Description
TABLE OF CONTENT
Title page i
Certification ii
Dedication iii
Acknowledgement iv
Table of content vi
CHAPTER ONE
- Introduction
- Statement of the research problem
- Objectives of the study
- Statement of the study
- Significance of the study
- Definition of terms
- Plan of the study
CHAPTER TWO
- Literature review
CHAPTER THREE
- Research methodology
- Historical background of the case study
- Source of data
- Population of the study
- Method of data analysis
- Limitation to methodology
CHAPTER FOUR
- Data presentation analysis and interpretation of results
- Data presentation
- Data analysis
- Interpretation of results
CHAPTER FIVE
- Summary Conclusion and Recommendations.
- Summary
- Conclusion
- Recommendation
Reference
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In a modern economy, there is distinction between the surplus economic units and the deficit economic units and in consequence a separation of the savings investment mechanism. This has necessitated the existence of financial institution whose job includes the transfer of found from savers to investors. One of such institution is the money deposit banks, the intermediating roles of the money deposit bank place them in a position of trustees of the saving of the widely depressed surplus economy units as well as the determinant of the rate and shade of the economic development .the techniques employed by banker in the intermediary function should provide them with perfect knowledge of the out-come of lending such that funds will be allocated to investments in which the probability of full payment is certain. However, in practice no such tools can be found in the decision of the lending banker. Virtually all lending decision are made under creditors on uncertainty associated with lending decision, situation are so great that the concept of risk and risk analysis needs to be employed by lending bankers in order to facilitate sound decision making and judgment. This statement implies that if risk are to be objective assessed, lending delicious by the money deposit bank should be base less on quantitative data and more on principle too subjective to proved sound and unbiased judgment. Furthermore the bank depends heavily on historical information as a basis for decision making.
Apparently aware of the inadequacies of his decision base the lending banker has often sought solace in tangible and marketable assets as security giving the impression that lending against such security is an insurance against bad debt. This makes the bankers complacent his loan portfolio. The increasing trend of provision for bad and doubtful debt in most money deposit banks is a major source of concern not only to management but also to the shareholder are becoming more aware of the dangers posed by these debts. Bad depts. destroy of the earning asset of bank such as loan and advance which have been described as the main source of earning and also determines the liquidity and solvency which generate two major problems that profitability and liquidity, has to earn sufficient income to meet its operating cost and to have adequate return on its investment.
1.2 STATEMENT OF THE SEARCH PROBLEM
In view of the consequences of bad debt in Nigeria money deposit banks, it is necessary to form emulate some research question which will enable the research formulate statistical table for testing hypothesis.
- Has inadequate collateral security provision by borrowers caused bad debt in union bank of Nigeria plc?
- Does fund diversion have any effect on bad debt of union bank of Nigeria plc?
- To what extent has government intervention in lending policies of money deposit bank influenced bad debt in union bank of Nigeria plc?
- To what extent does improper project evaluation influenced bad debt of union bank of Nigeria plc?
1.3 OBJECTIVE OF THE STUDY
- To determine and appraise the lending procedure of banks using union bank of Nigeria plc as a case study with a view to highlighting the effectiveness and adequacy or otherwise the credit management policy of Nigerian banks in reducing the occurrence and consequences of bad debts.
- to highlight the rate at which inadequate collateral security provision by borrowers increases the incidences of bad debt in Nigeria.
iii. To determine whether fund diversion has any effect on bad debt of money deposit banks in Nigerian.
- To ascertain the extent to which government intervention in lending policies of money deposit bank has influenced bad debts in Nigerian money deposit banks.
Banks have direct influence on union bank of Nigeria plc, bad debt.
Ho: improper project evaluation has no significant relationship with bad debt in union bank of Nigeria plc.
Hi improper project evaluation has direct relationship with bad debt in union bank of Nigeria plc.
1.4 SIGNIFICANCE OF THE STUDY
It is hardly an exaggeration that the difference between the success and the failure in the banking industry is in the effective management of the banks loans and advance. Efficient loan management it vital to the protection of assets and the achievements of adequate returns to investment. Though much work abound in the literature of the technique of lending. The methods of securing such lending and the pitfalls that await the unwary bankers. By comparison it appears to be very little in point on the subject of loan management and recovery.
A study of this subject will therefore be a addition to the existing volume of banking literature.
Effective loan management recognized that beyond the application of sound banking principles whenever a loan is made, there is need for urgency in appreciating the point when a loan begins to look doubtful in arriving at a decision as to the appropriate action and in taking that action. This will enable the bank to at least obtain full payment including accrued interest or at worst to mitigate the capital loss in the face of increase competition drug banks, future profits are likely to be harder to come by and since bad debts are a charge against profits it is appropriate that we review the methods, proportions and margins of lending to b ad and doubtful debts.
Hence the significance of this study to bankers will enable them to appreciate an appraisal of their lending and control mechanism now that they are expected to lend under tight monetary conditions.
The economy as a whole will benefit from the expected contributions to the development of the economy left with more profits to enable them make the expected contributions to the development of the economy.
1.5 THE SCOPE OF THE STUDY
In the study of credit management in Nigeria, union bank of Nigeria plc was used for my analysis. All reference therefore relate to union bank of Nigeria plc. A six year period covering 1988-1993 will be studied.
- THE LIMITATION OF THE STUDY
The limitations of this study include some of unable constraints problems encountered in the process. They are as follows.
- Finance the problem of finance was adopt left out in the course of research to this study. This type of study required adequate money and time to enable the researcher visit the necessary places for collection of data. Insufficient fund hindered an in depth study of this reach since it ideas financed from meager pocket money of the researcher.
- Non – availability of records: this is one of the most important limiting factors in the course of the study. This include the problems of easily getting the appropriate data due to bureaucracy which hinders the information flow in the country.
- Non challant attitude of bank official: the reluctance of bank official to reveal information on the Neal for this study for fear of breach of duty of secrecy to customer’s exposure of banks administrative short. Comings.
- Ignorance of respondent/ borrowers: most bank customer were semi illiterate and most often it was very difficult to collect adequate required from them.
- Time: since the study is one of the many courses offered by the researcher. The researcher was constrained by time to carry out an indent research on the study
1.6 DEFINITIONS OF TERMS
Debt: this is what one owner to another person
Loan: a loan is a credit arrangement; a security is pledged and must be repaid with interest over a stipulated period of time.
Overdraft: this is a credit arrangement by banks to their customer to withdraw money over and above that what he has in the account.
Default: this means failure to pay one’s debt for credit extended which has fallen due.
