This research examines Prudential Guidelines and Management of Debts in Nigerian Banks. In carrying out this study for  questionnaire were used to collect data from respondents. The random sampling method was adopted in selecting the study participants. The study revealed that commercial banks use collateral securities as a necessity for granting credit facilities. This study also revealed that problems such as the adoption of these prudential guidelines have  significance on the management of dept in commercial banks. The study further revealed that the above mentioned problems can be mitigated by critically and specifically examining ways debts are revealed in Nigeria commercial banks. The study recommends among others that it necessary for the lending officer of the bank to be firm and act in accordance by laid down rules before granting credit facilities to customers, securities should be perfected.



Title page

Certification         ---      ---      ---      ---      ---      ----     ---      ---                i

Dedication ---      ---      ---      ---      ---      ----     ---      ---                ii

Acknowledgement         ---      ---      ---      ---      ---      ---                iii

Table of Contents          ---      ---      ---      ---      ---      ----     ---                iv

Abstract      ---      ---      ---      ---      ---      ----     ---      ---                vi


1.1            Background to the study         ---      ---      ---      ---      ---                1       

1.2            Statement of the problem        ---      ---      ---      ---      ---                2

1.3            Research Questions       ---      ---      ---      ---      ---                2

1.4            Objective of the Study---         ---      ---      ---      ----     ---                2

1.5            Statement of  Hypotheses ---   ---      ---      ---      ---                3       

1.6            Scope of the Study---     ---      ---      ---      ----     ---                4

1.7            Significances of the Study---    ---      ---      ---      ---                4       

1.8            Limitation of the study---        ---      ---      ---      ----     ---                5

1.9            Operational Definitions of Terms --- ---      ---      ---                5


2.1     Lending and Commercial Banks--     ---      ---      ----               7       

2.2      Debt Management Objectives  ---     ---      ---      ---                7       

2.3     Credit Policy  ---  ---      ---      ---      ---      ---      ---                9

2.4     Problems of Bank Lending  --- ---      ---      ---      ---                16

2.5     Identification of Bad Debts --- ---      ---      ---      ---                20

2.6     Credit Risk Management ---    ---      ---     ---      ---                25

2.7     Provision Policies ---      ---      ---      ---      ---      ---                27


3.1     Research Design---         ---      ---      ---      ---      ---                30

3.2     Population of the Study ---      ---      ---      ---      ---                30

3.3     Sample/Sampling Techniques ---      ---      ---      ---                31     

3.4     Methods of Data Collection ---         ---      ---      ---      ---                31

3.5     Method of Data Analysis        ---      ---      ---      ---      ---                33


4.1     Data Presentation ---      ---      ---      ---      ---      ---                34     

4.2     Data Analysis --- ---      ---      ---      ---      ---      ---                36

4.3     Test of Hypotheses       ---      ---      ---      ---      ---                41


5.1     Summary--- ---      ---      ---      ---      ---      ---      ---                46       

5.2     Conclusion ---      ---      ---      ---      ---      ---      ---                47     

5.3     Recommendations         ---      ---      ---      ---      ---      ---                48       





1.1     Background to the Study

The banking system and other financial institutions are normally approached by some groups of individual in order to acquire necessary capital with which to execute their business plans. One of the objectives of commercial banks is the generation of profit, and this is realized through the bank’s ability to accept new deposit, while the old ones are retained and put into profitable use. Banks play important role in the economic life of a country particularly developing country like Nigeria. This they do through the provision of banking services.  As agent of development, they provide loan which could either be short or long term to help these individuals execute their business plans, this explains why credit guideline contained in government monetary circular stipulate the aggregate ceiling on credit creation as well as sectoral  allocation. Banks and other financial institutions prepare financial statement to suit their particular /peculiar interest.

The prudential guidelines regulates how interest on loan and advances and other risk assets should be recognized and disclosed in the financial statement and how loses therefore, should be calculated (Remi, 2004).


