CREDIT MANAGEMENT AND BANK LENDING
(A CASE STUDY OF HALLMARK BANK LTD IN NIGERIAN)
Commercial bank are profit-making venture and as such they share with other business the same set of expectation concerning the health of the economy.
It is in the light of this that they make loans available to borrowers on interest, which is a source of profit to them. Along side the growth of the credit sector is the growth of the bad debt among other to poor credit management.
The hallmark bank limited like most other bank has recorded a high inadence of bad debt and has one of the years declared loss in 1994. The bank purpose is to find out the cause of the bad debt and suggest the possible solution to the bank poor credit management.
In order to archive the objective, the writer set out some hypothesis which were tested with the following; statistical techniques, sample percentage, chi-square, (Yates’s correction method) and candells coefficient of concordance . The information requirements for this research were generated from the secondary data and primary source through the use of questionnaire.
The hallmark bank limited, which is essentially a private bank, has been confronted by a lot of problem, which is responsible for his poor credit management as revealed by the writer’s analysis. It is shown that the bank has inadequate credit assessment and control mechanism. The analysis shows that there is a significant relationship between the level of loan granted by the bank and the profit made. The bank granted considerable amount of unsecured loans, which pared way for high level of default, which characterized it. Giving this problem that are face by the bank, the writer made some recommendation amongst others
TABLE OF CONTENTS PAGES
CHAPTER ONE:
1.0 Introduction
2.1 Literature review
2.2 Introduction
2.3 historical background of commercial banking in Nigeria, operations/ banking lending
Introduction.
Area of coverage.
Sample plan.
Data analysis techniques
Limitation of the study.
Bibliography
Appendix: questionnaire.
CHAPTER ONE
Financial are procedure for preparing according to and reporting reliable information concerning transaction.
Financial resource in any economy should be adequately be mobilized, taking into consideration the crucial role of finance in the economic development.
Nwankwo (1993:p.2) stated that finance resourced have been considered a very important factor in the economy development.
Consequently, the mobilization of resource has been defining a criteria in the achievement of rapid econ0mic growth in any economy. The first step for resources mobilization for the development purpose if the mobilization of financial resources, which will lead to the capital formation. Capital formation required the release for domestic goods and service for real investment or the import of resources form outside or both.
Ojo and Adewumi (1989:P.10) . They emphasized the role of financial resources and pointing out that the finical institution offers an efficient institutional mechanism through which resource can be mobilized and directed to less essential use for more productive alternatives. The writer contention here is that the efficiency of any financial system particularly in a developing economy like Nigeria depends on the extent of which the financial information role is effectively and efficiently discharge with reference to the economic good of the country and the objective of the institution itself.
According to Racheal 91984:p.478) , the primary function of the commercial bank is the extension of credit to worthy borrowers . it has been noted that commercial bank is the most important institution n the mobilization of funds.
That further more Khat Khate and Racheal (1984:p.516) , while enacting the importance of resource mobilization stated that commercial bank are the most relevant institution in the developing countries to encourage and mobilize savings and also to charnel such saving into a productive investment . First because of their network of office , second because commercial bank through normal credit operation often activate savings which are lying idle elsewhere and third because the bank are highly liquid and thus attract savers.
Oji (1984: P9), projected at Nigerian case opined that, the commercial banking system be used as a representative since it constitute the largest single component of about 85% of all the institutional savings in the system. Mayor (1982:P 13) further stressed that there are two main reasons why the commercial banking system is the most important financial intermediary.
Firstly the total amount of deposit in the commercial banking system has the capacity to create deposit demand resulting from lending activities.
Since demand deposit constitutes a large sum of the money supplied, the banking system is able to expand the nation supply of money. The consent that commercial bank need liquid asset especially the short term asset that an be converted into cash loan accordant to him constitute the largest amount of asset
Good bank lending ensure high profit level, ensure greater return and have underscore of meeting the social responsibility to he benefit of the society while in the other way bank lending can affect the bank negatively in various way fir instance, it might take a great chance of their annual profit which the bank need to stay in business with . This and the indiscriminate extension of loan although within the credit guideline without proper supervision of such loan and account have led to an increasing tend in the existence of bad dept.