1.7 PLAN OF THE STUDY
The purpose of this study is to identify the empirical analysis of credit management and the incident of bad debt in Nigeria money deposit bank chapter one, background of the study, statement of the research problem, objective of the study,
Significance of the study, the scope of the study, definition of terms. Chapter two, literature review, chapter three, research methodology, sources of data, population of the study, sample size determination, instrument for data collection, chapter four.
Data presentation and analysis, data presentation and survey of findings, chapter false, summary conclusion and recommendations, summary, conclusion, recommendations
CHAPTER TWO
LITERATURE REVIEW
2.1 THEORETICAL FRAME WORK
The need and criteria for lending have been extensively discussed in the literature review.
U.B.S Dictionary of Banking and finance (1981) defined bank credit as the ability to borrow money on the promise of future repayment.
The prudential guidelines (1990) succinctly convey a more comprehensive definition of credit; it defines credit facility as the aggregate of all loans, advances, overdraft, commercial papers, bankers’ acceptances, bill discounted, leases, guarantees and other loss contingencies connected with a bank’s credit risk. Also, the definition of credit proposed by the CBN Monetary policy circular (1992) agree with the view above. Generally, we could conclude that credit includes all commitment by a bank that has risk exposure and that may result in financial loss to the bank.
Mandel (1974) described credit simply as the right of a leader to receive money in the future in return for his obligation to transfer the use of found to another party in the interim. The facilities is as old as man, through the private society it was known as mutual aid, because it was based on ancient customer of ensuring substance of all member of the community is performed by the financial institution notable among which are the money deposit banks.
In agreeing with this view, Corley (1970) and Adeniyi (1985)stated that credit is a crucial factor in growth process of any economic and that by lending banks provides a valuable service to community as they serves to channel money from those who have idle fund to those who put the money in to constructive use.
Furthermore, Acher and O. Ambrose opined that money-deposit bank is in business to make loans. They however, added that the loans should work out in such a way that it wills not seriously endanger the loan portfolio and solvency of the bank. This views that appreciation that though some danger may arrive, lending is and should be major activities of money-deposit banks. The techniques and complexities of lending have been changing with growth in the society.
Perhaps that is why Mather (1955) described banking as an art as well as a science. He went further to say that in addition to the wealth of techniques and legal knowledge, a bank manager should develop the aptitude to assess every request for an advance according to innumerable factor pertaining to the political borrower. He then identified three basic principle that should guides all bank lending viz, safety profitability and suitability. In addition to the principle enunciated by matter, other important guiding factor include the character and integrity, management accounting and technical skill of the borrower as well as his capacity for hard work and his experience in the particular field for which the finance is required and the possibility of the proposed investment generate sufficient profits. To ensure repayment of the advance.
Despite the importance of these traditional cannons of lending, pitcher (1970) criticized undue radiance emphasized on them by the lending banker. He argued that the character of the borrower must be a prime factor in any lending decision. He also said that the integrity of the borrower must be undoubted especially where the security in inadequate to cover the maximum amount to be advanced. He however, wondered whether honesty is simply enough to ensure the success of an enterprise in this difficult demanding condition of our time. The answer is obviously “NO” for instant all the integrity in the world will be little helpful to the managers of a company that are rapidly sinking into oblivion perhaps because they did not adopt their products to meet the needs of changing market or take appropriate corrective action to counter a disproportionate risk in over head cost and fall in trade. Therefore we could not but agree with him (pitcher) when he advocated that the banker should also consider the capital and capability of the customer and also enlist the aid of management accounting and other newer technique of credit analysis to improve their lending decision.
Bad debts are emotive words of bankers because they present losses to the banks. However, for the purpose of this study, there are various reasons for the occurrence of bad debt in money-deposit bank. Experience of bad debt has its impact on the banking operations.
CAUSES OF BAD DEBT
The causes of bad debt could be based on four main classified causative agents. They are as follow
i Borrower or customers
ii Banks
iii Government
iv Nature related factors
BORROWER OR CUSTOMER
I ignorance: customers are ignorant of the fact that bank like other commercial ventures, are out to make profit by selling their product (loan) instead, they misunderstood it to be a place where government and other well to do people store their money. Consequently, they regard amount borrower to be “national cake” rather than as an article purchased which must be paid for. On the part of our elite in white, they regard money borrowed as part of their gratuity which should not be paid. Furthermore, it is the improper evaluation of projects for meeting borrower needs.
ii some customers or borrowers over-invest the loans approved on infrastructures to the detriment of actual purpose. This creates a situation where little or none would remain to other factor thereby occasioning bad debts.
BANKS: this concern efficiency disbursement and amortization schedule by banks. This relates to:
1 POOR EVALUATION OF CUSTOMER: the first point which readily comes to mind for the bad debt is poor before giving out loan to them. The pre-requisite for giving out loan to the customer is the consideration of the following:
CHARACTER: likelihood that a customer will try to honour his obligation.
CAPACITY: the subjective appraisal of the customer’s ability to pay.
CAPITAL: the general position of the customer.
COLLATERAL: assets that customers may offer as security to obtain credit in case of bad debt. Improper evaluation of profit by bank a situation whereby funds becomes inadequate for projects. This affects the loans resulting to bad debts.
GOVERNMENT (POLITICAL INSTABILITY)
Political instability contributes indirectly to bad debts in banking industry by the government refusing to pay contractors in some project awarded but they abandoned by a new government in an attempt to revamp our economy, this incapacitate the contractors and effects repayment of the loan borrowed.
NATURE RELATED FACTORS: (NATURAL HAZARD)
Nature contributes in crating bad debt in our banking industry. Natural hazards includes fire engulfing the factor where the loan is invented, in the case of agriculture, poor rainfall and pest may cause low harvest which will not give the farmer enough to repay the debt.
For these purpose the research work shall appraise lending procedure and loan management of union bank of Nigeria plc.
CONDITION: impact on general or specific economic trend.
i high interest chargeable by bank, sometime occasioned a situation of bad debt because the interest increases the amount to be paid.
ii absence of forum by bank for enlightenment education of customer resulting to lack of procedure on report judgment for joint solution.
iii poor supervision of loan extended : loan diverted to a non income yielding venture result to delay of payment or default totally. Therefore loan given should be trace to extent of seeing where it is invested by the bank.
iv late and inconvenient disbursement on loans by bank either because of the risk factor inherent or due to inadequate staff or other bureaucratic and administrative delay. Convenient amortization schedule also contribute in credit management policy of the bank. Both loan complication and risk of loss are hardly divorced from the lending operations. Proportion of the total loans and advances made by the banker would usually become sticky. That is why even the best manage bank provide for bad and doubtful debt in their normal course of business. The best option for a banker wishing to avoid bad debts would not lead.
