AN ASSESSMENT OF LOAN MANAGEMENT IN BANKING SECTOR ( A CASE STUDY OF UNION BANK OF NIGERIA PLC)

CHAPTER ONE

1.0      INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Generally in Nigeria, banks are usually accused by customer’s of number of short comings, which are regarded as problems and failure in banking system. These include lack of awareness by customers of the services they offer subjecting the customers to long queues unsympathetic staff in terms of courtesy and efficiency, intricals and unprogressive lending policies and procedures irregular issue of statement etc, all these result in low level of customer satisfaction.

At moment, Nigeria is fast attempting to transform into a modern industrial society whether this attempt will be achieved or not is still questionable. The urban area having now high population densihes from rural, which are supposed to be the sources of raw materials for the industries. Hence the achievement of industrial objective rest squarely on the shoulders of the banks.

Banks could help Nigeria reframe herself and produce raw materials for her mills and not solely depend on imported ones.

This could be done by diversifying the source of income from the present mono (based solely on petroleum revenue) to that of (diversified one)

The banks role in attaining the above objective ultimately, specially and efficiently is very crucial.

Having experienced the strain, intricale and procedures of obtaining banks loanable fund that researcher mind was directed to the questions as to what participates such stumbling blocks in our banking system. It is the blame on the banks, the customer and the government for not appreciating the place of credit in our society for instance, the banks by the nature of their business exercise a high degree of economic power. To them belong to the naira power which is the lubricate/accelerator of our economy. They have the prerogative in the choice of assets (businesses) they place their disposable portion of funds deposited with them by customers. Tough they know and have experienced the positive results of attempt in the effective provision and use of credit, the banks have been rather very skeptical in exercise this their power not  withstanding the central bank of Nigeria issues annual directives to licensed banks allocating prescribing quantitative ceiling as well as sectorial allocation of their loans and advances to the economy through the monetary policy circulars conveying the central banks, credit guidelines.

However, it has come to be realized that these are certain problems associated with he present lending schemes which must be highlighted and solved by the customers, the banks and   government in providing loanable fund so that more benefit would be taped from this usage.

Hence, the motives behind the caring out of this research study.

1.2      STATEMENT OF PROBLEMS

There is hardly any approach to obtaining bank loans/credits that is devoid of problems. This project thus sets out to identify the lending problem of bank and customer in Kaduna and its environments.

-              high rate of interest/charge

-              banks lend on short term basis cannot accommodate medium and long term borrowers.

-              High rate of defaut

-              Difficulty in banks policy/central bank policies

-              Lack of security to back-up the lending

-              Customers request are not well packaged.

1.3      OBJECTIVES OF THIS STUDY

Specifically, there are some factors outside management control such as the Central Bank credit guideline (rule and regulation), policies and the value of managers implementating bank policies, which influence in one way or the other on the lending decisions and outcomes for the bank. The aim and objectives of this research include:

i.            how can we reduce the high rate of interest charge bank.

ii.          How can customer be educated on how to package their request correctly.

iii.        How possible it is to evaluate the lending difficult policy of both bank/central bank

1.4      RESEARCH QUESTION

Ho:   To what extent will judicious utilization of loan lead to effective management control.

Hi:    To what extent will judicious utilization of loan not lead to effective management control

Ho:   Will assessment of loan management and accountability

serve as an aid to increase the capability of Nigeria banks?

Hi:    Assessment of loan management and accountability will not serve as an aid to increase the capability of Nigeria Banks?

1.5      SIGNIFICANCE OF STUDY

After identification of certain problems, on this research work recommendation will be made for solution, considering their specific cause and nature. Such recommendation and findings hopefully will be useful to management of banks in the countries who have similar problems to the banks studies.

It is also hoped that such recommendations will be of use to potential borrowers from the bank, banking and accountancy student in the higher school of learning, and to the numerous private management consultancy firms throughout Nigeria.

1.6      SCOPE OF THE STUDY

The scope of the study is on commercial banks in Nigeria or banking sector as a whole but using Union Bank Nigeria Plc Kaduna as a case study.

