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AN ANALYSIS OF THE IMPACT OF LENDING POLICY ON LOAN PORTFOLIO OF BANKS IN NIGERIA (A CASE STUDY OF FIRST BANK OF NIGERIA)

Dept: BANKING AND FINANCE File: Word(doc) Chapters: 1-5 Views:

Abstract

Lending which is granting of credit inform of loan, advances and over draft by commercial banks to individuals, private and corporate bodies occupies a strategic and paramount position in the economic development of a nation. Bank performs this function by mobilizing funds from the nation’s surplus economic unit of the economy. This project focuses on lending policies of banks in Nigeria banking industry. Data was collected through primary and secondary sources of data collection. Questionnaire were administered to bank officials in which some were returned unanswered due to reluctance in giving detailed replied to some question asked. Data from bank record was delivered into for detailed analysis under the secondary sources of data. The introductory chapter set out the theoretical background, justification and objectives of the study. Several literatures was reviewed on the bank lending policies and review of credit control in banking industry. It also talks on the ne

CHAPTER ONE

CHAPTER ONE

1.0       INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Lending is- one of the oldest and major services rendered by banks to its customers and it has become an important role in banking operation because of its tremendous effects on economic growth and business development. As far as banks are concerned, their role as lender is vital as the deposit taking considering the inter-relationship between one bank and another.

The commercial objectives of banks is to maximize profit, although other social and economic function leaned on this primary objectives. Lending is carried out in many ways, the most current of which is by granting of loan and advances to the customers. There are other forms of bank credit facilities such as letter of credit, and advances constitute a major part of bank lending.

The ability of a bank to lend successfully depends on its ability to recover the credit facilities and make reasonable profit from the borrowing. However, lending activities are associated with numerous risks and constraints surrounding it. The practical problem in bank lending can be said to be a product of a number of factors among which are; through borrowers, savers, government, through central bank and lending officers.

The interest of parties concern is often in conflict. The conflicting interest of these parties is what really makes lending exercise a problem in the process of lending, the purpose of saving money in banks by the savers is to get the deposit with high interest in the future while that of the borrower is to secure credit in the banks with low interest to finance their businesses or to cater for their domestic needs. At the same time, the financial institution which is an intermediary between the saver and lender would like to please both parties without putting himself into jeopardy.

In light of these, lending decision is calling for strength, full knowledge and competence of a lending officer to enable them make a wise decision considering a number of constraints and challenges associated with lending.

The problem of lending do not just occur, its occurrence could be valued to the conflicting interest of parties concerned viz saver, borrower, government and lending officers. Each party mentioned above create one or tow constraints, which limit the freeness of lending activities.

Apart from the fact that lending is one of the function that bank perform, a highly Quality and well Managed loan portfolio with make a bank prosper while the poorly administered one will lend significant course and may even result in failure of banks.

The incidence of bad debt within the banking industries there days reflect the degree of risk associated with lending. This is one of the reason why banks are sometimes uncompromising with any of their borrower who fails to meet the contractual obligation in term of repayment of credit advanced to them.

First bank of Nigeria Plc as one of the lending bank is been chosen as a case study.

1.2       STATEMENT OF RESEARCH

This research work will analyse the impact of lending policy of loan portfolio of First Bank Plc and to know what are those policies of first Bank Plc on lending in order to encourage customer’s friendship.

More so, the research work will also look into those, factors that makes it difficult to access credit to their customers most especially manufacturers.

Also, what are those changes implemented by management of the bank on loan portfolio which are yet to change. From the above mentioned, this research work will like to look into.

What and how are these, factors affecting lending policy of banks and what are the volume of credit given out to customers annually.

1.3       OBJECTIVES OF THIS STUDY

The purpose of this study is the measure the impact of lending policy on loan portfolio of banks in Nigeria using First Bank of Nigeria plc as a case study

The main objectives of the study are:

• To determine the relationship between lending policy and loan portfolio of FIRST BANK OF NIGERIA PLC.
• To determine the problems and challenges of credit management of FIRST BANK OF NIGERIA PLC.

1.4       SIGNIFICANCE OF THE STUDY

The relevance of this study is to Ex-ray the problems associated with the lending policies which filter down to its implementation with a view to make some useful and meaningful suggestion for effective credit/lending policies and administration in the banking industries.

1.5       DELIMITATIONS OF THE STUDY

This research work tends to cover banking sector, commercial bank using First Bank Nigeria Plc as a case study. It is to cover all operational aspect of granting loan and advances to customers particularly in commercial banks

 

 

 

 

1.6       LIMITATION OF THE STUDY

The following are the constrains faced by the research in the course of carrying out the work.

 

1. Finance was a major problems since the research is a student and because of the sample size which is attributed to transportation, photocopying, typesetting etc.
2. Tim constrained is another major problem traced as the researcher has to carry out the work within a short time given by the school to the submission. Time would have spent in personal observation but time was a problem is spite of the foregoing.

 

1.7       DEFINITION OF KEY TERMS

These related terms are defined as they will be used in the study these words are explained in their literary meaning for continual understanding.

1.7.1   BANK

The Nigeria bank and other financial institution act (BOFIA 1971) section 61 define banking business as “the business of receiving deposit in current account, savings and or collection of cheques drawn by or paid by the customers.

From the above statutory definition it consists mainly in accepting deposit and granting of loan etc.

1.7.2   LENDER

The lender can be described as the giver of loan and who can be said to be the Bank for a targeted return which as known as “INTEREST”.

 

 

1.7.3   BORROWERS

The borrower can be said to be the bank’s customer or outside who has business plan but lack the available financial resources to implements his plans

1.7.4   CREDITS

Credits refer to loan, advances and guarantee etc. granted out by bank to his customers for a targeted returns.

1.7.5   INTEREST

This is the price paid for the use of money. It can also be defined as charge on money lend to a customer. It is usually in percentage when it is high it make borrowing very and when it is low more people find it easy to borrow.

1.7.6   RECOVERY

It is the act of locating and reprocessing the money that has been lent out as loan from customers or debtors. It is the act of getting back the debt that bas been given out.

1.7.7   DEBT

It is something own to another. It is the obligation in monetary terms, which is due from one person to another.

1.7.8   SECURITY

This can be defined as a property or asset use by a debtor to stand in for the debt him in case of default. The security can be landed property, Guarantee, equipment and it must worth the amount of loan to be collected.

1.7.9   DEBTORS

This can be described as a person who is having a debit balance in his account. He is a person who owns another person a sum amount of money.

 

 

1.7.10 CREDITORS

This is a person who lends out his money to another person. The creditor can be the bank.

1.7.11             LOAN

This is a advances agreed together with an interest repayable at regular installment at an agreed interval and an agreed period/date.

1.7.12 LENDING

This is one of the major services rendered by banks. It is the act of lending or given out money for temporary use in conditions of repayment with interest.

1.7.13 OVERDRAFT

This is an arrangement where by a customers is allowed to withdraw above its credit balance subject to a specified limit and for a stated duration.

1.7.14 SECURITY

An insurance against unforeseen development and the last source through which the bank can get its money recouped should things turn the other way with the customers plan.

1.7.15 COLLATERAL

A security belonging to and deposited by a third, party to secure a customer’s credit facility.