EFFECT OF LOAN MANAGEMENT ON BANK PERFORMANCE (A Case Study of UBA Plc)


Content

 

 

TABLE OF CONTENTS

 

Content

Title Page

Dedication

Certification

Acknowledgement

Table of Contents

 

Chapter One

1.0      Introduction

1.1      Statement of Problem

1.2      Purpose of Study

1.3      Relevance of Study

1.4      History of Banking

1.5      Profile of Bank under Review: UBA Plc

1.6      Scope of Study/Limitation

1.7      Organisation of Studies

1.8      Research Procedure/Methodology

 

Chapter Two

2.0   Literature Review

2.1      Introduction

2.2      The   Role of bank in an Economy

2.3      Constraints to Bank Lending

2.4      Written Credit Policy

2.5      Establishing Credit Policy in Bank

2.6      Content of Credit Policy in a Bank

2.7      Types of Acceptable and Unacceptable Loan

2.8      Banks and Administration of Credit

2.9      Mechanics for Loan Supervision

2.10  Management of Delinquent Facilities

 

Chapter Three

3.1   Research Design and Methodology

3.2   Description of Research Design

3.3   Sources of Data

3.4   Sampling Size

3.5   Sampling Type

3.6   Data Collection Procedure

3.7   Limitation of Study

 

Chapter Four

Data Analysis and Interpretation

4.1      The Sample Taken

4.2      Questionnaire: Tables and Interpretation

4.3      Hypothesis Testing and Interpretation

4.4      Analysis of the Interview

 

Chapter Five

Summary, Conclusion and Recommendation

5.1      Summary of Findings

5.2      Problem of Identified

5.3      Analysis of the Recommendation

References

Appendix

 

 

CHAPTER ONE

 

1.0   INTRODUCTION

One of the major functions of commercial banks is to extend credit facilities to their customers.

 

Lending has become a vital function in banking operations owing to its direct effect on economic growth and business development. Thus, a careful study and proper analysis of lending has become inevitable to banking students, lending officers, finance manager and other people concerned with lending activities.

 

It is pertinent to mention that the principal lending objectives of a bank is to provide growth, profitability and liquidity.

 

For any lending decision and activity to be worth its salt, there must be enough assurance that it will lead to the bank’s business growth in terms of an addition variety of services yielding adequate income to the bank. In addition, it should also increase the available quality, of bank’s loan resources.

 

If from the onset, the lending carries far greater risk than what is considered to be reasonable, it is possible that it will turn bad at a future date and therefore fail to contribute to the bank’s loan resources quality wise.

In lending activity, the bank is concerned with the safety of the loan since it represent the chunk of depositors’ money and a source of income to the bank.

 

It is important to ensure the profitability of the loan because no loan is attractive, if the expected income is less than the average cost of the borrowed fund. “In the Nigeria situation, where there is still competition for deposits particularly among the corporate clients, sometimes at incredible rates, lending decision must achieve a reasonable degree of return, and therefore, lending officers normally prefer proposals with a variety of income sources like foreign business or local transfer”. The reason for this is enhancement of the profitability of the bank’s loan resources.

 

In order to redress the current dependence on oil, the federal government formulated policies to encourage industrialization. Some of these policies are with regards to the pattern of lending and credit by banks. The role commercial banks in any economy especially a developing economy like Nigeria cannot be over-stressed. They exert a great influence on the economic development of the nation through the granting of loans and advances.

 

It is the aim of this project to study the procedure and policy of granting loans, administration of credit, effect of bad debt on profitability of banks and other relevant issues.

1.1   STATEMENT OF PROBLEM

It has been revealed from experience that most lending officers tend to undermine the importance of credit control and management in their lending function because of the difficulties usually associated with it.

 

Lending officers dealing with customers loan application usually exercise personal judgment in authorizing loan and disbursement of such loan. In the hope that all will be well with the customer, his project and the bank’s money.

 

However, in a dynamic economic environment as we have in this country where things charge and with banking education and business experience yet to become well entrenched, a bank should not be cut off guard because of poor management of its loan portfolio.