The bank has failed in the implementation of various checks against bad debt and has tended to forget every loan committed the moment the contract has been concluded. The author contention here is that the cause of bad debt is due to improper supervision and management of loan granted. Thus study is been carried with the Hallmark bank limited as the case of study
1.2 THE BRIEF REVIEW OF THE BANK
Hallmark limited was incorporated on the 29th of October 1990 and was granted license to operate as a commercial bank on the second of January 1991. The bank opened for business on the 2nd of April 1991 with and authorized and fully paid up capital of # 50 million (fifty million) . The equity based was latter increased to # 100 million and by March 1995 it has reached 200 Million Naira. It has as its headquarter and registered office at Plot BC, Okigwe Road, Ugwu Orji Owerri, Imo state Nigerian. Currently the bank has branched in the country and correspondent bank in London, Norway and United state of America
1.3 STATEMENT OF PROBLEM
The commercial banking system shares very important characteristics with other members of the financial sector and the rest of the business community. It desired to maximize profit. Clem (1994: P.4) , commercial bank are profit seeking enterprise as such it share with other business the same set of expectation concerning the health of the economy . it is on this light that it made loan available to borrowers on interest which is a source of profit to the bank. Alongside, the growth the credit sector is the increasing high incidence of bad debt due amongst others, to poor management. Hallmark bank limited like most commercial bank ahs recorded high incidence of bad debt and have one on the year declared losses. For instance in 1994, he bank sustained a net loss of 112, 153 Million , resulting from the fact that the bank net portfolio is [predominantly not performing ( chairman annual report 1996: P.28)
In 1995, the bank made a profit of # 87, 879,000, after the amount of # 1, 836,645 has been deducted as the provision for the bad debt. Added to 130.481, 720 revised provision in 1994 at the instance for the central bank of Nigerian and those for the proceeding years the bank provision for the bad debt rose to a staggering amount of # 134, 318, 380 (chairman report 1996, P 20 – 21)
Giving the phenomenon of bad debt and the consequent loss been declared by the bank, there is therefore a need to study the credit management of the bank with a view to attained an insight into how best to reduce the incidence of bad debt. There has been a conferrable concern showed by the management of the bank on this because the affect on the profitability of the bank and also affect and limits its expansion.
As the bank sector expands with the growing complexity of the Nigerian Economy, it has been observed that the amount of bad and doubtful debt of the bank, which has contributed, to distress nature of some of the bank has been risen. The question that borders the mind is giving the management expertise of the bank the various guideline as regard to lending, why did such lending be regarded as bad debt..
In the light of the forgoing, the purpose specifically which are to be find out include
In order to carry out this study, the following question are raised
3. If there is actual a significant relationship between the bank loan and profitability
4. To suggest likely solution to the bank poor performance
In order to find answers to the various question rose above, the author formulated four hypotheses which would be put to test
They include amongst others:
Ho: there is a significant relationship between the profit of the bank and total loan and advance granted by it
Hi: there is no a significant relationship between the profit of the bank and total loan and advance granted by it
Ho; this is a significant relationship between the level of bank deposit and the manner of loan
Hi: this is no a significant relationship between the level of bank deposit and the manner of loan
Ho: this is a significant relationship between the level of risk in loan proposal and the loan that is granted buys the bank
Hi: this is no a significant relationship between the level of risk in loan proposal and the loan that is granted buy the bank
Ho: there is a significant relationship between the banks perception of different type of security and the amount loan granted
Hi: there is no a significant relationship between the banks perception of different type of security and the amount loan granted
1.7 LIMITATION OF THE STUDY
This is studying the entirely the credit management and causes of bad debt in the bank and how it affect the performance of the bank as it a only restricted to Hallmark bank of Nigerian as the case of study. Some difficult and constrain were encountered by the researcher in the cause for obtaining necessary information. For instance in some occasion, it was impossible to get in touch with the bank officers, who should supply the information needed
For a proper understanding of the study been carried out, the author gave the operational definition of the following terms in the study;
Debt: it can simply be said that debt is what is owned to another. It can be also describe as an obliga
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