have their  own objectives among which are profitability, growth, safety, suitability  and liquidity.

Loan, when not recovered could adversely affect banks. It is easily granted than recovered. It usually needs proficiency i.e. competency and expertise in the recovery process. It sometimes become an uphill task to recover. When they are not recovered, the impact is often disastrous to the bank. It can lead to illiquidity, insolvency and even distress as the case may be.

There is therefore a need for arriving at strategies for efficient loan recovery. That is the peak of the problem.


Having known that lending objectives of a commercial bank is to provide growth, profitability and liquidity, and its representing chunk of deposit as a source of income to the bank, the cumulative effect of loan default will be a loss of confidence in the banking system.

The researcher therefore aimed at:

1. Finding out the several problems facing loan recovery

2. The effects of loan default on commercial banks

3. The measures that will help to reduce the incidence of loan default.


1. What are the several problems faced during loan recovery?

2. What type of loan do commercial banks grant?

3. Who are the loan beneficiaries of commercial banks?

4. Are there measures to reduce the limit of loan default?

5. What are the effects of loan defaults on commercial banks?

6. What are the sectorial allocation of commercial bank‟s loan?

7. What are measures that will help to reduce the incidence of loan default?


Ho – the measures taken by banks do not reduce the incidence of loan default.

H1 The measures taken by banks to reduce the incidence of loan default


The research work is to analyze the problems of loan recovery on commercial banks (First Bank Plc) in Ojo-Alaba, Ojo Local Government Area of Lagos State.

Due to limited time and the level of this project work, the researcher decided to systematically and meticulously narrow it down to a study that will cover two distinct areas namely:

The problem of loan recovery and how to control loan default.

The researcher wants to avoid unnecessary details  that  are  not  concerned with the problem of loan recovery in commercial banks.

The study is limited to first bank branch in Ojo-Alaba, Lagos State.


This study is intended to analyze the problems of loan recovery in commercial banks in Nigeria and their poor system of management of loan. The result of this study will be immense important to some of us and even the bankers in particular. Banks will become conscious in their loan disbursement. They have to determine the kind o people that will benefit from the loan disbursement, the type of loan to give the criteria to use in granting loan and the procedures to be used for loan recovery.


In the course of the study, the researcher makes  use  of  some  words  that needs to be defined so as to carry the reader along.

LOAN: This is the act of allowing a borrower to make a temporal use of

funds at its disposal. It is also a more formal arrangement by which a bank agree to lend an agreed amount to a customer usually for a given period.

RISK: It is the measure of uncertainly inherent in any decision making process.

PROFITABILITY: It is used as index for measuring managerial performance. It means yielding or bringing profit or gain.

LIQUIDITY: This is the word that banks used to describe their ability to satisfy demands for cash in exchange for deposits.

BANKING: It is an agency through which debts and credits are converted and exchanged between owners.

BAD AND DOUBTFUL DEBT: Bad   debts    are    those    which    are    not

recoverable, though they are  written  off  as loss. Doubtful debts are those of which the recovery in full or part is uncertain.

CAPITAL: It is the equity value of the bank educated to the

present value of its future earnings.


In the course  of  the  study,  the  researcher  was  faced  with  several constraints. One  of the  constraints was the short  time  period  within which

the research was to be  completed.  Another  factor  was  shortage  of  cash which prevented the researcher from traveling to source the data. Also, most of the credit analysis criteria  in  commercial  banks  were  not  disclosed  to offer the necessary data required. Their frequent  postponement  of appointment coupled with  the  fact  that  commercial  banks  in  Nigeria  are vast in population i.e. First Bank Branches. The researcher could not get to all of them, therefore a sample was taken to represent all.




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