 

There is also the failure of bank management to establish sound lending policies, adequate credit administration procedure. Also, their failure to monitor and administer the loan within the established guidelines primarily results in poor loan portfolio.

 

Many banks today are facing the problem of bad debt owing to their failure to monitor the project of their customers.

 

Banks as custodians of depositors’ fund are obliged to exercise due care and prudence on their lending operations.

1.2      PURPOSE OF STUDY

The purpose of studying credit management in banking sector are highlighted below:

1.          In partial fulfillment of the requirement of the award of

2.          To show the importance of sound credit management policy which aims at reducing high incidence of bad debt.

3.          To make the policy makers realize the importance of formulating sound credit management policy. To make bank customers realize the need to inform their banks wherever they encourager any problem in their project so that such problem can be jointly solved and such loan will not result in bad debt.

4.          Lastly, to contribute to knowledge.

 

1.3      RELEVANCE OF STUDY

The study is relevant because it will help banks in their lending operations. It will also help banks to recover loans granted to their customers and reduce, if not eliminate completely, the possibility of the loan becoming bad. Thus, profit will increase. Since high incidence of bad debt is one of the causes of banks failure, the study will have the overall effect of reducing bank failure, stabilize financial sector and restore the confidence of depositors in financial sector.

 

1.4      HISTORY OF BANKING

a.           ROLE OF ITALIAN GOLDSMITH

It all started several centuries ago. As far back as the 13th century, a group of Italian goldsmiths who migrated from an Italian province, Lomdardly, had settled in a part of London now called Lombard Street. By gradual process, these Italian settlers before the end of 16th century had evolved a system of transaction, which today forms the very foundation of a modern banking.

 

b.           BUSINESS IN GOLD

The Italian goldsmith only carried out the traditional services of their craft. As time went on, however, their business grew and they found it necessary to acquire vaults for safe custody of all gold and precious stones they received from their clients. It was at this juncture that their services increased to include:

1.          Working gold for the client

2.          Storing their gold and those received for work from the client.

3.          Received gold deposits from clients for safe keeping against receipts.

4.          Lending part of their gold stock-first from their own and later including deposits from clients.

  

c.           FROM GOLD TO MONEY

The fact of issuing of receipts against deposits of gold gave a lever to the development of banking thus;

1.  Goldsmiths released their clients’ deposits on the surrounding of their receipts.

2.           Due to the widespread use, goldsmiths’ receipt become transferable.

3.           Goldsmith’s receipts became the first known issue of notes.

4.           For convenience, receipts were latter split into smaller units according to needs.

5.           Instead of lending in gold, goldsmiths issued their notes (receipts) to borrowers according to the value of gold they required.

6.           goldsmiths transferred part of the whole of the client’s deposit against the letter of instruction and this was the beginning of the cheque system.

d.          The Birth of Banking Institutions

The result of the above far-reaching development in banking activities led to small group of goldsmiths, pooling their resources together and setting up business as merchant and private bankers. In 1694, the Bank of England was founded to control the private and merchant banks, as well as to administer the government’s debt.

e.           African Banking Corporation 1892

The African Banking Corporation was established in 1892, when Nigerian had there foreign banks namely. The bank of British West African, Barclays Bank and the British and French Bank. Other two indigenous banks than were: the National Banks of Nigeria and the African continental banks with a total of 40 (forty) branches.

f.            Nigerian Banking History Foreign Banks

i.            Standard Bank Nigeria Limited: In 1894, a British-owned bank opened it’s office in Nigeria and operated under the name of Bank of British West Africa. This bank has the credit of being the first bank to be established in Nigeria. The bank latter changed its name to standard bank for West African Limited. In accordance with the companies act of 1968, this pioneer expatriate bank was incorporated in Nigeria as the Standard Bank Nigeria Limited. It has over three hundred branches scattered all over the federation and has its head office in Lagos. In 1978 this bank latter changed his name to First Bank of Nigeria Limited.

ii.          Barclays Banks of Nigeria Limited: Less than three decades after the pioneer bank opened its office in the country, the Barclays Bank D.C.O. came into the Nigerian banking scene in 1917. Barclays is an international bank based in Britain. Like its predecessor, Barclays Bank D.C.O. (dominion colonies and overseas) helped in creating the necessary atmosphere for cultivating banking habits in the country.

