1.1 Background to the Study
One of the most common economic problem of today is that of managing our scarce resources. This problem manifests itself at every level of human activities, whether individual, corporate or national levels. How well are we managing our scarce resources and in most cases meager resources and how best can we manage them? This is the focus of this project work with reference to credit management as a tool for growth and survival of banking industry and also to nation at large.
However, it is the business of some people or an organization to deal in money by way or keeping other people’s money and leading them t its intending users. It is quite common these days to find some local money dealers who collect money from local individuals in form of savings, only to disburse these amounts to the contributors at the end of the month charging a minimum commission. It is note worthy here that this money is not lent out by the custodian free of charge. His interest in the business is commission charged.
On the other hand, some other individuals or organizations raise their own money which the borrow out for investors and other users at exorbitant rates or interest. These sects may have flex for high collateral securities and charge high interests which may be compounded monthly bi-annually or annually, etc.
However, the banking industry of today tries to combine these functions or services of keeping people’s money and lending some out to their intending customers amongst its other major functions.
Again, what it does with the money or deposit collected from its customers constitutes the credit whereas what it does with these money or deposits that enables the bank to remain in business may be referred to as the management process. In the process of carrying out all these important functions or operations, banks usually encounter numerous problems. In order to avoid these problems to meet their stated objectives, this was the reason for this study using Union Bank of Nigeria Plc.
1.2 Statement of Problems
The major problems faced in banking industries in effective credit management is as a result of credit policy, credit standard. It is also noted that many banks have crumbled because of their inability to successfully manage their resources. They either end up lending out so much ultimately erodes this liquidity of bank or accumulating so much ending up receiving insufficient interest to pay its interest on deposit and other expensed. Some banks or companies may raise loan or capital at exorbitant cost of finance a project. They end up spending more on the project than anticipated. They may pay so much in servicing the capital used in financing this project. Ultimately, the return falls short of the investment and the result is a huge loss.
Another problem facing the banking industry is the inability to recover bad debts. Most banks also fail as a result of lending to customers or managers lending money to their spouses without collateral securities at the end of the day not being able to recover the money. It could therefore be noted that credit management constitutes a vital tool in the successful operation of banks.
This project is therefore aimed at diagnosing some of the problems of these banks in this regard and offer some useful advice based on the findings and research carried out in the course of this project that would hopefully be useful to the banks and other financial intermediary, in order to boost the mind of their customer or investors and also to create maximum confidence to the general public in the banking industry.
1.3 Research Questions
1. Is effective credit management guarantee the growth and survival of banking industry?
2. Does effective credit management in the banking sector enhances the overall efficiency of the organization?
3. Does effective credit management enable the bank to remain in business even when others are failed?
4. Does credit management promote the wealth of a nation?
5. What impact does effective credit control have in the economy?
6. Can effective credit management create job opportunity?
7. Does effective credit control really a tool for survival and growth of a bank?
8. Does effective credit management enable bank to recover their bad debt?
1.4 Objectives of the Study
The primary objective of the study effective credit management is to provide an overview understanding of the important role credit management play not only to the banking industries but also to the general economy of the nation.
Moreover, the study is guided by the following objectives:
1. To examine its importance in the banking industry.
2. To appraise the contribution of effective credit management as a tool for growth and survival in banking industry.
3. To examine the impact on the economy as a whole.
4. To examine the relationship between debtors and creditors.
5. It also examine its contributions by way of job and wealth creation.
6. To examine the effect of bad debt and its recovery.
7. To check confidence in the mind of their customer the reliability of effective credit management as a tool for growth and survival of banks.
1.5 Statement of Hypothesis(es)
For the purpose of this study, the following hypothesis has been constructed to provide the work necessary solution to the problem under investigation.
Ho: Effective credit management does not enable bank to remain in business.
Hi: Effective credit management enables bank to remain in business.
Ho: Effective credit management is not a tool for growth and survival of banks.
