CREDIT ANALYSIS AND LOAN MANAGEMENT IN BANKING INDUSTRY (A CASE STUDY OF FIDELITY BANK PLC ENUGU)

ABSTRACT

In business transaction, granting of credit facilities is quite universal. It is an acceptable method of financial business transaction and activities. Granting credit facilities to customers is a practice that cannot be avoided as long as business is concerned, to some sensitive sectors of the economy like banking industry, granting of credit and loans constitute their major earning that means, the larger the credit facilities, the fatter the interest receivable at the same time poor assessment and analysis of credit can be devastating. The risk not withstanding, granting of loans and credit facilities enhances economic growth and development of any nation credit provides the lubricant for continuity of transaction regardless of the immediate available cash. The choice of the topic is to evaluate how effective credit analysis can be utilized to ensure survival of the national economy and grow of banking industry. The analysis of credit and loan management practice of Fidelity Bank Plc, my case study is taken through the analysis of retrieved data and personal interview with some management and of the bank.

TABLE OF CONTENT

Title Page       -      -      -      -      -      -      -      i

Approval Page-      -      -      -      -      -            ii

Dedication      -      -      -      -      -      -      -      iii

Acknowledgment    -      -      -      -      -      iv

Abstract  -      -      -      -      -      -      -      -      v

Table of Contents-  -      -      -      -      -      -      vi

List of table    -      -      -      -      -      -      -      xi

CHAPTER ONE

INTRODUCTION

1.1      Background of the Study       -      -      -      -      3

1.2      Statement of the Problem     -      -      -      3

1.3      Objective of the Study   -      -      -      -      4

1.4      Research Hypotheses     -      -      -      -      5

1.5      Research Question--      -      -      -      -      6

1.6      Significance of the Study       -      -      -      -      7

1.7      Scope of the Study-      -      -      -      -      7

1.8      Limitation of the Study -       -      -      -      -      8

1.9      Definition of the Terms -       -      -      -      -      9

CHAPTER TWO

REVIEW OF RELATED LITERATURE

CHAPTER THREE

Methodology

3.1 Research design   -  -      --    -      -      56  

3.2  Area of Study  -     -      -      -      -      -      57

3.3 Population of Study -      -      -      -      -            58  

3.4 Instrument for Data Collection-      -      -      -      59  

3.5 Data Analysis Techniques -      -      --    -      60

 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

 4.1 Present -  -      -      -      -             -      -      63  

4.2 Test of hypotheses --      -      -      -      -      77

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of major findings     -      -      -      81  

5.2 Conclusion-      -      -      -      -      -            82  

5.3 Recommendations    -      -      -      -            84  

       Bibliography    -      -      -      -             -      86

       Appendix I      -      -      -      -      -      -      87

       Appendix II -  -      -      -      -      -      -      88  

LIST OF TABLE AND GRAPHS

Table 1:        Is there any laid down criteria for grant credit in your organization?

Table 2:        Is there any limits to the amount the branch can grant to a customer?

Table 3:        Is there any significant effect that the quality of staff and their experience in banks credit department have no effective credit management?

Table 4:        Is collateral/security a pre-condition for giving out loan to customers?

Table 5:        What problem does your organization encounter in their operation?

Table 6:        Do you think that efficient and effective loan management will help to retain old customers and win new ones?

Table 7:        Do your bank comprise the following lending process before giving out loan?

Table 8:        Does your bank have a credit manager?

Table 9: What is your main objective of offering credit?

Table 10: Which of the following is the chief attribute of lending?

Table 11: What kind of policy do you operate?

CHAPTER ONE

INTRODUCTION

Credit financing could be seen as back backbones of the economy. This is because one can hardly see any business transaction without the mechanism of credit.

As financial intermediaries, banks have the function of procession, these facilities in form of loans and advances, to the deficit units of the economy to ensure equitable distribution of resources development of the real manufacturing agricultural etc loans and advances are geared to acids industrialization and development especially in an economy like ours, which is characterized by low capital base, inflation, low pre capital income and other unfavourable Economic indications.

Banking lending through the most profitable activity of the bank industry, is the most risky venture that is undertaken by the banks.

Hence, excellence in the field of lending and credit management is excellence in the fields of lending and credit management is essentially through practical experience. The key to successful lending for business is a systematic credit analysis, which deals with the process of investing those factors that give rise to non payment of debts. The efficiency of credit decision shall b all standards depend upon sound judgements of the officer or manager.

Hence to succeed, the lending officer must combine expertise and flexibility in appraisal of individuals application it is against this background that credit analysis and loan management of fidelity bank plc is evaluated to determine it impact in the economic development of the nation.

