CREDIT MANAGEMENT AND BANK LENDING (A Case Study Of Hallmark Bank Ltd In Nigerian)

ABSTRACT
Commercial bank are profit-making venture and as such they share with other business the same set of expectation concerning the health of the economy. 
It is in the light of this that they make loans available to borrowers on interest, which is a source of profit to them. Along side the growth of the credit sector is the growth of the bad debt among other to poor credit management.
The hallmark bank limited like most other bank has recorded a high inadence of bad debt and has one of the years declared loss in 1994. The bank purpose is to find out the cause of the bad debt and suggest the possible solution to the bank poor credit management. 
In order to archive the objective, the writer set out some hypothesis which were tested with the following; statistical techniques, sample percentage, chi-square, (Yates’s correction method) and candells coefficient of concordance . The information requirements for this research were generated from the secondary data and primary source through the use of questionnaire.
The hallmark bank limited, which is essentially a private bank, has been confronted by a lot of problem, which is responsible for his poor credit management as revealed by the writer’s analysis. It is shown that the bank has inadequate credit assessment and control mechanism. The analysis shows that there is a significant relationship between the level of loan granted by the bank and the profit made. The bank granted considerable amount of unsecured loans, which pared way for high level of default, which characterized it. Giving this problem that are face by the bank, the writer made some recommendation amongst others 
1. That the bank be changed to a public liability company 
2. The bank should adopt a planning strategy to forecast and predict their business and behavioral element, which causes bad debt.
3. Men of integrity should be offered job in the bank
4. The board of directors should reduce to minimum, there interference I the process of loan administration.

Table Of Contents Pages
Title Page
Certification
Dedication
Acknowledgement
Abstract
Able Of Content
List Of Tables

Chapter One:
1.0 Introduction
1.1 Statement Of Problem
1.2 Purpose Of Study 
1.3 Research Questions 
1.4 Hypotheses 
1.5 Limitation Of Study 
1.6 Definition Of Terms

Chapter Two:
2.1 Literature Review
2.2 Introduction
2.3 Historical Background Of Commercial Banking In Nigeria, Operations/ Banking Lending
2.4 History Of Commercial Banks In Nigeria 
2.5 The History Of Lending /Concept Of Lending. 
2.6 Lending Principles And Practice.
2.7 Constraint To Commercial Bank Lending. 
2.8 The Economic Importance Of Credit 
2.9 Management Of Lending. 
2.10 Bad Debt And Credit Management. 
2.11 Credit Management. 
2.12 The Confrontational Measures.

Chapter Three: 
3.0 Methodology:
3.1 Introduction.
3.2 Area Of Coverage. 
3.3 Sample Plan. 
3.4 Data Analysis Techniques 
3.5 Limitation Of The Study.

Chapter Four: 
4.1 Data Presentation, Analysis And Interpretation.
4.2 Introduction.
4.3 Analysis Of Data.
4.4 Testing Of Hypothesis 
4.5 Interpretation.

Chapter Five:
5.1 Summary Of Findings, Conclusion And Recommendations 
5.2 Findings.
5.3 Conclusion.
5.4 Recommendation.
Bibliography
Appendix: Questionnaire.

CHAPTER ONE

1.0 INTRODUCTION 
Financial are procedure for preparing according to and reporting reliable information concerning transaction.
Financial resource in any economy should be adequately be mobilized, taking into consideration the crucial role of finance in the economic development.
Nwankwo (1993:p.2) stated that finance resourced have been considered a very important factor in the economy development.
Consequently, the mobilization of resource has been defining a criteria in the achievement of rapid econ0mic growth in any economy. The first step for resources mobilization for the development purpose if the mobilization of financial resources, which will lead to the capital formation. Capital formation required the release for domestic goods and service for real investment or the import of resources form outside or both.
Ojo and Adewumi (1989:P.10) . They emphasized the role of financial resources and pointing out that the finical institution offers an efficient institutional mechanism through which resource can be mobilized and directed to less essential use for more productive alternatives. The writer contention here is that the efficiency of any financial system particularly in a developing economy like Nigeria depends on the extent of which the financial information role is effectively and efficiently discharge with reference to the economic good of the country and the objective of the institution itself.
According to Racheal 91984:p.478) , the primary function of the commercial bank is the extension of credit to worthy borrowers . it has been noted that commercial bank is the most important institution n the mobilization of funds.
That further more Khat Khate and Racheal (1984:p.516) , while enacting the importance of resource mobilization stated that commercial bank are the most relevant institution in the developing countries to encourage and mobilize savings and also to charnel such saving into a productive investment . First because of their network of office , second because commercial bank through normal credit operation often activate savings which are lying idle elsewhere and third because the bank are highly liquid and thus attract savers.
Oji (1984: P9), projected at Nigerian case opined that, the commercial banking system be used as a representative since it constitute the largest single component of about 85% of all the institutional savings in the system. Mayor (1982:P 13) further stressed that there are two main reasons why the commercial banking system is the most important financial intermediary.
Firstly the total amount of deposit in the commercial banking system has the capacity to create deposit demand resulting from lending activities.
Since demand deposit constitutes a large sum of the money supplied, the banking system is able to expand the nation supply of money. The consent that commercial bank need liquid asset especially the short term asset that an be converted into cash loan accordant to him constitute the largest amount of asset 
Good bank lending ensure high profit level, ensure greater return and have underscore of meeting the social responsibility to he benefit of the society while in the other way bank lending can affect the bank negatively in various way fir instance, it might take a great chance of their annual profit which the bank need to stay in business with . This and the indiscriminate extension of loan although within the credit guideline without proper supervision of such loan and account have led to an increasing tend in the existence of bad dept. 
The bank has failed in the implementation of various checks against bad debt and has tended to forget every loan committed the moment the contract has been concluded. The author contention here is that the cause of bad debt is due to improper supervision and management of loan granted. Thus study is been carried with the Hallmark bank limited as the case of study