However, this is not so, since interest carried on lending constitute a great proportion of bank earnings. Agreeing that bad debts are emotive. Words to bankers, Dandy (1975) enumerate some factors that may cause bad and doubtful debt to arise. These factors include:
A excessive lending or security values
B bad management of borrower’s bank account
C incomplete knowledge of customer’s activities
D bad judgments
E extraneous factors such as over trading, overreliance on trade customer, optimistic balance sheet, misrepresentation and dishonesty of customers.
Nwankwo (1980) agreed with the above factors, but went further to state that in the Nigeria situation most borrowers regard bank loan and overdrafts as has their own share of the national cake and therefore do not bother to repay them. The customer absconds with the loan to another bank to repeat the same process with succeed due to bank secrecy, fluid society and absence of a central intelligence agency. Another possible cause of bad debts in Nigerian is the diversion of loan to purpose other than the for which they were granted. Bad debts incurred have adverse effect on the fortunes of the affected bank. It is believed that the indigenous Nigeria bank and their shareholder have not been competing favorably well with their foreign counterparts in term of profitability because of bad debts. Since bank cannot stop lending because of bad debts, they have to do something to reduce the frequency and minimize their effects.
The traditional approached has been to obtain good security with reasonable realizable value, matter (1979) this approach is supported by Olashore (1985) who added that the security must be rapidly perfected before a fertility is made available to the customer. But pitcher (1979) described this apparently as undue emphasis on security. In his view, the undue emphasis on security inhibit an attempt to develop more sophisticated methods of examine how the bank money is been used in a business and how and when repayment will be achieve. It also restricted unfairly the flow of bank credit to soundly managed enterprise which could borrow funds successfully if only they possess good collateral. The researcher cannot but agree with pitcher. This is be caused our experience in the modern society has shown that security cannot substitute good lending judgment since it will not make a bad loan good but can make a good loan better.
Richardson (1976) in his own contribution noted that beyond need to observe the basic bank lending principles lies on the need for effective’s loan management which he said is paramount. Effective loan management is multifaceted and Richardson opined that one major aspect of it is the needs for urgency in appreciating when a lending begins to took doubtful in arriving at a decision is to the appreciate action and in taking such action. This view was supported by dyer (1980) when he stated that once a lending proposition has been agreed upon, one may assume that if it is necessary to review the facility annually. This according to is because a verity of unexpected event can combine to modify the protected trend of the borrowing, this make it necessary for the branch manager to have frequent discussion with the customer when their overdraft limit have been exceeded or when trading condition have changed. Yet another support for this view was expressed by Osayameh (1989) when he opined that accounts do not just go back overnight. Usually some danger signal may be shown for sometime during which it is the duty of the banker to show considerable interest in managing the account. As Dandy (1975) put it, much sickly account can be nursed back to health by careful handling at the right time. The bank should not wait until a panic and crisis situation is reached. This view which has been expressed earlier in this chapter call for continuous review of the accounts and business of the customer. An analysis of the financial statement of the customer is always helpful, financial statement constitute an important source of information for appraising the financial health of a business venture. For purpose of compassion, the audited figures are expressed as ratios computed from audited figure of two consolidated years immediately preceding the request for loan will help to determine the credit worthiness of the customer and his ability to repay the loan. In short the ratio help the banker to assess the degree of risk being taken-emphasis being placed on earning capacity and operating efficiency.
Mather (1979) grouped financial ratio into five categories which are as follows:-
- Liquidity ratio, which provide a measures of time ability to meet its short term obligation as they fall due.
- Leverage ratio, which are measures of the extent to which a firm’s operations are financial with debt capacity.
- Efficiency ratios, which are used to measure the capability of the management to utilize the firm’s assets.
- Profitably ratios, which indicate the overall profitability of the enterprise.
- Equity related ratios, which are of primary concern to common stockholders.
LIQUIDITY RATIO:
This measure of short term solvency. It indicates the extent to which claims of the creditors are cover by assets that are expected to be converted to cash in a period roughly equal to the maturity of the claims. The two commonly used liquidity ratio are the current ratio and the quick ratio.
Current ratio =total current asset
Total current liability
Quick ratio = total liquid asset OR total current asset les inventory
Total current liability total current liability
Some creditors argue that under adverse conditions, stock may not have sufficient liquidity. Therefore the quick ratio is a modified of the current ratio which measures the firm’s ability to pay off current liabilities without replying on the sale of stock. Obliviously an important factor to watch closely here is the underlying quality of the debtors.
LEVERAGE RATIOS
The debt/equity ratio is the most the important of the leverage ratios. It measure total claim on a business of all forms of creditors in relation to owner’s equity.
Debt/equity ratio = total liabilities
Network (shareholders equity)
All other debt ratio are complementary to this one are design to measure the apprientenes of the capacity structure.
Efficiency rations as indicators of managerial efficiency in the use of the firms assets, efficiency ratios are very useful in judging the performance of the firm. They help in explaining any improvement or decline in the solvency of a business and may also help to explain underlying changes in profitability. Some of the ratio includes:
- Average period of credit taken = creditors X52 weeks
Purchases
- Average period of credit taken = creditors X52 weeks
Sales
- Fixed asset turnover = net sale
Net fixed asset
- Stock turnover = net sales
Stock
PROFITABILITY RATIO
The profitability ratios are important to the banker, the creditors and the shareholders of a business. This is because if sufficient profits are not made, it would be difficult to meet operating expenses, pay interest charges or loans and pay divided to shareholders. Profitability rations include:
- Gross profit margin = gross profit 100
Sales 1
- Return on total assets = Net profit 100
Sales 1
- Net profit margin = net profit 100
Sales 1
- Return on equity = net profit after tax
Equity
EQUITY RATIO
These measure the values and earning of the firms common stock. They include
- divided yield = Divided paid
Price
- price earnings ratio = Market price
Earnings
Audition financial statement are input data for bank credit analysis which may be fraught with some dangers. Commenting on this view, Oseyameh (1986) pointed out the ratios computer therefore the like the bikinis which reseal important feature and at the same time inessential features. Chazen (1985) appear to have agreed with this view when he warned the lending bankers “beware of the hidden facts” in adequate financial statements.
Some of the problem associated with financial statement includes the fact that they are historical and by the time the banker sees them they are already asset and liability items which are not presented. There might be some element of window dressing on the accounts to impress the banker and the tax man. Even when there is no window dressing the account shows a snapshot of the business at a point in time. Beside, the normal financial measure used at the moment is the one which relates assets to their original cost and not their resale value or replacement cost. In all these reasons, audited financial accounts are inferior to management accounts for the purpose of credit analysis.