Since the Companies Act of 1968, the bank has incorporated in the country as Barclays Bank of Nigeria limited. The bank was the reputation of being one of the largest banks in Nigeria with over three hundred branches and its head office in Lagos Barclays changed its name to Union Bank of Nigeria limited in 1978.

iii.        History of UBA: The United Bank for Africa (UBA) has undergone formidable changes, growth and restructuring, since its formation. It was formally known in 1932 as ‘Bamque National Pour Le Commerce et L’ Industries, NBCI, Paris (A French own name) and translated into British and French Banks Limited (BFBL) in 1949. In 1961, the bank was established in West African particularly Nigeria to delivers unparralled, quality banking services and being the lending bank in assets and balances sheets.

In 2005, UBA merged with Standard Trust Bank Plc lending to UBA Group. It recently acquired continental Trust Bank Limited (CTB). The union merged as the successful corporate combination in the history of Nigerian banking. It become the first Nigerian Bank to be listed on the Nigerian Stock Exchange by way of an Initial Public Offer (IPO) in 1970.

The bank was also the first to issue a Global Depository Receipt (GDR) which has attracted significant foreign investment.

United Bank for Africa (UBA) has become the largest financial services institution in West African with a balance sheet size in excess of one trillion naira and more than size million and thirty (630) retail distribution centres across Nigeria. It is found in New York and Cayman Islands.

The bank parades quality professional tested and trusted, executive directors, bankers, an erstwhile CEO, Tony Elumelu among other executive directors.

 


g.           PIONEER INDIGENOUS BANKS

i.      National Bank of Nigeria Limited

In 1933, the National Bank of Nigeria Limited was established by some private Nigerian citizens, and it became the first indigenous bank in this country. The bank almost folded up after the 1952 banking ordinance because of its inability to meet the demands of the ordinance. However, the then Western Regional Government subsequently came to the rescue of the bank by sending in huge capital funds from the resources of the government owned marketing board.

The bank has continued as a single-handed enterprises of the western state government. It has its head office in Lagos and operate branch offices scattered all over the country. It is worthy of note to mention that the bank has collapsed majorly, due to mismanagement.

 

ii.          Agbonmagbe Bank Limited

Another indigenous bank to spring up in the country was Agbonmagbe Bank Limited. It was established in 1945 and later changed its name to Wema Bank in 1969 after it was taken over by the Western Nigeria Development Corporation. It has head officer in Lagos and initially maintained branches in Western States.

iii.       African Continental Bank Limited

In 1944, Dr. Nnamdi Azikiwe acquired Tinubu properties limited which was later renamed Tinubu Bank Limited. But in 1947, the bank changes its name to its present name, African Continental Bank Limited and opened its first office in Yaba.  

In the 1950s the bank passed into the hand of the then Eastern Region Government, which moved in funds to save the bank from collapsing, closely following this was a public inquiry that shook the clientele of the bank but was quickly gone-over. The bank has proudly survived yet another crisis, namely the Nigeria civil war. The hand branches scattered all over the country with is head office in Lagos.

 

h.          High Bank Mortality

Between 1949 and 1952, over ten banks sprang up in the country. Almost all the mushroom banks formed during that period fizzle away before December 1953 due to:

i.      Inadequate capital base

ii.     Inexperienced staff

iii.    Ill-equipped offices

iv.         Unskilled management

v.           Absence of banking regulation

vi.         Stiff competition with expatriate banks

 

i.            Nigerian First Banking Ordinance

In 1952, the First Banking Law (Banking Ordinance of 1952) was promulgated as a way of arresting the wave of mass banking liquidation and instilling sanity in the Nigerian Banking System. The ordinance required:

i.      New banks incorporated in the country to have a minimum nominal capital of N50,000.00.

ii.     New Banks to incorporated with minimum paid up capital of N25,000.

iv.         Foreign banks not incorporated in Nigeria to show evidence of paid-up capital of N200.000.

v.           All new banks to obtain a license from the finance secretary before operating.

vi.         At least 20% of the profit must be paid into the bank’s reserve until the valve of reserve is equal to the paid-up capital.

vii.       No evidence to be paid, until the capitalized expenditure of the bank has been fully written off.

viii.     All banks to submit to the financial secretary evidence of adequate degree of liquidity. All existing banks were required to comply within three years.

