Project Abstract

<p> </p><div><p>This study<br>considers bank credit as it influences the performance of the Manufacturing<br>Sectors (Component) in Nigeria. Bank credit from this perspective was viewed<br>from the angle of borrowing capacity, loanable funds, credit periods, interest<br>charged, repayment terms, etc. the study looked into the problems of high<br>interest rates as well as unfavourable lending terms as it affects liquidity<br>position of manufacturing firms. It centered majorly on the effect of each<br>individual components of Banks credit terms which include credit standard,<br>credit period, cash discount on early repayment and collateral requirement.<br>Data were gathered from annual reports of Champion Breweries Plc as well as<br>from questionnaire administered. The Pearson Product Moment Correlation was<br>used in testing the hypothesis. The findings revealed a strong correlation<br>coefficient existing between Banks Credit and the performance of Manufacturing<br>Sector in Nigeria. In order word, favourable lending terms tantamount to a<br>desirable level of productivity and profitability. The finding also revealed<br>that Manufacturing Sector should ensure that interest payable on borrowed funds<br>does not influence product pricing as against the general price level. It was<br>therefore recommended that companies should consider their mission, the nature<br>of their business and their competitive strength before obtaining credit from<br>banks. </p></div><br> <br><p></p>

Project Overview

<p> </p><p><b>INTRODUCTION</b></p><p><b>1.1 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br></b><b>BACKGROUND<br>OF THE STUDY</b></p><p>Bank<br>credit arises when a borrowing capacity is provided to a firm by the banking system<br>in the form of a loan. The total bank credit the firm has is the sum of the<br>borrowing capacity each lender bank provides to the individual. It is essential<br>business tool acting as a bridge for the constant flows of liquidity. Bank<br>grants credit to enhance production processes to manufacturers with a resultant<br>benefits in form of interest charged. Bank credit creates account receivable or<br>trade debtor that the bank is expected to collect in the near future.<br>Manufacturing company in its attempt to succeed in such a competitive<br>environment, adopt several strategies one of which is obtaining loan from banks<br>to finance its projects. Pandey (2004) submitted that credit is a marketing<br>tool for laying off excess liquidity in banks. Lending to companies however,<br>must be monitored because regardless of an organization’s collateral, share of<br>the market and demand for its products, if there are no measures put in place<br>to regulate lending, then there could be problem especially those related to<br>liquidity.</p><p>The<br>importance of banks credit therefore, to Manufacturing Sector cannot be over<br>emphasized because it is a factor that has a strong influence on the cash<br>inflow of an organization from its production activities which is very critical<br>to any business organization. Every lending policy set up by the bank seeks to<br>achieve adequate profitability and assurance on repayment of loanable funds<br>which are the two basic factors that sustain a bank in the present and<br>determine its position in the long-run.</p><p>A<br>bank lending policy refers to the action taken by a bank to grant, monitor and<br>collect the cash for outstanding account receivable. The lending policy of a<br>typical bank contains the following variables: collection policy, cash discount<br>on early repayment, credit period, collateral requirement, company’s repayment<br>history, and credit standard.</p><p>While<br>classified at it as credit limit, credit terms, customer’s deposit, customer<br>information, and documentation. And each of the components of a bank’s credit<br>policy is used as a tool for monitoring accounts receivable which is the<br>outcome of loanable funds, its covers from the kind of company that credit may<br>be extended when usual collection period would be made.</p><p>There<br>is however, no particular universal lending policy that should be adopted by<br>every bank. The lending policy of a bank should therefore, be based on its<br>available liquidity circumstances, industry standard, current economic<br>condition, and the degree of risk involved. For a manufacturing company to<br>achieve its borrowing objectives, concern should be given to the rate of<br>interest charged, repayment period, penalty on default and its associated risk<br>if collateral is claimed.