1.2 THE BRIEF REVIEW OF THE BANK
Hallmark limited was incorporated on the 29th of October 1990 and was granted license to operate as a commercial bank on the second of January 1991. The bank opened for business on the 2nd of April 1991 with and authorized and fully paid up capital of # 50 million (fifty million) . The equity based was latter increased to # 100 million and by March 1995 it has reached 200 Million Naira. It has as its headquarter and registered office at Plot BC, Okigwe Road, Ugwu Orji Owerri, Imo state Nigerian. Currently the bank has branched in the country and correspondent bank in London, Norway and United state of America 
1.3 STATEMENT OF PROBLEM

The commercial banking system shares very important characteristics with other members of the financial sector and the rest of the business community. It desired to maximize profit. Clem (1994: P.4) , commercial bank are profit seeking enterprise as such it share with other business the same set of expectation concerning the health of the economy . it is on this light that it made loan available to borrowers on interest which is a source of profit to the bank. Alongside, the growth the credit sector is the increasing high incidence of bad debt due amongst others, to poor management. Hallmark bank limited like most commercial bank ahs recorded high incidence of bad debt and have one on the year declared losses. For instance in 1994, he bank sustained a net loss of 112, 153 Million , resulting from the fact that the bank net portfolio is [predominantly not performing ( chairman annual report 1996: P.28) 
In 1995, the bank made a profit of # 87, 879,000, after the amount of # 1, 836,645 has been deducted as the provision for the bad debt. Added to 130.481, 720 revised provision in 1994 at the instance for the central bank of Nigerian and those for the proceeding years the bank provision for the bad debt rose to a staggering amount of # 134, 318, 380 (chairman report 1996, P 20 – 21) 
Giving the phenomenon of bad debt and the consequent loss been declared by the bank, there is therefore a need to study the credit management of the bank with a view to attained an insight into how best to reduce the incidence of bad debt. There has been a conferrable concern showed by the management of the bank on this because the affect on the profitability of the bank and also affect and limits its expansion.

1.4 THE PURPOSE OF THE STUDY

As the bank sector expands with the growing complexity of the Nigerian Economy, it has been observed that the amount of bad and doubtful debt of the bank, which has contributed, to distress nature of some of the bank has been risen. The question that borders the mind is giving the management expertise of the bank the various guideline as regard to lending, why did such lending be regarded as bad debt..
In the light of the forgoing, the purpose specifically which are to be find out include 
(i) I the bank has definite loan policies 
(ii) Who are held responsible for making loan policies for the bank
(iii) If there is actual a significant relationship between the bank loan and profitability
(iv) To suggest likely solution to the bank poor performance 
(v) What are the cause of bad debt in the bank

1.5 RESEARCH QUESTION
In order to carry out this study, the following question are raised
1. Dose the bank have definite loan policies 
2. Who are held responsible for making loan policies for the bank
3. If there is actual a significant relationship between the bank loan and profitability
4. To suggest likely solution to the bank poor performance 
5. What is the cause of bad debt in the bank?

1.6 HYPOTHESIS 
In order to find answers to the various question rose above, the author formulated four hypotheses which would be put to test

They include amongst others:
Ho: there is a significant relationship between the profit of the bank and total loan and advance granted by it 
Hi: there is no a significant relationship between the profit of the bank and total loan and advance granted by it

Ho; this is a significant relationship between the level of bank deposit and the manner of loan 
Hi: this is no a significant relationship between the level of bank deposit and the manner of loan

Ho: this is a significant relationship between the level of risk in loan proposal and the loan that is granted buys the bank
Hi: this is no a significant relationship between the level of risk in loan proposal and the loan that is granted buy the bank

Ho: there is a significant relationship between the banks perception of different type of security and the amount loan granted 
Hi: there is no a significant relationship between the banks perception of different type of security and the amount loan granted

1.7 LIMITATION OF THE STUDY 
This is studying the entirely the credit management and causes of bad debt in the bank and how it affect the performance of the bank as it a only restricted to Hallmark bank of Nigerian as the case of study. Some difficult and constrain were encountered by the researcher in the cause for obtaining necessary information. For instance in some occasion, it was impossible to get in touch with the bank officers, who should supply the information needed

