CREDIT MANAGEMENT AND BANK LENDING (A CASE STUDY OF ECO BANK LTD, 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.

CHAPTER ONE

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 for 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

THE BRIEF REVIEW OF THE BANK

Eco bank limited was incorporated on the 29th of October 2005 and was granted license to operate as a commercial bank on the second of January 2006 after it was emerged with hallmark bank and other banks to answer Eco bank. The bank opened for business on the 2nd of April 2006 with and authorized and fully paid up capital of 25 Billion Naira (#)  . The equity based was latter increased to # 100 billion and by March 2007 it has reached 200 Billion Naira. It has as its headquarter and registered office in Lagos and have branches in all states of the federation, both in south Africa and Ghana, London, Norway and United state of America

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.

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

1. The bank has 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 are the cause of bad debt in the bank

RESEARCH QUESTION

In order to carry out this study, the following question are raised

1. Does 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

1. What is the cause of bad debt in the bank?

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.