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TABLE OF CONTENTS
Title page - - - - - - - - - - i
Declaration - - - - - - - - - - ii
Approval Page - - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgement - - - - - - - - - v
Table of Content - - - - - - - - - vi
Abstract - - - - - - - - - - viii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study - - - - - - - - 1
1.2 Statement of the Problem - - - - - - - - 2
1.3 Objectives of the Study - - - - - - - - 3
1.4 Significance of the Study - - - - - - - - 3
1.5 Research Questions - - - - - - - - - 3
1.6 Research Hypotheses - - - - - - - - - 4
1.7 Scope of the Study - - - - - - - - - 5
1.8 Definition of Terms - - - - - - - - - 5
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.0 Introduction - - - - - - - - - - 6
2.1 Theoretical Review - - - - - - - - - 6
2.1.2 The Concept of Credit - - - - - - - - - 6
2.1.3 Credit Management - - - - - - - - - 9
2.1.4 Types of Bank Credit - - - - - - - - - 10
2.1.5 Classification of Loans as to Purpose (Selected Cause) - - - - 17
2.2 Empirical Reviews - - - - - - - - - 49
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction - - - - - - - - - - 52
3.2 Research Design - - - - - - - - - 52
3.3 Population and Sample Procedure - - - - - - - 53
3.4 Instrument of Data Collection - - - - - - - - 53
3.5 Method of Data Analysis - - - - - - - - 54
3.6 Determinations of Critical Values - - - - - - - 55
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction - - - - - - - - - - 57
4.2 Presentation of Data - - - - - - - - - 57
4.3 Analysis and Interpretation of Data - - - - - - - 57
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction - - - - - - - - - - 61
5.2 Summary of Findings - - - - - - - - - 61
5.2 Conclusion - - - - - - - - - - 62
5.4 Recommendation - - - - - - - - - 62
Bibliography - - - - - - - - - - - 65
Appendix - - - - - - - - - - - 68
Credit extension is an essential function of banks and bank management strive to satisfy the legitimate credit needs of the community it tends to serve. This study is aimed at analysing the impact of credit management on performable in deposit money banks in Nigeria. The importance of credit in the economic growth and development of a country cannot be overemphasized. Despite the important role played by credit in the economy, it is associated with a catalogue of risks. The Nigeria depots money banks witnessed some failures prior to the consolidation era due to imprudent lending that finally led to bad debt and some ethical facts. The issue of non- performance of asset and declaring of ficticious project has become the order of the day in our banking system as a result of poor credit management leading to bank distress in the industry. Three hypotheses were formulated and tested through use of chi-square on questionnaires administered to various respondents. From the data collected and the tested hypothesis, results showed that: (i) Inadequate feasibility study affects loan repayment in the deposit money banks, (ii) The diversion of bank loan to unprofitable ventures affects loan repayment and (iii) The problem of poor attention given to distribution of loan has negative effect on banks performance. Amongst several recommendations were the following: (a) Banks should establish sound and competent credit management unit and recruit well motivated staffs (b) Banks should ensure that the chief executive avoid approval in principle in the credit management, and (c) Banks should have a monitoring and control unit or department to carry out a sort of post- modern exercise by way of controlling and monitoring credit facilities and also ensuring completeness of all conditions precedent to draw down.
1.1 BACKGROUND OF THE STUDY
Credit management in our banking sector today has taken a different dimension from what it used to be. The banking industry has adopted a lot of strategies in checking credit management in order to stay in business. Thus the banking industry in Nigeria has lost large amount of money as a result of the turning source of credit exposure and taken interest rate position. Nigerian banks are being required in the market because of their competence to provide transaction efficiency, market knowledge and funding capability. To perform these roles, the banks act as the most important participants in their transaction process of which they use their own balance sheet to make it easier and making sure that their associated risk is absorbed.