Pauline weetman (2006) defined management accounting financial information about an entity to permit informed judgment and decision by users of the information. This definition is in line with the definition formulated by the American accounting association. Size (1974) defined management accounting as the application of accounting techniques to the provision of information designed to assist all level of management in planning and controlling the activities of the firms. Unlike financial accounts management accounting is a primarily concerned with supplying people inside the company up-to-date relevant information on immediate past and projections for the future. The accounts which are not for external consumption, pitcher (1979) believe that if the banker is sufficiently in good terms with is customer in order to be to request and given such information, his ability to monitors communities with a view to ensuring repayment from cash flows would be greatly improved.
Credit scorning is another technique of credit analysis which is considered potentially useful in reducing the incidence of bad debts on personal accounts. This technique has been described by Adeniyi (1985) as a satisfactory based management tools for forecasting the outcomes for extending credit individual. It gives a measure of the probability of bad credit risk. These techniques assign numeric weight to customer characteristic. The total scores of an application are an indication and usually a cut-off score fixed by the bank beyond which application is considered risk. Score cut-off can be reviewed upward or downward as circumstances demand
2.2 GOVERNMENT CONTROL OVER CREDIT
Lending by money-deposit bank and investment bank is controlled by the government through the central bank of Nigeria therefore the central bank of Nigeria has the primary responsibilities for formulating monetary policy in the country. In this view, the central bank’s proposals are made as an integral part of federal government annual budget which combined approved monetary and physical value measures.
The instrument are many and varies because of the institutional limitation on the effectiveness of the traditional instrument of monetary management, the central bank of Nigeria has diverged other instrument in line with its development objective. These instrument packages as credit guideline are issued annually under the popular monetary policy circular to all licensed banks. These instruments are comprised of:-
AGGREGATE CREDIT CEILING
Every year the governments prescribe the ratio of expansive of credit in the economy. Banks are not allowed to increase their aggregate loans and advances beyond a certain percentage of the previous year’s aggregate figure. Where a bank exceeds the prescribes limit, the bank shall pay to the central bank of Nigeria stipulated penalties on the excess.
RESERVE REQUIREMENT
This is an obligation under which money-deposit banks are required to meet cash demands of their customers.
These are two variant of the requirement viz
- Cash reserves requirement this instrument required cash bank to maintain with the central bank of Nigeria, A reserves of certain ratio various according to certain classification of banks
The classification and relevant ratios were as follows:-
| Class of bank | Demand deposit liability | Cash ratio | Reserve |
| A | N300 million or more | 5% | |
| b | N100 million or more but less than N300 million | 4% | |
| C | N30 million or more but less than N300 | 3% | |
| D | less than N30million |
Source: central bank of Nigeria monetary policy circular on credit guideline N0. 27:1993
- Liquidity ratio: These instruments require each money-deposit bank to keep a certain percentage of its assets in liquid form. This ratio of specified current liability has remained at 50% over the years.
- Interest rate structure: economist described interest rate at which the central bank of Nigeria discounts the future. It is the cost of money to the borrower and a return on money to the saver or lender. Very recently the interest rate structure in Nigeria has been managed by the central bank of Nigeria which fixed the ranged within which both lending and deposit rate could be in maintenance. It has been argued that interest rate in Nigeria have been relatively low and discriminatory particularly in the favour of the preferred sectors.
SECTORAL ALLOCATION OF BANK LOAN AND ADVANCES.
This required the money-deposit bank to direct prescribed proportion of their loan portfolio to the various sector of the economic, for this reason the economic is divided into two broad sectors the preferred and less preferred sectors. In addition to sect oral allocation, bank are specially directed to ensure that a given percentage of their loans and advance go to indigenous borrowers. Bank are also directed to ensure that a given percentage of deposit generated by their branches opened under the rural banking scheme is given as loan and advanced to the rural area where the branches are located.
Any shortfall on the monthly prescribe minimum (particularly) those to agriculture, residential housing and small scale industries shall be required to be deposit with the central bank of Nigeria and shall neither count as part of the specified liquid assets nor attract any interest yield.
2.3 CREDIT ADMINISTRATION UNIN BANKS OF NIGERIA PLC
The union bank of Nigeria plc started operation in Nigeria in 1917 as the colonial bank with an initial capital of N10, 000. at its first branch in Lagos. In 1925, Barclays bank acquired the colonial bank, which resulted in the change of the banks named to Barclays bank (dominion, colonial and overseas) was incorporated to take over the activities of colonial bank along with other two British banks. The Barclays bank (dominion, colonial and overseas) in 1954 had a total of nine branches in operation in Nigeria. In the next twenty-five years, only three branches at Aba, Gusau and Ijebu-ode were added to the existing nine branches.
However, during the depression of the late 1930’s and early 1940 were several branches including Aba (1934). Burutu (1942), Ebute-metta (1940) Gusau (1942) and Onisha (1942) were closed down. A spate of uninterrupted expansion which saw the opening of all the closed down offices except Burutu was noticed. In 1960, another structural change took place. This time, regional managers were appointed for the administration of branches in the eastern, western and northern Nigeria. The regional managers were responsible to the general manager at Lagos who was the chief executive of the local administration of the bank in Nigeria.
In 1969, the bank was legally incorporated in Nigeria as Barclay bank of Nigeria limited being a wholly named subsidiary at number 40 marina street Lagos. The ownership structure of Barclays bank remained unchanged until 1971 when 8.33% of the bank shares were offered to Nigerians. In the same year the bank was listed on the Nigerian stock exchange. As a result of Nigeria enterprises promotion act 1972, the federal government of Nigeria acquired 51.67% of the bank share which left Barclay bank plc, London with only 40%. By the enactment of the 1972 and 1977 Nigeria enterprises promotion act. Barclays bank international disposed i8ts shareholding to Nigerians in 1979.To reflect the new ownership structure, and in compliance with the companies and allied matter act of 1990, the bank changed its name to union bank of Nigeria with its Board of directors elected/appointed by share holders. In consonance with the government’s programme of privatization and commercialization of public enterprises, the federal government in 1993 sold its share in Union bank to private individuals. Thus union bank become fully owned by Nigeria citizens and organization. In line with the central bank of Nigeria’s banking sector consolidation policy, union bank of Nigeria plc acquired the formal Universal trust bank plc and broad bank Ltd and absorbed it erstwhile subsidiary Union merchant bank Ltd. The bank also increased it shareholder funds through a public offer/right issue in the last quarter of 2005. The bank has 379 branches across the country, all of which are online real time. Union Bank of Nigeria limited is today one of the top three largest bank in Nigeria with the authorized share capital of 100,000 shares of N1 each out of 54,432,000 were issued and held by over 24,946 person and organization. As at September 1986, it has total assets about N5.4billion and a net worth of N300 million. In that year also a profit before taxation of N3, 777,000 was made out the N2143 loans and advances in that year N259million loans were classified bad. Since them Union bank of Nigeria has been performing well in all aspect until in 2009,Union Bank of Nigeria was short listed as one of the bank that could not meet up with the depositor’s demand for deposit. As a result of that the managing Director was among one of the managers been sack from the office and been replace with a new Managing Director. Union Bank of Nigeria is been facing many problem with the management of the bank credits and deposit. As at December 31,2010 the banks gross earnings was # 113,961 billion; profit after tax was # 118,016 billion and total assets was #845,231 billion. The chief of the bank’s staff is the managing director who sees to the daily operation of the bank. The bank is divided into four divisions for administrative purpose. The divisions are:
- Finance and planning
- Management services
- Operation-up-country
- Lagos operations and corporate finance.
