CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

The banking industry has been known for its intermediary role in proving financial assistance (credit) needed in the economy. This role of financial intermediation is carried out in so many ways. First to be mentioned is the granting of loans and advances to customers which constitute the major part of bank lending apart from loans and advances them are other form of bank credit like bond issued by banks for or on behalf of the customers.

        In providing credit for business venture bank should as a matter of importance take all necessary  steps to ensure that advances are granted to those customer who can make judicious use of them so that repayment will not be a problem. Therefore bank as a matter of importance must make use of the “five Cs” of credit which are character, capital, capacity, condition and collateral to asses their customer before granting them loans. Affairs of the bank can explained by reference to the fact that “loan and advances are the largest asset structure of Nigeria commercial Banks; it also constitute  the major source at the operating income of bank and also the most profitable asset for the employment of bank funds.

        Credit (loans and advances) are important to the bank balance, they account for the large portion of bank income; such operating income produce from sound investment and effective management enables the bank to:

i.      Pay depositors intrerest

ii.     Pay investors dividend

iii.    Pay government tax

iv.    Have further investment and

v.     Maintain adequate reserves.

        However, irrespective of how prudent a bank may be in its lending, the fact remains that every year provision for bad and doubtful debt should be provided for. Not all loans should be granted, a profitable loan which is not safe should not be granted.

        For banks to be successful their corporate credit policies most be of sound procedure for monitoring and repayment, must endure adequate credit appraisal disbursement.

1.2   STATEMENT OF THE PROBLEM

Many banks have failed due to many reasons. The most apparent of these reasons is poor credit management. It has been observed that bank do fail as a result of inefficient and inexperience manager and staff who are found in the credit department of a bank. Untrained and unqualified personnel in the banking industry is also another problem that affect the proper management of credit. The question that bother the researcher is how bank can effectively and efficiently manage their credit (loan and advents) for viability and profitability.

1.3   PURPOSE/OBJECTIVE OF THE STUDY

i.      To investigate on bad and doubtful debt in Nigeria    commercial banks.

ii.     To examine the effect of bad and doubtful debt in Nigeria commercial banks profitability.

iii.    To assess the incidence of bad debt in Nigeria banking     industry and the economy in general.

iv.    To identify the possible measures of preventing the   accurance of bad debt in Nigeria commercial banks.

1.4   RESEARCH QUESTIONS

i.      Does appropriate loan supervision cause bad debt?

ii.     What are the effects of bad and doubtful debt on banks    profitability?

iii.    At what rate is the incident of bad debt on the economy   in general?

iv.    What are the likely possible measure at preventing bad    debt?

1.5   RESEARCH HYPOTHESIS

Ho: Inappropriate loan supervision and monitoring is not the   major course of bad debt.

Hi: Inappropriate loan supervision and monitoring is the major        course of bad debt.

Ho: Bad debt does not have adverse effect on bank   profitability.

Hi:  Bad debt have adverse effect on bank profitability.

Ho: The incidence of bad debt on the banking industry and the        economy in general is not high.

Hi: The incidence of bad debt on the banking industry and the         economy in general is high.

1.6   SIGNIFICANT OF THE STUDY

The significant of this study is to make contribution on the going of the problem of loans in Nigeria commercial bank the study will also add to our understand of how Nigeria commercial banks grant their credits.

        This research work is also relevant in educating the reader on the basis and conflicting rudiment of Nigeria commercial bank credit operation and the causes of  bad and doubtful debt, stating also these who stand to benefit from this study.

The beneficiaries of this study are:

i.      The practicing bankers

ii.     The bank managers/directors

iii.    The credit and loan officers

iv.    The investors etc

        More over, this study could be of immense help to student of banking and finance to equip them when they go into the field of the course they studied.

1.7   SCOPE, LIMITATION AND DECLIMITATIONS OF THE STUDY

        Basically, this study covers the credit department of a commercial bank in Warri namely first bank of Nigeria PLC; it aimed at finding out the administrative procedure problems associated with the management of credit, course of the problem of loan and the impact of CBN prudent guideline on their credit management and profitability.

        Limited resources, inadequate availability of finance due to inflationary pressure posed a problem to the researcher as this type of research require a lot of money and time to enable the researcher visit the necessary placed and collect the appropriate data.

        Meanwhile, the completion of the findings of data supplied by the respondent are based on assumption that they are correct to the best of their knowledge, and representation of their opinion about the subjected of the research.

1.8   DEFINITIONS OF TERMS

i. BANKS: These are financial institution that accept credit      from the public and in turn give loans and advances to the   public.

ii.     CREDIT:  This is a financial assistance in form of loans   and         advances granted by banks to their customers.

iii.    LOAN: A borrowed sum of money at an agreed rate of       interest, usually for a specified period of time and repayable in line with the term of the loan agreement.

iv.    C.B.N: Central bank of Nigeria; this is the apex        regulatory authority of the Nigeria financial system.

v.     CREDIT GUIDELINE: An annual monitory circular (guiding    principle for commercial and merchant bank lending)    publish by C.B.N.

vi.    CREDIT POLICY: This are rules and regulations      guiding bank and their lending activities.

vii.   BAD AND DOOBTFUL DEBTS: This are debt that may     not be recovered or cannot be recovered by a bank or an     organization.

viii.  OVERDRAFT: This is less credit fertility which a      current customer is allowed by a bank to write unique in        access of the existing balance in his/her account. 

ix.    ASSET: It is an item of property-belonging to a person or an organization which can be given value in monetary   terms.

x.     PROFITABILITY: This is the maximum profit or increase         in a company or an organization met assets.

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