1.2     Statement of Research Problems

The major aim in this research is to critically examine ways debts are recovered in Nigerian commercial banks, it should be noted that this research would find steps to be taken to avoid risk in commercial bank lending and most of all, find urgent solutions to loans, which were termed bad debt.

1.3     Research Questions

1.     Do commercial banks use collateral as a necessity for granting credit facilities?

2.     Do customers divert borrowed funds to other purposes other than what they are sought for?

3.     Does the adoption of these prudential guidelines have any significance on the management of debts in commercial banks?

4.     Has the adoption of these prudential guidelines been able to improved on profit margins made concentrating bank?

1.4     Objectives of the Study

As a result of the weakness identified in the operation of some licensed banks, coupled with the upsurge in the number of banks and the increase in the level of competition and consequent emergence of financial distress.

The following objectives were itemized to help solve these problems:

1.                 To find out if commercial banks use collateral securities as a condition for granting credit facilities. 

2.                 To find out if customer direct borrowed funds to other purposes different from what they are sought for.

3.                 To examine if the adoption of these prudential guidelines have any significance on management of debt in commercial banks.

4.                 To find out whether the adoption of these prudential guidelines have been able to improve on profit margins made by commercial banks.

5.                 To ascertain if commercial banks concentrate all their credit in one sector of the economy.

6.                 To find out if customer of the banks effectively utilize the fund borrowed to ensure returns to commercial banks.

7.                 To critically find out if the introduction of these guidelines help commercial banks for the proper identification and classification of debt or credit portfolio.

1.5     Statement of Research Hypotheses

          In carrying out this study, the following hypotheses were drawn:

1.     Commercial Banks use collateral security as a necessity for granting credit facilities.

2.     There has been cases of customers diverting the borrowed amount for other purposes other than the purpose for which it was borrowed.

3.     Adoption of prudential guidelines helps banks to avoid bad debt.

1.6     Scope of the Study

This study is centered on commercial banking and emphasis will be placed on the management of debts in commercial banks with particular references to Zenith Bank of Nigeria Plc, for the purpose of undertaking a thorough and well coordinated research work, which will be able to provide the necessary data required, the bank managers, staff and customers would be interviewed, as to seek their opinion on the ways to manage debts owned to such banks, and the findings will be used to generalized on commercial banks.

1.7     Significance of the Study

Due to the underlying problems being faced in the Nigerian banking industry, any attempt providing an avenue for better and efficient management for deport money banks towards achieving economic and monetary benefits will be a welcomed idea because of the important roles deposit money bank and other financial institution pay in the customers business.

It is also of great important because of finding will reveal the principle and step required in granting of loans in the bank. It also helps the future researcher to have a deeper insight into debt management in commercial banks in Nigeria and how it affects performance of the bank.

1.8     Limitation of the Study

In carrying out a research work like this, problems are bound to be encountered. The limitation of this study are analyzed as follows:

The attitude of the respondents that were given questionnaires, the sample size available and poor record keeping, copying with the academic activities at the same time is another limitation.

Due to the high cost of transportation and risk in traveling, the collection of data for this project work is limited, the reviewing of voluminous textbooks; journals, magazines and other related material are also limitation of this work.

1. 9    Operational Definition of Terms

Portfolio: Is the totality of investment to which investors has allocated funds for the purpose of earring a return (CBN Circular No. 7 1990)

Prudential Guidelines: The prudential guidelines regulate how interest on loans and advances and other risky assets should be recognized and disclosed in the financial statement and losses therefore should be calculated.

Short Term Loan: These are loans given to customers on a short term basis say one year.

Long Term Loan: These are loans given to customers on a long term basis for period of one year and above.

Debt: Amike, 2000 refer debt to any loan advance, credit guarantee or any facility, together with interest thereon which is outstanding and unpaid against a customer a customer of a bank in favour of the bank.

Bad Debt: Obandan (1991): Describes bad debt as a logical metamorphosis from a doubtful stage when the repayment capacity of borrowers progressively falls.

Collateral: This referrers to the lenders secondary source of repayment; it serves as a last resort in the events of fault. Okolie (2002) 

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