Each division is headed by an executive director who requires to the management directors. The executive directors are assisted by assistant general managers. The operation division oversea the area officers which in turn oversee the branches in their respective areas. Union bank of Nigeria limited is today of the top three largest banks in Nigeria within authorized share capital of 100, 000 shares of N1 each out of which 54,432,000 were issued and held by over 24,946 persons and organizations. As at September 1986, it had total assets about n5. 46 billion and a net worth of N300 million. in that year also a profit before taxation of N777,000 was made out of the n2143 loans and advances in that year N259 million loans and advances in that year N259 million loans were classified bad., since then union bank of Nigeria has been performing well in all aspect until in 2009, union ban of Nigeria was short listened as one of the banks that could not meet up with the depositions. Demand for deposit. As a result of that the manager director was among one of the managers been sack from the office and been replace with a new managing director. Union bank of Nigeria is been facing many problems with the management of the bank credit and deposit.
2.4 LENDING AND CREDIT ANALYSIS
Most commercial activities of the bank are originated at the branch level with the area officers, and lead of office acting mainly as authorizing and control centers. Branch offices are the contact point with the public; it is at the branch offices that the accounts are dominated. All credit application small or big are therefore submitted to the branch manager except where special credit services are to be offered to corporate customer, in which case the refused could to straight and originate at the corporate banking group, the bank recognized that a well made loan is left collected. Therefore a customers request for bank facility is critically and systematically analyzed before the facility is granted. The judgment of the lending officer and his confidence in the ability of the borrower cannot be over emphasized.
Certain criteria are fixed and what the borrower must meet in order to qualify the advance. These criteria are called guides or cannons of lending are in banking balance known as the five cs of credit. These are character, capacity, capital condition and collateral. A lot of information is needed by the lending officer to properly address the remove of lending vis-avis the prospective borrower. An initial interview therefore is the first basic step and very crucial in the analysis of credit by union bank of Nigeria limited. Each application for loan carries its own peculiar problems and many require slightly different mode of investigation. Therefore the lending officers are expected to conduct the initial interview with high degree of fact. Having said that, ideal lost the basic steps in obtaining a loan from union bank of Nigeria limited.
Step one
The customer submits his application to his branch manager who conducts the initial interview. Sound lending function must be asked because the applicant may innocently or deliberately omit permanent facts about the proposal. Some of the question which should guide the manager (analyst) at the interview including the following:
- Who is the applicant
- How long is he known to the bank
- If a fresh customer who were his previous bankers and why has he come to this bank.
- How is the purpose of the loan
- What is the purpose of the loan
- How long is the loan required
- What is the sources and method of repayment
- Will the loan be helpful to the borrower and at the same time be profitable to the bank?
- How conferred will the default be by the security offered
- What is the financial position of the business for this purpose, he obtains and appraises the reverent supporting document, including the historical financial statement the project cash flow statement, the perform invoice and of a new project, feasibility studies reports, e.t.c
Step two
Having obtained satisfactory answered to the issues raised in step one the manager approves the facility within his discretionary limits, otherwise he prepares and submits to area office a formal credit application of the banks special proposal form. The proposed form is so designed to carry information obtained through personal interview, visits local reports and ban records. All these will be attached to all other relevant document. As required the controlling office for proper analysis of the proposal.
The manager should also include his recommendation letter on the proposal form to that effect he has infarct adopted the customer’s application and is committed to ensure proper utilization and eventual recovery of the loan if granted
Step three
At the are office, the area advance analyst cross checks the proposal with the supporting documents and passes with is own comment. For the area manager’s area manager then a proves or declines the proposal and advise. The branch manager accordingly. Note that were the amount requested is beyond the area manager’s discretionary limit, the breach manager will prepare the proposal forms in the number of copies called for, depending on the amount involved.
These proposal forms and the relevant document are for warded direct to the appropriate head of office authority with a copy to the area manager. The area manager scrutinized his copy of the proposal and if he finds it lacking. In any material respect, he calls for such from the branch. Having reached a decision on the proposal, he sends. It to head office with appropriate comments.
Step four
At the head office, the advance analyst appraises the proposal and makes his comments. This is forwarded to the assistant general manager (AGM) or his assistant takes decision to approve or decline the proposal. If however the amount is beyond the discretionary limit of the assistant general manager; he adds his owners to the originating branch by the line assistant general manager with a copy to comments and recommendations which agree or disagree with those of the credit analyst and the area manager present the proposal to the general management or executive committee as the case may be for final decision. Cote that the board has the find decision on amount beyond the limit of the general management request for N5million and above are forwarded through the five executive directors for presentation to the board.
Step five
The final decision is communicated direct to the originating branch by the line assistant general manager with a copy to it’s area office
Step six
The board manager adopts the decision and communication same to the applicant customer if the decision is for such approval including drawn down procedures, the interest chargeable, the financial and other relevant information to be supplied on regular basis the requirements e.t.c
Step seven
If the customer accept. The offer, he compliers with the banks requirement. And obtain loan
Lending control: banks have their own internal procedure for management and control of credit with a view to minimizing the incidence of bad debts. Managements interpretation of these rules and procedures are issued as circulars to branches with appropriate warning against the violation of any of the rules
In union bank of Nigeria plc discretionary limits are agreed for branches, corporate managers, general managers/ executive committee and board of directors, it has been stated earlier in this chapter that loan request are usually limited at the branches expects in corporate banking level for specific needs of corporate customers. Any request beyond the discretionary power of a particular officer are passed onto the appropriate higher officer
The banks. Inspection division, among others monitors the activities of the lending officers/ managers. As a further check the book of the bank are examined at least once a year to ensure that the lending officers, do not deviate from the laid down principles.
All borrowing accounts are examined periodically and loans, over drafts registers checked on a daily basics. The essence is to ensure that the accounts are working as normal and operate within their agreed limits. In addition, the checks guarantee accurate calculation of interest charges since the debit balancers are recorded daily. In order to detect crossing firing or any usual transaction on borrowing account, cheque paid in and out of the account are examined on a daily basis by the branch manager.
