THE EFFECTS OF CREDIT MANAGEMENT ON PROFITABILITY OF BANKS IN NIGERIA
1.1 BACKGROUND OF THE STUDY
It has become necessary to take a cursory look at the concept of debts, its ramification and problems associated with management. The issue of problem associated with loans advance management prompts the this central bank of Nigeria (CBN) to reduce the guidelines in a circular entitled “prudential guidelines for licensed Banks” the main purpose of this, is to ensure that the financial guideline ensure conformity with stand to facilitate comparison across banks. The true financial position of bank is often obscured by the accounting period involving its assets and liabilities. The prudential guidelines focus o the assets side of banks balance sheet i.e. loans and advances.
In the past, bank different scientifically on the condition under which loan is classified recoverable, doubtful or lost. As such conditions were inherently judgment and there were high potentials for substantial under provision implying that many banks could appear healthier than they really are. Total saving deposit in the commercial banking system represented 85.3% and 8.3%. such saving deposit in the financial system in this period respectively consequently, it is obvious from forgoing, that commercial banks occupy a strategic position in the economy and are able to influence the course of event in the economy. However, numerous complaints have been made against them by the general public (especially their customers) and the monetary authority as regard their inability to meet the demand for credit by their non-challant attitude in respect of the various monetary policies and their non- fulfillment of the credit guidelines on the hand.
The techniques employed by banks in this intermediary function should provide them with perfect knowledge of the out comes of lending such that funds will be allocated to investment in which the profitability of full payment is certain. Virtually all lending decisions are made under creditors on uncertainty, the credit and uncertainty associated with lending decision. The statement implies that if credits are to be money deposit banks should be based less in quantitative data and more on principles too subjective to provide sound and unbiased judgment. Furthermore, the banks depend heavily on historical information as a basis for decision making.
Apparently aware of the inadequate of his decision base, the bank lending has often sought solace in tangible and marketable assets as security is an insurance. The increasing trend of provisions for doubtful in most money-deposit banks is a major source of concern not to management but also top the shareholders who are becoming more aware of the dangers posed ,by these credits. Credit destroy part of the dangers posed by these credit. Credit destroy part of the earning assets of banks such as loans and advances which have been described as the liquidity and solvency which generate two major problem, that is profitability and liquidity, has to earn sufficient income to meet its operating costs and to have adequate return on to its investments.
1.2 STATEMENT OF THE PROBLEM
The problem for this study is to appraise the landing and credit management policies of a typical money-depot bank (the first bank of Nigeria plc) with a view to examine the inadequacies in the system and to suggest policy recommendation that would go a long way in bringing about an efficient and optimal lending pattern in the Nigeria economy.
Again, experience may arise in respect of lapses on the part of the banks credit officers. For instance there may be excesses over approved facility, unformatted facilities and expired facilities not renewed on time. In each of these cases the customers may easily deny even owning the bank all or part of the amount.
1.3 JUSTIFICATION OF THE STUDY
The major justification of the study is that, an aggregate industry figures must be employed while the trends in the individual banks and the actual figure may vary widely from this, giving a different pattern of information and perhaps influence there from. The data employed are secondary. It is important to keep in mind that constituencies are usually associated been obtained form sources considered must reliable in the present circumstances. The fact is that bank activities are influenced by social and political development in economy may not present the accurate position of the study.
1.4 RESEARCH HYPOTHESES
This study is designed to test the following hypothesis
Ho: There is no need for banking sector to operate with a standard credit policy.
Hi: There is need for banking sector to operate with a standard credit policy
Ho: In first bank plc, there is no available system for appraising of loan request before they are granted.
Hi: In first bank plc, there is available system for appraising of loan request before they are granted
Ho: Financial statement is not important in analyzing reports.
Hi: Financial statement is important in analyzing reports.
1.5 OBJECTIVE OF THE STUDY
The main purpose of this study is to examine the effects of loans and advances management on profitability of Nigerian banks.
1.6 RESEARCH METHODOLOGY
In this research, the research presents a set of procedure on how data for the study was collected, the sources of data use in the presentation of data and statistical tools used for these analysis of the data.
Description of research methodology
Research in finance is based on findings out solution to financial problems, the business entity relies on research to find answer to specific problems.
The research instruments to be used in obtaining information from the population have to be stated
Using regression analysis to calculate
N = Number of paired observation
X = Independent variables (credit)
Y = Dependent variables (profit)
E = Summation
regression (r) = n∑ x y – ∑ x ∑y
n∑ x2 – (∑ x)2 (n ∑y2 – ∑y)2
1.7 LIMITATION OF THE STUDY
Time Constraint: During the course of written this research work, the respondent that justify the question took a lot of time before making an effect on the questionnaire paper. The time for the research works is so short to go on extra mile for move data.
Inadequate Data: This research work will be limited to the volume of information acquired through materials like national dailies, periodic journals, text books speeches, internet materials and write-ups on related subject.
Lack of Adequate Finance: During the course of writing this research, there is lack of finance to travel from one place to another place for the collection of more data for the research work.
Unco-operate Attitude of Respondents: As it is unduly know that banks are often busy, so questionnaire administration were not answered very well because majority of the staff were occupied with the customers. This constraints might be regard as the non-response during peak periods.
1.8 DEFINITION OF TERMS
These are terms that can be found in this research project:
Asset: An asset can be anything owned by a business organization or individuals which has commercial or exchange value Olakanmi K.O (2001)
Vault: This is the banks strong room where money and valuable materials are kept. RALP K.O (1980)
Fiduciary Issue: Issue of banks notes by the banks which are not having gold banking
Currency: This includes both paper money and metallic money coins. This term is generally used for money. Femi Aborisade (1997)
Bank: The bank and the financial institution Decree of 1991 (BOFID) section b1 defined bank any person receiving deposit on current accounts or other similar accounting paying or collecting of cheques drawn or paid in by customers.
Provision of Finance: Such other business as the governor of the central bank may resonate.
i. First bank Nigeria plc: This can be said to be bank established with the aim of maximizing profits.
ii. Financial institutions that engage in financial intermediator that is, process of mobilizing deposit from the surplus sector and lending it to deficit sector and lending sector for investment.