1.7      HISTORICAL BACKGROUND OF THE CASE STUDY

Union Bank of Nigeria Plc was established in 1917 as a colonial bank will its first branch in Lagos. In 1925, Barclays bank acquired the colonial bank which resulted in the change of the bank’s name to Barclays Bank (Dominion, colonial and overseas). Following the enactment of the companies act 1968 and legal requirement for all foreign subsidiaries to be incorporated locally, Barclays bank remained un-changed until 1971 when 8.33% of the banks share were offered to Nigeria’s in the same year, the bank was listed on the Nigerian Stock Exchange. As a result of the Nigeria enterprise promotion act of 1972, the Federal Government of Nigeria acquired 51% of the bank’s share, which left Barclays bank plc. London with only 40%. By the enactment of the 1972 and 1977 Nigeria enterprises promotion act, Barclays bank International disposed its shareholding to Nigeria in 1979 to reflect the new ownership structure and in compliance with the company and alied matter act of 1990, it assumed the name union Bank of Nigeria Plc.

In line with the Central Bank of Nigerian banking sector consolidation policy, Union Bank of Nigeria Plc. Acquired the former universal trust bank Plc. And broad bank ltd. And absorbed it erstwhile subsidiaries Union Merchant bank ltd. The bank also increased its shareholders funds through a public offer/rights issue in the last quarter of 2005. with these development Union Bank remains one of the most capitalized developments Union Bank in Nigeria. It has a shareholder fund of N102,542 billion and operates through 368 net work of branches that are well spread across the country, all of which are line, real time subsidiaries.

a.           Union homes saving and loans plc

b.          Union trustees limited

c.           Union assurance company limited

d.          Union bank UK Plc

e.           Banquet Intenational Benin, cotonou

f.            UTL communications services limited

g.           UBN property company limited

h.          Union capital markets limited

i.            Union registration limited

ASSOCIATED COMPANIES

a.           consolidated discount Ltd

b.          HFc banks Ghana limited

c.           Unique venture capital management co Ltd

Union bank group operates in Interlocking organizational structure whereby some board members of Union of Nigeria Plc act as external director in the subsidiaries and over sight and participation in the decision making process of these companies, thereby safeguarding the banks investments.

Today, Bank in a leading regional bank in sub-sahara Africa in terms of its diverse investments across the globe. A glance at the bank’s financial summary reveals its solidity. As at 31st march 2007, the banks gross earnings was N88.095 billion, profit before tax was N17,393 billion, total asset, was 699.24 billion shareholders fund was N102,245 billion.

The bank’s management is headed by Dr. B. B. Ebong as the group managing director/chief executive others are:

Ado Abdullahi executive director (operation, up-country south).

Dr. K. S. Adeyemi executive Director (information technology/services).

S.I. Ayniuem executive director (Risk management and control)

E.U. Emeruem executive Director (Lagos operations)

A. E. Esangbedo executive directors (operations up country north)

WCO Mbeh executive director (Corporate resources)

A. I.N Obigwe Executive Director Co-operate and International Banking.

1.8   DEFINTION OF TERMS

The author considers it necessary to define the following terms as applied within the context of this project.

Asset portfolio: Arrangement of bank assets on order of its

liquidity and profitability.

Advances:        These are monies lent by a bank generally in

the form of an overdraft on a current account and also by means of a loan or personal loan.

Affidavit form: This is a written statement used as a legal

proof.

Bank credit:    Credit created by a bank increasing the size of

the account of a depositor e.g. when making an advance.

Branch banking: the typical commercial bank in most

countries is a very large institution with a large number of branches.

C.O.T:              Commission on turn over or cost of

transaction, this is normally charged on the total of debt turn over of current account.

C.O.F.O:           Certificate of occupancy

Cash ratio:      This is the ratio of cash to demand deposit

usually calculated on percentage.

Clean lending: Loan and advance granted without any

security.

Collateral security: properties perhaps in the firming deeds to

a house or stock and shares deposited with a creditors to guarantee that a loan will be repaid.

Demand deposit: this is the total amount of money deposited

with the bank.

Deed of release: this is the document usually signed by

customers when any property held by bank is returned.

Equitable mortgage: Property pledged to the bank as security

without legal backing.

Guarantor:      One who makes or gives a guarantee or

security for loan.

Liquidity preference: this refers to the degree at which

invaluable prefer that funds to be near cash. They many prefer to hold saving in a completely liquid form that is as cash.

Lieu Distain:   this is a document issued by the bank to an

insurance company declaring their interest in a customer share.

Loan:               It is the lending of money borrower one of the

credit services rendered to account holder by banks.

Monetary policy: this refers to the use of certain monetary

controls by the government.

Moratonum period:        A period when loan yield no return

Overdraft:       This involves letting the customers to draw

money in excess of the draw money excess of the balance in the customers account.

Pledged property:   this is delivery of goods or document, of

little goods by the customers to the Bank as security.

Standing order: An authority given by a customer to his

banker to transfer, e.g. a fixed amount from his current account to his loan account.

Secured loan:  Loan granted with proper security.