Information cards are also updated regularly. For this purpose, the bank. Calls for status report from other banks on borrowing customers. Some of the information obtained could be very useful especially when the nest review of the account is due. Generally. The bank attaches great importance to the statistics derived from the customer’s account as well as the valve of the available security.
As a control measure; branches are expected to firm periodically to the head office and /or controlling area office as the case may be reports popularly called returns on borrowing account. Some of the regular return includes.
- Excess return
- Classified debt return.
- Advancer control return
- Central bank advances combined 2nd schedule return.
Loan recovery process: the loan recovery process of the bank because more prominent with the noticing of the alarming increase in the trend of the yearly balance of bad and doubtful debt. And the provisions thereof. The bank was so alarmed that it setup in 1992 a special unit which was changed with the responsibility of managing well classed debts and recovering them essentially the following four stages are involved in the recovering process.
- Classification of account
- Sending demand notices
- Realization of security
- Legal or court action
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 RESEARCH METHODOLOGY
According to Dr Orjih John (1996) is a systematic process of collecting, presenting, analyzing and interpreting data for the purpose of arriving at dependable solutions to human problems.
In a research of this nature, it is necessary to define the research design, area of the study, population of the collection, validation of instrument and reliability of research instrument.
3.1 SOURCE OF DADA
The design of this project is a case study design on a particular case study which is credit management and the incidence of bad debt in Nigeria money- deposit banks with union bank of Nigeria as a case study
3.2 POPULATION OF THE STUDY
The total number of workforce in union bank of Nigeria plc 2020
3.3 SAMPLE SIZE DETERMINATION
To determine the sample size on the total population of seven thousand and thirty eight, the researcher used the formula below
N = n
1 + n (e)2
When n = the desired sample size
N = Population Size
E = Margin of Error
1 = constant/unity
= 2020
1+ 2020 (0.05)2
= 2020
1+ 2020 (0.0025)
= 2020
1 + 5.50
= 2020
0 . 05
N = 334.
3.4 INSTRUMENT FOR DATA COLLECTION
There are many source and instruments of data but in my study which is purely analytical two sources of data collection and their instruments were used.
- Primary source: these consist of raw data collected from people directly involved. These comprises of data collected from the following:
- Questionnaire:
The researcher designed well structured and multiple choice questionnaires for the bank officials. they were personally administered by the researcher.
The questionnaires were distributed and collected immediately to avoid loss in transit and close-ended questions were asked for simple and direct responses which the respondents could not easily avoid.
- Oral interview
This method served as a follow up to the questionnaire which gave the respondents the opportunity to explain certain questions in detail.
The researcher met the respondents face to face and necessary questions were asked and the researcher filed the prepared questionnaires himself.
- Secondary source: The secondary sources of information used were in the area of literature review. This means making use of articles from various newspapers written by financial experts, magazine and textbooks. They were collected from the following places:
- institute of management and technology enugu library
- university of Nigeria Enugu campus library
- national library Enugu
- Enugu state university of science and technology Agbani library
- state central library Enugu
- the central of Nigeria, Enugu branch
- VALIDATON OF INSTRUMENT
This project has been subjected to face the contact validation by any project supervisor and the department of banking and finance caritas university.
3.6 RELIABILITY OF RESEARCH INSTRUMENT
From the responses obtained, the test techniques applied in the research was the x2 (chi-squre) test.
Formula
X2 = (oi – ei)2
ei
where x2 = chi-square
oi = observed frequency
ei = expected frequency
this was used by the researcher in order to determine whether the incidences were by chance or statistically significant.
The made it possible for the researcher either to accept the null hypothesis or reject.
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
4.1 DATA PRESENTATION AND SUMMARY OF FINDINGS
TABLE 1. ANALYSIS OF TREND IN TOTAL LENDING AND TOTAL DEPOSITS OF UNION BANK (=N=’000)
4.0 INTRODUCTION
| Year | Secured loan | Unsecured loan | Total loan | % charge in loan | Total depreciation | % charge depreciation | % of loan to depreciation |
| 1988 | 2505931 | 34400 | 2849931 | – | 4876544 | – | 58.44 |
| 1989 | 2833281 | 415239 | 3248520 | 113.99 | 5782832 | 118.58 | 56.18 |
| 1990 | 2833281 | 415239 | 3248520 | 110.89 | 9879730 | 110.32 | 56.47 |
| 1991 | 3295412 | 1082520 | 4377932 | 121.53 | 9739954 | 152.67 | 44.02 |
| 1992 | 4801392 | 1486484 | 6287876 | 143.63 | 15712902 | 161.32 | 40.02 |
| 1993 | 614435 | 1566283 | 7710718 | 122.63 | 2014764 | 128.01 | 38.33 |
Source: Union Bank of Nigerian plc annual report and account for the various years.
Table 1 above contains an analysis of the trend in bank lending as well as deposit base. As shown in table, aggregate loans and advances increases from N2, 849,931 million in 1988 to N7.710, 718 million in 2012
. With 2007 as the base year, the figure shows N, 860,787 million increase during the six period. The table also shows that the total deposits of the bank increase from N4,876,544 million in 2007 to N20,144,764 million in 2012 representing in increases of N15,238,220 million. The table further shows that the banks have maintained an average loan deposit ratio of 38%. This gives enough liquidity position.
TABLE 2 TREND IN UNION BANK LENDING, CLASSIFIED DEBTS AND PROVISION FOR BAD DEBTS.
| Year | Total lending | Total classified debt | Pro-charge | % change in loan lending | Total in classified | % change in provision | |
| 1988 | 2849931 | 379436 | 99896 | – | – | – | |
| 1989 | 3249931 | 471321 | 99062 | 113.99 | 124.22 | 99.17 | |
| 1990 | 3602320 | 610653 | 152710 | 110.89 | 129.56 | 154.16 | |
| 1991 | 4377932 | 819206 | 367620 | 121.53 | 134.15 | 240.72 | |
| 1992 | 6287876 | 1250039 | 731828 | 143.63 | 152.59 | 199.08 | |
| 1993 | 7710718 | 1459174 | 352168 | 122.63 | 116.73 | 48.12 |
Source: union bank of Nigeria plc annual report for the various years.
table 2 above shows that despite the declining percentage rate of change in total lending except 2010 and 2011, the percentage change in classified debt has been consistently high and positive and in each year higher than the percentage change in lending except for 2012 when percentage in total lending was marginally higher than percentage change in total lending between 2008 and 2012 increased by N4, 860,787 million while total classified debts increased by N1, 079,738 million. The trend is quite deeming and calls for serious attention. This could be stemmed with good loan management.
