ABSTRCAT: This term paper was tailored at designing bank lending policies and recovery procedures in Nigeria. The piece of work looked into bank services and the rules that guide their monetary policies. Research was carried out on ways of improving bank lending policies and good measures on how money could be recovered. Recommendation for the future improvement ion this policies was described. I vividly described procedures for taking securities for Bank lending. To those in the financial industry, this piece of work could serve as a reference manual to them. The manual can also educate people on the roles of Banking in economic development of Nigeria.
TABLE OF CONTENT
TABLE OF CONTENT
CHAPTER ONE:
1.0 INTRODUCTION
CHAPTER TWO
CHAPTER THREE
BIBLIOGRAPHY
CHAPTER ONE
1.0 INTRODUCTION
A bank could be described as a major financial institution, other such institution include finance house, insurance companies, mortgage companies etc. the main function of these financial institution are to provide financial support to those who are in need. Apart form this function, banks perform other functions like rendering advice and counseling, acceptance of deposits, provision of loans and advances of providing a safekeeping place for people valuable many banks plays intermediary roles in the financial sector of the economy which focus primarily on the following.
banks could be classified into the following categories below.
Obviously, with an observer first contact with a developing economy, all those categories of bank plays crucial roles in stimulating the economy. They deal with members of the public.
Firstly, they all provide first information and investment advice to willing customers community banks for instance, were established primarily to spread banking services to the grass root, considering the fact that a greater percentage of the country’s population reside in the rural areas.
Development banks by implication tend to carry out their function effectively because they diversify into specialized areas such as agricultural and industry. Example of development bank are the Nigeria Agricultural and industrial development (NACB) and Nigeria industry development bank (NIDB). Hence the development of economy is stimulated through these agency function.
In order to achieve their set out objectives all these banks rely on certain instruments and policies which include reserve requirements, stabilization of securities, interest rate policies which include reserve requirements, stabilization of securities, interest rate policy (lending policy). Exchange rate and foreign exchange management. Discount rate policy among others which in Nigeria a developing country are put in place and over seen by the government owed central bank.
Lending has over the years become one of the most important function in banking operations. It provides money for investment which in turn yields turn over and (increases the liquidity in circulation due to this direct effect, it has on the economy and business development, it is being pursed in many developing countries were banks and their lending activities have been usefully. Integrated into government policy formation in the national economic development process. In Nigeria for instance, where majority of the population live in object poverty funds are very difficult to come by either for investment purpose or otherwise. Thus the federal government finds it necessary and critical to intervene to formulation of bank lending policies. Lending is giving something to someone else for use over short period of time (in this case money with interest where being paid back)
In the objectives of tending activities the bank in the country have come up with policy guidelines which basically provides the frame work for dealing with loans and advances. Some of these policies are designed to have relevance to these policies are designed to have relevance to the interval constraints of each bank for instance sector performance deposit base, risk existing exchange while others are derived mainly from the guidelines issued periodically by the central bank for control reasons and known as monetary and credit policy guidelines for each fiscal year. A lending policy of properly articulated could provide a guide for safe, sound and profitable banking activities, if on the other hand the lending policy is not properly formulated, it could lead to the banks liquidation.
Irrespective of the account of liquidity available in a bank, it may find it practically impossible to satisfy all the request it gets for loan since the request may out ship available resources. The bank thus has to discriminate in its decision to lend. Such action must however be based on objectives, funds available for loans must be juidiciously applied strictly along the bank policy guidelines. When the policy has been formulated lending procedures evolves as check towards ensuring that the objective of the policy guidelines are achieved includes
ii. What documents are required
iii. Necessary securities
iv Where various documents should be sent
v. Recommendation to be forwarded etc.
like any other operational procedures, these should not be breached in anyway otherwise it could cause doubtful debt etc. due to improper lending, most banks makes provision for bad debts but on the other hand what is known as recovery procedures in saving doubtful debt. They include step by step action by this specialist unit either legal or otherwise to this effects.
In summary, this tends to take a critical appraisal at this lending policies and procedures for loan recovery. These policies and procedure play important role in achieving a good and effective banking system.