1.8 DEFINITION OF TERMS
For a proper understanding of the study been carried out, the author gave the operational definition of the following terms in the study;
Debt: it can simply be said that debt is what is owned to another. It can be also describe as an obligation to make future payment. It can be define as money goods or service owning to another by nature of an agreement expressed or implied which gave rise to a capital duty to pay. Capitally put; debt is credit recovered by a borrower from a lender 
Bad debt: this is the case where the debtor or the borrower fails to meet up with his matured obligation and all effort by the borrower to rescue the debt proves abortive. This give rise to bad debt
Credit: this could be said to be what is owned to another by virtue of an agreement expressed on implied, which gave rise to a legal duty to pay. Techniquecal credit is debt relieved by a borrower from a pure lender.

1.8.1 TYPE OF CREDIT 
The type of facility a bank grant to its customers depends on the purpose for which the facility is going to be utilized even though they could belong to one sectoral entity or the other. Apart from the purpose of the loan. The length of time before repayment is due. it also lead to classification of finance not long, short and medium term . The type of lending done by hallmark bank limited and indeed most commercial bank include. Overdraft, loan advance, discounting, documentary letter of credit facility, trusts receipt, bands and guarantee.

1.8.2 OVERDRAFT
Adekanye (1983: P 10) opined that overdraft is the most widely use type of credit grant short term finance usually use to tied over the population cycle and finance occasional seasonal peaks. Its maturity is usually within one year but in practice, most overdrafts are reversible. This finance is most suitable for financing transaction which ahs self-liquidity over short period. Fund advance on overdraft are in teory repayable on demand while interest is payable on the outstanding balance on daily basis.

1.8.3 LOANS
Loans are usually lent by borrowing, which are secured against he asset of the borrowing company. It is duly use as part of a package of a financial facility. Repayment may either be made on one lump sum or installmentally over a period of time. The pattern of the repayment can e tailored to fit the earning capacity of the asset usually acquired or usually to the estimated cash flow of the business. Interest rate are determine by the general rate prevailing in the market, the time of loan and the sector into which the business are classified

1.8.4 ADVANCE
Nwankwo C.C (1993:P.25) stated that an advance is a type of loan that is giving to finance a specific project. The most important distinction is that repayment is to come in block or as agreed from the project financed. This type of finance is particularly suitable for product that are licensed, buying and selling and credit that are in the nature of seed time to harvesting period, though must be comparatively of short duration usually not exceeding six months is made to the exporter by which time the facility becomes explicit

1.8.5 TRUST RECEIPT 
The facility is usually granted in connection with letter of credit and in most cases as supplement to document credit facility. Instead of debiting the customers accost before document is collected, the trust receipt account could reverse into account. The letter of credit needs to be of insurance type. Before collecting the chipping document the costumer must be reassure to sign a trust receipt or a promissory note or letter of hypothecation as the case may be, holding the goods in trust for the bank and promising to pay the proceed directly into the bank account. It bears the same rate of interest with overdraft.

1.8.6 BONDS AND GUARANTEE 
These are clear and contingent liabilities, which will only be crystallized if the customer on whose behalf the liability was undertaken defaults.
Customers occasionally request for this type of non-cash facility contingent nature in order to facilitate their business operation. several types of bonds are issued depending on what purpose the bond is requested, this include performance bond which is an undertaking by the bank that the customer will from to specification , bid or tender bond assures the party to which they are issued to the bond of custom and exercise assuring 
Discount: by drawing a built up of exchange on his customers and ensured that it is accepted on the latter behalf. The supplier has a negotiatible instrument which can be discounted however or bill broker with a small money deducted from the face value of the bill to cover the incident of risk, administrative expertise and interest from the date of discount to the due date.
Alternatively where the bill bear good and acceptors. They may be accepted by the bank to support additional bank finance usually of a bridging nature pending the maturity of the bill

1.8.7 DOCUMENTARY LETTER OF CREDIT 
Adenkenye N.C (1983:p15) stated that this is similar to a guarantee in that banks undertake on the behalf of the customer to pay specific amount if certain condition stipulated in its term are met. Letter of credit is issued largely in an association with bill of exchange to which they gave added security to the financing of foreign trade. The documentary credit facility is a method of settling debt in international trade. The bank issue a letter of credit undertakes to make payment on the behalf of the imposter. Payment is made for the exporter against presentation of document specified in the credit.
If therefore a bank is issuing document specified in the credit on the behalf of the customer and have not collected the local currencies equivalent of the transaction pro to the insurance of such credit, such a bank has pondered a contingent facility to the customer up to the time when actual payment assuring the board that the duty payable on the imported and locally manufactured goods will be paid by the bank if the customers fails to pay.
A guarantee is a promise to ensure for the debt of another made to a person or the financial institution to whom the borrower is already of about to become. Guarantee must be in writing signed by the guarantor or his authorized agent.