TABLE 3: RELATIONSHIP BETWEEN PROVISIONS FOR BAD DEBTS CHARGED AND TOTAL CLASSIFIED DEBTS IN UNION BANK OF NIGERIA PLC.
| Year | Classified debts N.000 | provision | % of provision to classified debt |
| 1988 | 379436 | 99896 | 26.33 |
| 1989 | 471321 | 99062 | 21.02 |
| 1990 | 610653 | 152710 | 25.02 |
| 1991 | 819206 | 367610 | 44.87 |
| 1992 | 1250039 | 731828 | 58.54 |
| 1993 | 1459174 | 352168 | 24.13 |
Source: Union bank of Nigeria plc- annual report and accounts.
Table 3 above shows that 26.33% of the classified debts were charged to profit and loss as provision for classified debts in 2007-2012, the provision for classified debts were 24.13%. On the average about 30% of the classified debts were charged to gross earnings. Annually as provisions for doubtful debts. This is rather on the high side and may suggest a week recovery efforts on the part of the bank.
But as a result of the establishment of a debt recovery unit charged with the responsibility of managing and recovery classified debts, the percentage provision of classified debts, fell from 58.54% in 1992 to 24.13% in 2012.
TABLE 4: RELATIONSHIP BETWEEN PROVISIONS FOR BAD DEBTS GROSS EARNING OF UNION BANK OF NIGERIA PLC.
| Year | Gross earning | Provision charged N,000 | % of provision gross earning |
| 1988 | 773728 | 99896 | 12.91 |
| 1989 | 1059418 | 99062 | 9.35 |
| 1990 | 142077.8 | 152710 | 10.75 |
| 1991 | 1824117 | 367610 | 20.15 |
| 1992 | 269987 | 731828 | 27.10 |
| 1993 | 3937714 | 352168 | 8.94 |
Source: union bank of Nigeria plc annual report and accounts.
Table 4 above shows that a reasonable proportion of union bank’s gross earnings are taken by provision for bad debts. To recover the debts, the costs are always high and of course affect profitability.
4.2 PROVISION AND ANALYSIS OF DATA QUESTION
Question 1: Does your bank provide financial assistance to both the public and the private sectors?
| Response | Number | Percentage |
| Short-term | 20 | 40% |
| Medium term | 30 | 60% |
| Long term | – | – |
| Total | 50 | 100% |
Source: field survey 2013
That 20 or 40% of the responses received believed that union bank provides financial assistance to both public and private sectors while 30 or 60% of the responses accepted that banks provide medium term financial assistance to customers.
Questions 3: does your bank encounter case of bad debts?
| Response | Number | Percentage |
| Yes | 50 | 100% |
| No | – | – |
| Total | 50 | 100% |
Source: field survey 2013
Table 4.ii, shows that 50 or 100% of the responses received believed that banks encounter cases of bad debt from 1988-1993.
If yes, was the amount involved in such case starting?
Table 4.iv
| Response | Number | Percentage |
| Yes | 41 | 82% |
| No | 9 | 18 |
| Total | 50 | 100% |
Source: field survey 2013
Table 4. iv shows that 41 or 82 % of the response received accepted that the amount involved in cases of bad debt were staggering / starting while 9 or 18% of the responses opined that the amount were not starting.
Question 5:
To what extent has inadequate collateral security provision affected the incidences of bad debts in your bank?
| Response | Number | Percentage |
| Great extent | 40 | 80% |
| An extent | 10 | 20% |
| No extent | – | – |
| Total | 50 | 100% |
Source: field survey 2013
Table 4.v Shows that 40 or 80% of the response received were of the opinion that inadequate collateral security provisions by customers affects the incidence of bad debts in money. Deposit banks (union bank) to a great extent for the stated period. Whereas 10 0r 20% of the responses accepted that it affects the incidence of bad debt in union bank to an extent for the stated period.
Question 6: Does fund diversion have any effect on bad debt in your bank from the period 1988-1993?
| Response | Number | Percentage |
| Yes | 46 | 92% |
| No | 3 | 6% |
| Total | 50 | 100% |
Source: field survey 2013
Table 4.8 Above shows that 46 or 92% of the response received accepted that fund diversion has some effect on bad debt in union bank while 3 or 6% of the responses believed that it has no effect on bad debt in union bank with only 1 or 2% being indifference
Question 7:
Does your bank encounter any problem in the recovery of these loans?
| Response | Number | Percentage |
| Yes | 50 | 100% |
| No | – | – |
| Total | 50 | 100% |
Source: field survey 2013
Table 4.vii Shows that 50 or 100% of responses received opined that union bank encounters problems in recovery of the loan given to customers during the stated period.
Question 8:
does the central bank interest rate ceiling pose a problem to your bank in granting these loans?
| Response | Number | Percentage |
| Yes | 48 | 96% |
| No | 2 | 4% |
| Total | 50 | 100% |
Source: field survey 2013
Table above shows that 48 or 96% of the responses received believe that central bank interest rate ceiling poses a problem to the bank in granting loan to borrowers while 1 or 2% does not believe that it poses a problem and 1 or 2 percent are indifferent.
Question 9:
Does improper project evaluation have any significant relationship with bad debt in union bank with these periods?
| Response | Number | Percentage |
| Yes | 50 | 100% |
| No | – | – |
| Total | 50 | 100% |
Source: field survey 2013
Table 4.xi shows that 50% or 100% of the responses received were of the opinion that improper project evaluation has a significant relationship with bad debt in union bank of Nigeria plc from the period.
DECISION RULE
Reject Ho, if calculated value is greater than table value otherwise accept Ho source of test for question 2 table 4 vi
| Response | oi | Ei | Oi-ei | (Oi-ei) | (Oi-ei)2 |
| Yes | 47 | 25 | 22 | 484 | 19.36 |
| No | 3 | 25 | -22 | 484 | 19.36 |
| 38.72 |
Calculated value X2 . 05 = 38.72
Total value X2 05 = 3.841
Since computed value is greater than table value, 38.777 3.841 reject ho which means that fund diversion affects bad debt. In union bank of Nigeria
DECISION RULE
Reject ho, if calculated value is greater than table value, otherwise accept ho.
Source of test of question 3.
Table 4 viii
| Response | oi | Ei | Oi-ei | (Oi-ei) | (Oi-ei)2 |
| Yes | 47 | 25 | 22 | 484 | 21.16 |
| No | 2 | 25 | -23 | 529 | 21.16 |
| 43.32 |
Calculated value X2. 05 = 42.32
Total value X2 05 = 3.841
DECISION
Since computed value is greater than table value, 42.32 greater 3.841, reject Ho which means that government intervention has direct influence in union bank of Nigeria plc bad debts.