1.1  BACKGROUND OF THE STUDY

       This research work is essential for efficient credit and loan management in the banking industry. This is because of the problems it has created. In the banking industry which has led to non compliance by some banks to the credit guidelines of the Central Bank of Nigeria (CBN). Above all, given global economy these are a need to address the issue.

1.2  STATEMENT OF THE PROBLEM

i.     Lending an operation which forms the major problems area if most bank activities are inadequately highlighted by bank inspectors.

ii.    The credit files of most of the borrowing customers carry little or no information of value.

iii.    Monies are not periodically removed to the head office/branches in respect of loan and advances.

iv.    These are poor control of loans management with respect of performance of loans and advances.

1.3  OBJECTIVE OF THE STUDY

i.     To evaluate the effectiveness of technique employed by Fidelity. Bank in managing credit with a view to recommending how best it can be done.

ii.    To ascertain the effectiveness of the credit officer and his term on reminding borrowers on their obligations as and when due

1.4  RESEARCH HYPOTHESES

       For the purpose of this research work, the following. Hypothesis have been formulated this is necessary to determine the extent to which the quality of the staff and the adequately of collateral security will affect the loan management by the bank.

HYPOTHESIS I

Ho:  The quality of staff and their experience in the bank credit department have no significant effect on credit analysis and loan management.

Hi: The quality of staff and their experience in the bank credit department have significant effect on credit analysis and loan management.

HYPOTHESIS II

Ho: Collateral security is not an essential pre-condition for giving out loans to customers.

Hi: Collateral security is an essential pre-condition for giving out loans to customers.  

1.5  RESEARCH QUESTION

i.     Do you think effective credit management                 reduces incidence of non performance loans?

ii.    Does your bank have advance credit management      department, if yes, how effective are they in       performing their duties?

 iii.   is collected security a pre- condition for giving out      loans to customers?

iv.    Do you think banks profitability is affected by. Its credit policy?        

1.7     1.6  SIGNIFICANCE OF THE STUDY

1.  It is assumed that credit financing could be seen as a backbone to the economy.

2.  It is also assumed that credit constitute greater percentage of banks business.

3.  Through credit analysis and loan management business transaction are expanded.

4.  Proper credit analysis and loan management enhances in the banking industry.

5.  It is an essential lubricant of national economy.

 1.7SCOPE OF THE STUDY

       As earlier pointed out in this study, the primary objectives of this work are to examine how credit management practices are being carried out in Nigeria banks. But this research work is restricted to Fidelity Bank Plc; the conclusion research in this study will be generalized to all the Nigerian Banks.

1.8     LIMITATIONS OF THE STUDY

This research work is limited by some inherent problems usually associated with research work which include:

FINANCE

       There is some place I had longed to visit and gather more information but lack of finance hindered me.

TIME

       The time frame allowed for the research work is so short, coupled with other academic work. I could not guarantee exhaustive work on the topic hence there is need for further study. The major problem encountered during the course of this study is that it took a considerable number of times before reaching the co-operation of some of the staff interviewed. Most of the staff complained of right schedule, hence the reason for the limited number of people interviewed.

1.9        DEFINITION OF TERMS

There are some words or term which is specifically defined in other to appreciate the context of this research work, there is a need to be able to understand the meaning of the terms.

BAD DEBT

       This refers to a debt that is difficult to collect.

BANK

       Any institution licensed under BOFIA to carry on banking business.

BANK CREDIT

       Lending by bank to their customer by way of loan or overdraft or the government through the purchase of government stock.

BANK CUSTOMER

       A current account and saving account holder.

BOFIA

       Bank and other financial institution act.

CAPITAL

       It refers to the borrowers own stock or equity in his enterprise.

COLLATERAL

       This has to do with the security deposited by the customer for a loan.

COLLECTION

       A specified period for remittance of obligation by the borrower.

CREDIT ANALYSIS

       A staff supervisor function that securitizes the applicants particulars with a view to assessing the performance of loan and advances.

DOUBTFUL DEBTS

       These are debt which its recovery is in full not point.

LOAN

       Money that an organization such as banks lends to borrower.

LOAN DEFAULT

       This arises as a result of the inability of a borrower (customers) to pay back a loan granted to him as and when due.

MONETARY POLICY

       This is governmental deliberate policy through the central bank designed to regulate the economy by controlling cost, volume and direction of credit in order to achieve desired objectives.

NON PERFORMING LOAN

       The loan that is not productive.

PORTFOLIO

       This refers to the holding of a combination of some marketable and financial instrument.

SECURED LOAN

       It refers to a loan backed by collateral.

UNSECURED LOAN

       This is a loan that is not backed by any collateral security.

VALUATION

       A judgment of usefulness or importance or worth of something especially assets, as in this context.