</p><p>The<br>reason for this writing termed from the fact that in Banks, it is usual to<br>present policy that regulate lending to companies. Nowadays, banks operate<br>basically on extending credit to manufacturing companies, small and medium<br>business and even to individual borrowers. The existence of lending policy<br>itself is however, not an issue, the main problem lies in the fact that every<br>bank exist in a dynamic and complex environment especially in current time<br>where information technology is the order of the day, trends emerge on a daily<br>basis and the behavior of customers keep changing. This constantly changing environment<br>affects banks as well as their decision and all their policies.</p><p>A<br>lending policy that is therefore, written without an undertaking of the market<br>and ample room for change in it, and one which is not constantly or frequently<br>re-visited could becomes obsolete in a matter of weeks. It is therefore, not<br>enough for these policies to be established but there should exist flexibility,<br>provision for reviews and adjustment. This is necessary to keep the banking<br>industries on a going-concern with the constantly emerging trends in the world<br>of business.</p><p>There<br>is no “one-fit-size-911” credit policy to favour both the lenders (Banks) and<br>the borrowers (manufacturing company), lending policy should be based on<br>borrower’s particular business, cash-flow circumstance of the lender and the<br>degree of risk involved.</p><p><b>1.2</b>&nbsp; &nbsp; &nbsp;<b>STATEMENT<br>OF THE PROBLEM</b></p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Pivotally, obtaining credit from banks<br>was to induce cash inflow, thus enhance or expand productive capacity with a<br>simultaneous increase in profit of companies but this is not in consonance with<br>the aim as loan obtained brings about increase in product pricing as a result<br>of high interest rate, risk of seizure or forfeiture of collateral, surplus<br>working capital, high administrative expenses. Similarly, because of freedom<br>offered by the lending company (banks), borrowers (Manufacturing Sector), can<br>borrow more than they can repay when it calls for. A manufacturing company that<br>depends solely on banks’ lending for its productivity will incur opportunity<br>cost in terms of interest charged coupled with uncertainty in its external<br>environment. This study intends to investigate and bring solution to the<br>afore-listed problems.</p><p><b>1.3 &nbsp; &nbsp; OBJECTIVE<br>OF THE STUDY</b></p><p>The<br>main objective of this study is to examine the effect of Bank’s Credit on the<br>performance of Manufacturing Sector. Other objectives of the study include:</p><p>(1) &nbsp; To<br>examine the repayment period</p><p>(2) &nbsp; To<br>examine the effect of high interest rates on the product pricing of<br>Manufacturing Sector</p><p>(3) &nbsp; To<br>determine the effect of high interest rates on the profitability of<br>Manufacturing Sector</p><p>(4) &nbsp; To<br>examine information needed in obtaining credit</p><p>(5) &nbsp; To<br>determine the effect of early repayment on liquidity position of manufacturing<br>company.</p><p><b>1.4 &nbsp; &nbsp; RESEARCH<br>QUESTIONS</b></p><p>This<br>research is aimed at finding solution to the following questions:</p><p>(1) &nbsp; Does<br>obtaining loan solve company’s liquidity problems?</p><p>(2) &nbsp; Do<br>high interests charged affect product pricing?</p><p>(3) &nbsp; How<br>do risk of collateral seizure determine?</p><p>(4) &nbsp; How<br>do bank’s policies affect company’s borrowing capacity?</p><p>(5) &nbsp; How<br>do account payable monitored?</p><p><b>1.5 &nbsp; &nbsp; RESEARCH<br>HYPOTHESIS</b></p><p>To<br>aid attainment of the study goal, the following hypotheses are formulated:</p><p>(1) &nbsp; &nbsp; &nbsp;<br><b>Ho</b>: Banks Credit does not affect the performance of<br>Manufacturing Sector.</p><p><b>&nbsp; &nbsp; &nbsp; H1</b>: Banks Credit affects the performance of<br>Manufacturing Sector.</p><p>(2) &nbsp; &nbsp; &nbsp;<br><b>Ho</b>&nbsp; High interest charged do not affect product<br>pricing of Manufacturing Sector.</p><p><b>&nbsp; &nbsp; &nbsp; H1</b>: High interest charged affect product pricing of<br>Manufacturing Sector</p><p><b>1.6 &nbsp; &nbsp; SCOPE OF THE RESEARCH AREA</b></p><p>This<br>study shall be limited to the performance of Nigeria Champion Breweries Plc,<br>between 2011-2014. Similarly, constrain (like cost and time) made the work<br>limited to the borrowing capacity of Nigeria Champion Breweries, loanable<br>funds, credit period, interest charged, repayment terms, and factors<br>influencing the lender’s (banks) policies.