An analysis of credit management in the banking industry (a case study first bank of nigeria plc. enugu.)

Thesis Overview

<p> </p><p>1.0 INTRODUCTION<br>1.1 BACKGROUND OF THE STUDY<br>Credit management in our banking sector today has taken a different dimension from what it<br>used to be. The banking industry has adopted a lot of strategies in checking credit<br>management in order to stay in business. Thu the banking industry in Nigeria has lost large<br>amount of money as a result of the turning source of credit exposure and taken interest rate<br>position. Nigerian banks are being required in the market because of their competence to<br>provide transaction efficiency, market knowledge and funding capability. To perform these<br>roles, the banks act as the most important participants in their transaction process of which<br>they use their own balance sheet to make it easier and making sure that their associated risk is<br>absorbed.<br>Credit extension is essential function of banks and the bank management strive to satisfy the<br>legitimate credit needs of the community it tends to serve. This credit advances by banks as a<br>debtor to the depositor requires exercising prudence in handling the funds of depositors. The<br>Central Bank of Nigeria established a credit act in 1990 which empowered banks to render<br>returns to the credit risk management system in respect to its entire customers with aggregate<br>outstanding debit balance of one million naira and above (Ijaiya G.T and Abdulraheem A<br>(2000). This made Nigerian banks to universally embark on upgrading their control system<br>and risk management because this coincidental activity is recognized as the industry<br>physiological weakness to financial risk. The researcher, a New yolk-based, said that 40% of<br>Nigerian banks that made up exchange rate value in west Africa, has reduced the operating<br>lending as a result of bad debts which hit more than $10 billion in 2009 and this has led to a<br>tied-up questioning asset that is holding almost half of Nigerian banks. The central bank of<br>2<br>Nigeria fired eight chief executive officers and set aside $ 4.1 billion in order to bail out<br>almost 10 of the country‟s lenders. The reform which was introduced by Central Bank of<br>Nigeria (CBN) in 2010 has made Nigerian banks resume lending supporting assets<br>management companies and set up the requirement which will allow Nigerian banks make<br>full provision for bad debts that will boost the market.<br>The banks identify the existence of destructive debtors in the banking system whose method<br>involved responding to their debt obligations in some banks and tried to have contract of new<br>debts in other banks. Banks are trying to make the database of credit risk management system<br>more open for them to be more functional and recognized as to enable banks to enquire or<br>render statutory returns on borrowers. There are some banking practices which increase the<br>risks in the bank and cannot be easily changed. This result still leads to the question: what are<br>the possible ways that will help make Nigerian banks manage their credit risks?<br>Credit risk management helps credit expert to know when to accept a credit applicant as to<br>avoid destroying the banks reputation and making decision in order to explore unavoidable<br>credit risk which gives more profit. Controlling a risk results in encouraging rewards that<br>give internal audit more technical support service and customized training in banks or<br>financial institutions. This research is presented to outline, find, investigate and report<br>different state of techniques in risk management in the banking industry<br>1.2 STATEMENT OF THE PROBLEM<br>In the history of development of the Nigerian banking industry, it can be seen that most of the<br>failures experienced in the industry prior to the consolidation era were results of imprudent<br>lending that finally led to bad loans and some other unethical factors (Job, A.A Ogundepo A<br>3<br>and Olanirul (2008)). Also the problem of poor attention given to distribution of loans has its<br>effect on the bank‟s performance. Most of the people collected loan from the banks and<br>diverted the money to unprofitable ventures. Some bankers are not actually considering the<br>necessary criteria for disbursement of loans to the customer. This work therefore intends to<br>outline, explain these problems identify the causes and suggests lasting solutions to the<br>problems associated with credit management and consequently banks debts.<br>1:3 OBJECTIVES OF THE STUDY<br>The objectives of this study is as follows<br>1. To examine how feasibility study affect loan repayment in the banking industry.<br>2. To highlight the extent in which diversion of bank loans to unprofitable ventures<br>affect loan repayment.<br>3. To examine how distribution of loans affect banks performance if banks give proper<br>attention.</p><div><div></div></div><br> <br><p></p>