Hi: Effective credit management is a tool for growth and survival of banks.
Ho: Effective credit management does not contribute to the wealth of the nation.
Hi: Effective credit management contributes to the wealth of the nation.
1.6 Significance of the Study
The usefulness of credit management as a tool for growth and survival in banking industry and other financial houses cannot be over-emphasized. This study is also important to the private sector and to the nation at large because the finance of most capital projects of most individual and government is carried out by banks. If these projects are not financed then earning growth of the nation will be retarded.
Also, the investment rate of any nation and the savings rate depend on the ability to managed the available resources by the bank if they really need to remain in business. It therefore mean that the banks and other financial houses to be fully aware of the financial and economic implications of every decision they take in the course of doing their business is the major aimed of this work.
1.7 Scope of the Study
This study is basically limited to Union Bank of Nigeria Plc organization with reference to Auchi branch in connection with the history, articles and memorandum of association, its contributions and development and its credit control policy. The emphasis is on the credit control mechanism of Auchi branch.
In this study, financial statements and other relevance data that relate to the whole organization will be used to explained the activities of the branch under review.
Furthermore, it is necessary to add that this research study will embrace the examination and evaluation of bad debts in the Union Bank of Nigeria Plc. Questionnaires will be given to some staffs and employees of the bank for the findings of this research work.
1.8 Limitation of the Study
This study encountered one problem or the other during the course of pursuit.
1. One of the most problem areas of constraint in this project work is likely to be in the area of data collection and the authority to give out information. This will be so because banks by their peculiar nature hardly disclose their information.
2. Other likely limitation in this study was unavailability of books of banks in the polytechnic library, this problem was overcome by opinion of workers in the bank, polytechnic staff and some business men and women in Auchi.
3. Biasness in filling the questionnaires by the interviewers was also an obstacle toward the success of the study.
1.9 Definition of Terms
1. Credit Standard:
According to Ogunkunle (2008), credit standard is the minimum requirement for the extension of credit facilities. A standard procedure or principle which the bank now use to appraise credit requests in ‘5cs’ of credit i.e. character, capital, capacity, condition and collateral.
2. Credit Limit:
This is the maximum amount of credit that the bank will allow its customers. In essence, it represents the maximum risk exposure the bank will allow its customers to go in an account (C.B.N., 2004).
This is some rights or interest in the property given to the creditor so that in the event if the debtor fails to pay back his debt (Oladele, 1989).
4. Credit Policy:
According to CBN (1989), this refers to those decision variables (economic conditions, industrial norms, competition, etc) that influence the amounts and the ability of credit granted to a customer. The credit policy of any bank, subject to the regulations and guideline of Central Bank of Nigeria (CBN) it may be lenient or stringent.
5. Credit Management:
This is the ability of the creditor, i.e. the bank, to manage how resources (money receipt payments) at their granting efficiently and effectively and at a profit while granting facilities to their customers (Samuel and Wike, 1980).
According to Oxford Advanced Learner’s Dictionary, a bank is an institution in which money is deposited and other valuables for safety and from which loan is given out to their intending customers for commission known as interest.
According to Western and Brigham (1977), management is a distinct process consisting of planning, organizing, staffing, directing, coordinating, reporting and budgeting, performed to determine and accomplish stated objectives with the effective use of human beings and other available resources. From this point we can therefore say that management is the art of “getting things done through other people”.
8. Cost of Creditor Cost of Capital:
According to Abohi & Ohiokha (2013), cost of capital is the cost of producing the funds of the organization. It is the amount which providers capital would require before they can part with their funds. It is otherwise called the minimum required rate of return because any return less than the cost of procuring the fund will deplete the fund rather than maximized it.
9. Cost of Credit:
This is the normal interest rate, liquidity or profitability and bad debts, losses, gains arising from extension or non extension of facilities.
However, cost is vary with whether the facilities is short or long term and from bank to bank.
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