</p><p><b>1.7</b>&nbsp; &nbsp; &nbsp;<b>SIGNIFICANCE<br>OF THE STUDY</b></p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Top managers of Manufacturing<br>Companies usually cut across many disciplines which may not be related to<br>banking/accounting. Most of the time they are not able to anticipate the evil<br>of high interest rate occasioned by Banks Credit on their profit as well as<br>product pricing.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; The study will educate them on the<br>importance of having a calculating policy with regard to Banks Credit and why<br>priority should be placed on it.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; In addition, the study will also add<br>to the body of knowledge in the area of the performance of Manufacturing Sector<br>via Banks Credit. Above all, the study will be a source of material for future<br>research on Banks Credit and the performance of Manufacturing Sector.</p><p><b>1.8 &nbsp; &nbsp; DEFINITION<br>OF TERMS</b></p><p>Below<br>are terms used in the study which calls for definition:</p><p><b>Bank Lending Rate</b>:<br>This is the percentage of the borrowed fund a customer must pay in addition to<br>the actual fund borrowed.</p><p><b>Borrowers’ Capacity</b>:<br>A term use to denote the range to which fund could be borrowed considering its<br>repayment strength. Credit standard is some time used to mean one and the same<br>thing.</p><p><b>Repayment Terms</b>:<br>These include conditions made available by the lender and which are necessary<br>in granting credit.</p><p><b>Credit Period</b>:<br>Durations of which the borrower is expected to make repayment.</p><p><b>Manufacturing Sector</b>:<br>These are firms engaged in production of commodities. It is sometimes refers to<br>as manufacturing companies.</p><p><b>Liquidity</b>:<br>The extent to which assets could be converted to cash enabling it to pay its<br>debts as they fall due.</p><p><b>1.9 &nbsp; &nbsp; Historical Background of Organization under<br>Study</b></p><p>Champion Breweries Plc<br>was incorporated as a private limited liability company on the 31stof<br>July, 1974 with the same South East Breweries Limited. The company’s name was<br>changed from South East Breweries Limited to Cross River Breweries Limited and<br>thereafter to Champion Breweries Limited the later name, Champion Breweries<br>Limited was changed to champion Breweries Limited was changed to Champion<br>Breweries PLC on the 1st of September, 1992. On the 24th<br>of November, 1974, the South Eastern State of Nigeria signed on Humbury<br>(Technical Partners) for the supply and construction of a turkey Brewery in Uyo<br>with a capacity of 150,000 hectolitres. The foundation stone of the Brewery was<br>laid on the 19th March, 1976, the Brewery was officially<br>commissioned and its products champion Ledger Beer launched with initial<br>capacity of 150,000 hectolitres per anum</p><p>The second expansion,<br>which incorporated more sophisticated machinery, was completed and put on trial<br>run in September 1979. The second production line was officially commissioned<br>on the 11th of December 1979 with enhanced capacity of 500,000<br>hectolitres per anum.</p><p>The same year the<br>company’s products, “Champion Ledger Beer” and “champ malt” won silver medal<br>for quality at the 16thword selection for Beer and non-alcoholic<br>Beverages in Luxemburg.</p><p>With the advent of<br>democracy in Nigeria in May 1999; the government of Akwa Ibom State Investment<br>and Industrial Promotion Council (AKIIPOC) was charged with the responsibility<br>to reactivate the company. Pursuant of this mandate, AKIIPOC, in conjunction<br>with the board of directors of the company, went to the market to solicit for<br>core investors/technical managers. In the process, Messrs Montgomery Venture<br>incorporated or panama (with offices in Geneva, Switzerland) was identified and<br>brought into the company as core investors/technical managers after a<br>Memorandum of Understanding (MOV) was signed.</p><p>Based on the<br>memorandum, a reactivation committee was set up by the board of the company to<br>work with the core investors/technical mangers for the revamping of the<br>company. The reactivation process, which commenced in February, 2000 lasted<br>about nineteen month. Now, the plant has been revamped and restructured to use<br>one hundred percent locally sourced raw materials. The Brewery is now July<br>operational and the capacity is 500,000 hectolitres per anum.</p><p>The reactivation<br>Brewery was officially commissioned on the 23rd of October, 2001.<br>Champion lager Beer is now in the market and is doing well. Other product of<br>the company including champ malt has followed.</p><br> <br><p></p>