Test of hypothesis
Statement of hypothesis
Hoinadequate collateral provision by borrowers does not increase the incidence of bad debts in union bank of Nigeria plc
Test technique
Chi-square – x2 test
Formula for test technique
X2 = (oi-ei)
Where
X2 = chi-square
Oi = observed frequency
Ei = expected frequency
F = degree of freedom = (c-i)(R-i)
(3-1)(2-1)
(2) (i)= 2
Level of significance 5%
Decision rule
Reject Ho, if calculated is greater than table value.
Otherwise Accept Ho
Sources of test for question 1
Table 4 v
| Response | oi | Ei | Oi-ei | (Oi-ei) | (Oi-ei)2 |
| Yes | 40 | 16.67 | 23.33 | 544 | 32.63 |
| No | 10 | 16.67 | -6.67 | 44 | 2.64 |
| – | 16.67 | -16.67 | 278 | 16.68 |
Calculated value X2. 05 = 51.95
Total value X2 05 = 5.991
DECISION
Since computed value is greater than table value, 51.94425.001, reject Ho which means that inadequate collateral. Provisions by borrowers increases the incidence of bad debts in union bank of Nigeria plc.
Decision rule
Reject Ho; if calculated value is greater than table value otherwise accept Ho.
Source of test for question 2
| Response | oi | Ei | Oi-ei | (Oi-ei) | (Oi-ei)2 |
| Yes | 50 | 25 | 25 | 625 | 25 |
| No | – | 25 | 25 | 625 | 25 |
| 50 |
Calculated value X2. 05 = 50
Total value X2 05 = 3.841
DECISION
Since computed value is greater than table value,50 greater 3.841, reject Ho which means that improper project evaluation has significant influence on the bad debt of union bank of Nigeria plc
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATIONS, CONCLUSION.
5.1 SUMMARY OF FINDINGS
In the course of the topic, credit management and the incidence of bad debt in Nigeria deposit-money banks (a case study of union bank of Nigeria plc) the researcher had the following findings.
- In the test for the first hypothesis, which was aimed at determining whether inadequate collateral provision by borrowers increases incidence of bad debt table 4.6 in chapter 4 was posed and the responses received show that 40 or 80% of the responses by the customers affects the incidences of bad debt in union bank of a great extent where as 10 or 20% believed that it affects the incidences of bad debt to an extent. The researcher states as his findings that inadequate collateral security provisions by borrowers increases the incidence of bad debts in union bank.
- In the test for the second hypothesis which was aimed at determining whether fund diversion affects bad debts in union bank. Plc. Question 6 in chapter 4 was posed and the responses received showed that 47 or 94% of the responses received accepted that fund diversion has a contra view. The researcher states as his findings that find diversion affects bad debts in union bank of Nigeria plc.
- In the test for the third hypothesis which was aimed at determining the extent of which government intervention in lending policies of money. Deposit banks question 8 in chapter 4 was posed and the responses ceiling passes a problem to union bank in granting loans while 2 or 4% had a contrary view. The researcher states as his finding that government intervention has direct influence on union bank of Nigeria plc bad debt
- In the test for the fourth hypothesis which was aimed at determining the effects of the incidences of bad debts. In money- deposit banks with regards to improper evaluation of products. Question 9 in chapter 4 was posed. And the responses received showed that 50 or 100% of the responses received were of the opinion that improper project evaluation has significant relation sp with bad debts in union bank. The researcher states as his finding that the bad debt of union bank of Nigeria plc.
5.2 CONCLUSION
To manage loan and credit effectively, efforts have to be made to obey and respect the cannons of good lending and ensure adequate control and supervision on the cannons of good lending and ensure adequate control and supervision on the facility extended within the frame work of government regulation and guidelines. Sound lending requires a clear, well articulated and easily accessible policy document which spells out the philosophy of lending. This will ensure that loan losses are kept at a minimum via a programmed which permits constant supervision on the projects being financed, easy identification of delinquent loans and instituting effective corrective measures.
In it instructive to note that no one can have complete control of his environment, which is banking is dominated by external factors such as economic and political situations and unpredictable behavior of human beings.
All these factors are subject to change and therefore increase the risk of bank lending, losses are nor in the business of lending money but they must not be disproportionately high lending.
Officers are therefore expected to continuously evaluate their loan portfolios and make adequate provisions for losses. The issue of bad debts cannot be ruled out in banking business but the incidences can be minimized with prudent lending philosophy and proper grasp of economic and political environment factors.
5.3 RECOMMENDATIONS
Based on the findings by the researcher in course of this research study, the researcher therefore made the following recommendations.
- In the first findings, which states that inadequate collateral security provisions to borrowers increase the incidence of bad debts in union bank, banks should ensure that loans given out to customers are backed by adequate collateral security. This means that loans should be given to individuals and corporations with adequate collateral security
- In the second find which states that fund diversion affects bad debt in union bank, there should be close and proper monitoring of loans before and after disbursement. Infact, the monitoring should continue for the entire life of the loan.
- In the third findings which stipulates that government intervention has a direct influence on union bank bad debt in Nigeria, government should as much as possible reduce the incidence of conflicting policy pronouncements which have adverse effect on business projection. Again much as interest earning constitutes a great proportion of the gross earning of banks, the bank should be caution in increasing the rates charged on a loan.
- In the fourth finding which states that improper project evaluation has significant influence on the bad debt of union bank, the bankers should lay relatively more emphasis on the integrity of the borrower, the ability of the project to pay itself and previous experience with the customers also advances department should be staffed with qualified and resource full officers capable of making seasonal decision based on credit analysis. These staff should benefit from regular training and re – training programmed in landing appraisals. The services of quantitative analysis who will appropriate data and can predict the provision for bad debts to be necessary.
BIBLIOGRAPHY.
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Fumes, E.L (1975). Money and Banking in Developing Countries: London. Heinemann
Holden, D.M. (The Law and Practice of Banking: London. Pitman Publishers.
Hundeyin, A.W. (1985) Debt Management in Money- Deposit Banks in Nigeria: Lagos. First Bank of Nigeria Ltd
Mather, L.C (1979). The Lending Banker: London. Waterloo and Sons.
Nwankwo, W. (1980). The Nigerian Financial System: London. Macmillan
Ojo, A.J. & Adewumi, W. (1982) Banking and Finance in Nigerian:
Okogbo, PNC (1981) Nigerians Financial System: Essex Longman Group Ltd
Oseymala, R.K.O (1984) Practice of Banking : London Macmillan
Pitcher, M.A (1991) Management Accounting for the Lending Banker: London Macmillan.
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Ugwu. C.C (2010). Management Accounting: Enugu Dikasinma Publishers
Journals articles.
Adewumi, W (1984) A Survey of Lending Concepts Principle and Their implication for Banker in Nigerian. Journals of the Nigeria Institute of Bankers vol. 3. No 2.
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