 

Other legislation which have affected banking in Nigeria since then include the 1958 Banking Ordinance, the Central Bank of Nigeria Act of 1958, the 1962 Banking Ordinance (Amendment), the 1969 Banking Degree (Now repealed) the companies act of 1968 (now repealed), the Indigenization Degree of 1972, the Nigeria Enterprises Promotion Act of 1977 (Now amended), the companies Degree of 1991, the C.B.N Degree No 24 of 1991 and the Banks and other financial institutions degree No 25 of 1991.  

 

1.5      PROFILE OF BANK UNDER REVIEW: UBA PLC

The United Bank of Africa (UBA) Plc is one of Nigeria’s top these commercial banks. It was established in 1961 by a consortium of five international banks to take over the banking business carried on in Nigeria since 1949 by the British and French Bank Limited. With assets of over N44 billion and 199 branches spread all over Nigeria, the bank has revealed an impressive growth rate.

 

UBA is active in all aspect of commercial banking and provide international banking; trusteeship, share registration, corporate finance computer services through specialization division and subsidiaries.

 

An aggressive business promotion strategy coupled with a willingness to innovative has earned the bank an enviable position in the banking industry. UBA Plc is strongly committed to its social responsibilities and identifies with the community in which it is represented. Nigerian interest constitute 60% of the shareholding of the bank.

 

Four of the founding international banks namely, Banque Nationale de Paris, Bankers International Corporation, New York, Banca Natioanl del Lavoro and Monte dei Paschi di Sierra, who altogether own 40 percent of the shareholding, are represented on the board of directors and continue to make their expertise and resources throughout the world available to assist the bank and its customers.

UBA Plc has branches in New York and Grand Cayman Island. It also maintains correspondent relationship with many banks in Africa and in major countries in the world.

1.6      SCOPE OF STUDY/LIMITATION

This study is mainly on United Bank for African (UBA) Plc. The bank, being a large bank with over 200 branches nationwide, because of constraint of time and cost, all the branches cannot be covered. This study will be confined to the head office and few branches in Lagos.

 

1.7      ORGANISATION OF STUDIES

1.0   BACKGROUND OF INTRODUCTION

The major function of universal banks toward extension of credit facilities to their customers. Universal banks started in Nigeria to be precise. 117 years ago (1892) with the establishment of African Bank Corporation (ABC) which acted as the agent of bank of England. In 1894, Bank of British West African was established. The bank has credit of being the first bank to be established in Nigeria. Its name was later changed to Standard Bank Nigeria Limited. They proceeded before changing it again to the first bank in 1978. The banking section has witnessed the emergence and demise of many banks within the period of 1949 to 1951. while the bank under review (UBA Plc) was established 1961 by a consortium of 5 international banks to take over the branding business carried out in Nigeria since 1949 by the British and French Bank Limited. This Universal Banking has branches both in Nigerian and abroad.

 

3.1      RESEARCH DESIGN/METHODOLOGY

It is the project that deals with researcher design and methodology. It mentions about all the relevance data, collected through the primary and secondary sources. The method used in writing this project is the data collection, questionnaire and interview.

 

DATA ANALYSIS AND INTERPRETATION

This chapter four explains full details of the project, it deals with data analysis and interpretations. The different questions in the questionnaire were analysed one after the other. In addition, two hypothesis were tested the null hypothesis we accepted while the alternative hypothesis were rejected.

 

5.1      SUMMARY, CONCLUSION AND RECOMMENDATION

This lastly chapter discusses about the result of the interview conducted by the research in the course of the project work.

 

1.8      RESEARCH PROCEDURE/METHODOLOGY

The researcher intends to carryout the study in Lagos State. He intends to use United Bank for African Plc as his case study. The credit officers and branch managers of selected branches are the subject or respondents. The instrument to be used is generation data in the respect of the project are questionnaire and interview.  

 


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