Credit extension is essential function of banks and the bank management strive to satisfy the legitimate credit needs of the community it tends to serve. This credit advances by banks as a debtor to the depositor requires exercising prudence in handling the funds of depositors. The Central Bank of Nigeria established a credit act in 1990 which empowered banks to render returns to the credit risk management system in respect to its entire customers with aggregate outstanding debit balance of one million naira and above (Ijaiya G.T and Abdulraheem A (2000). This made Nigerian banks to universally embark on upgrading their control system and risk management because this coincidental activity is recognized as the industry physiological weakness to financial risk. The researcher, a New yolk-based, said that 40% of Nigerian banks that made up exchange rate value in west Africa, has reduced the operating lending as a result of bad debts which hit more than $10 billion in 2009 and this has led to a tied-up questioning asset that is holding almost half of Nigerian banks. The central bank of Nigeria fired eight chief executive officers and set aside $4.1 billion in order to bail out almost 10 of the country’s lenders. The reform which was introduced by Central Bank of Nigeria (CBN) in 2010 has made Nigerian banks resume lending supporting assets management companies and set up the requirement which will allow Nigerian banks make full provision for bad debts that will boost the market.
The banks identify the existence of destructive debtors in the banking system whose method involved responding to their debt obligations in some banks and tried to have contract of new debts in other banks. Banks are trying to make the database of credit risk management system more open for them to be more functional and recognized as to enable banks to enquire or render statutory returns on borrowers. There are some banking practices which increase the risks in the bank and cannot be easily changed. This result still leads to the question: what are the possible ways that will help make Nigerian banks manage their credit risks?
Credit risk management helps credit expert to know when to accept a credit applicant as to avoid destroying the banks reputation and making decision in order to explore unavoidable credit risk which gives more profit. Controlling a risk results in encouraging rewards that give internal audit more technical support service and customized training in banks or financial institutions. This research is presented to outline, find, investigate and report different state of techniques in risk management in the banking industry
1.2 STATEMENT OF THE PROBLEM
In the history of development of the Nigerian banking industry, it can be seen that most of the failures experienced in the industry prior to the consolidation era were results of imprudent lending that finally led to bad loans and some other unethical factors (Job, A.A Ogundepo A and Olanirul (2008)). Also the problem of poor attention given to distribution of loans has its effect on the bank’s performance. Most of the people collected loan from the banks and diverted the money to unprofitable ventures. Some bankers are not actually considering the necessary criteria for disbursement of loans to the customer. This work therefore intends to outline, explain these problems identify the causes and suggests lasting solutions to the problems associated with credit management and consequently banks debts.
1.3 OBJECTIVES OF THE STUDY
The objectives of this study is as follows
1. To examine how feasibility study affect loan repayment in the deposit money banks.
2. To highlight the extent in which diversion of bank loans to unprofitable ventures affect loan repayment.
3. To examine how distribution of loans affect banks performance if banks give proper attention.
1.4 SIGNIFICANCE OF THE STUDY
This study will be useful to the executive and managers in the deposit money banks/banking industry and other financial institutions. This is because it provides guidance which will enhance effect and efficient credit management aimed at attaining and boosting maximum profitability and liquidity in their banks. The depositor (public) on the other hand will be more enlightened on the need to be honest and fulfil the responsibilities in credit transaction with the banks so that they can look up to improve service from the banks. Finally to the researcher, this is an eye opener because as a potential manager it will guide one in future on how to manage credit facilities.
1.5 RESEARCH QUESTIONS
Bank lending is said to be effective if it successfully achieves the banker’s obligation of maximum liquidity to the depositors. The questions here are
1. To what extent does feasibility study affect loan repayment in the deposit money banks?
2. To what extent does diversion of bank loans to unprofitable venture affect loan repayment?
3. Does distribution of loans have effect on banks performance if given proper attention?
1.6 RESEARCH HYPOTHESES
A reputable credit management system enhances good control on lending and proper keeping of credit account.
Ho. Inadequate feasibility study does not affect loan repayment in deposit money banks.
Hi. Inadequate feasibility study affects loan repayment in deposit money banks.
Ho. The diversion of bank loans to unprofitably ventures does not affect loan repayment.
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