1.1 BANKING SERVICE IN NIGERIA
Banking services in Nigeria dates bank in 1892 when the older Dempsters company was engaged in the business of moving coin up and down the country. In the same year, African banking corporation was formed to provide banking services to the Dempsters company. This banks failed in the same year and was over run by the bank of British West African. The national Bank of Nigeria Ltd was established in 1933 as the first indigenous bank, the Agbonmagbe bank was registered in 1943 And the Africa Continental bank was found in 1949 by the late Dr. Anamdi Azikiwe. This was as a result of the shoddy treatment he receive in one of the expatriate banks cooperative bank of western and eastern Nigeria was established between 1984 and 1951.
Indeginistation of the Nigeria baking systems started essentially and banking facilities in the economy. These credit facilities could be placed under two broad groups below
ii. Short term facilities.
The former normally covering long term investment, capital market investment, credit financing, self employment, consumer credit etc. funds obtains are usually for either commercial purposes or for industrial development. In recent years, the major interest of loan seekers is earning of profits. Banks in their realization of the need to develop the economy, encourage the disbursement of loan in aid or assistance of variable projects. Such project will either result in the expansion or development of firms and industrial corporations.
Transaction if businessmen and other professional are also not left out. In the need for liquid cash, which are sometimes made possible through the provision of credit facilities from banks. The availability of funds contribute to the growth in other sectors the economy. As indicated earlier, there are direct and indirect beneficiaries of a loan administered by a bank. The direct benefactor is the one obtaining the loan for himself even if it is for self-employment. However, the facilities is there for other people who will directly benefit from it in terms of employment and job creation in the same way short and long term loans do the same
1.2 STRUCTURE OF BANKING
The structure of banking in Nigeria is similar to that of united kingdom. This could be attributed to the country’s colonial heritage as the first two banks to operate in Nigeria were of British origin while the new sub country as a result of a decree stipulating 40% indigenous participation in foreign owed banks was viewed which was put in place after the introduction of federal constitution in 1954 to indigenes the banking system. Apart from the central bank, banking facilities in Nigeria were provided by two classes of banks. The foreign banks and led to the establishment of indigenous banks.
As a result of the indigenization process and also the oil boom of the 1970’s more commercial, merchant and development banks spray up in the country so as to keep up with the increase of cash flow in the economy.
Banking system services in Nigeria are rendered to various sectors of the country’s economy and they include Health, Industry, agriculture, Trade and Tourism etc. in order for the economy to remain buoyant, adequate funds have to be made available to these sectors to enable them function satisfactorily and also to ensure steady development. In this country the required capital is uniform of fund from banks and other financial institution. Loans and advances, credit facilities utilized by individuals companies, corporate bodies and the government. This facilities not only beneficial by obtaining it directly but its also indirectly creates jobs for the people who provide the labor for standard of living which in turn results in the development of the nation. In considering the great importance of loans to the economy, it becomes imperative to explain the benefit derived from loans in order to show its importance in the development of a nation and in the maintenance of a stable indigenous banks attracted the back up of their staff from the pioneer British bank are drawn extensively from British experience. The banking business was defined in section 41 of Nigeria Banking Act of 1969 as the business of receiving money from outside source as deposits irrespective of the payment of the interest or the granting of loan and acceptance of credit or the purchase of bill and cheques of the purchase and sell of securities for account of others or the assumption of guarantees and clearing and such other warranties for others and for affecting of transfers and clearing and such other transactions as the ministry may on recommendation of central bank by order published in the federal gazette designated as banking business.
Also according to ASUZU (1996) he stated that section 61 of the banks and other financial institution Decree no 25 of 1995 (BOFIO) defined banking business as the business of recovering deposit on current account, saving account or other similar accounts, paying or collecting cheque drawn by or paid in by customers, provision of finance or such other business as the governor may by order published.
To differentiate between commercial banks and other banks, the act went further to say that any person who transacts banking business in Nigeria and whose business includes the acceptance of deposit, withdrawal by cheque is a commercial banker while merchant banking was defined as wholesale banking, medium and long term financing, equipment leasing, debt factoring, investment management, issue and acceptance of bill and the issue management of unit trust.
1.3 COMMERCIAL BANKS.
The main featured of a commercial bank includes: Acceptance of deposit that are withdrawn by cheques procurement of short term loans.
In Nigeria, the commercial banking industry is a few large banks with a wise network of branches extending all over the nation. This is the type of ban king system being operated in the United Kingdom in contrast to that of the United States where they operate a unique two tier of banking structure which embrace both the branch banking and the unit banking system.
In the unit banking system there are numerous individuals, local or state banks with a limited number of branches in most cases just one branch.
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