An Evaluation of Credit Management and its Effects on Banks’ Profitability : Current School News

An Evaluation of Credit Management and its Effects on Banks’ Profitability

Filed in Accountancy Project Topics, Current Projects by on December 8, 2022

 – An Evaluation of Credit Management and its Effects on Banks’ Profitability –

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ABSTRACT

This study; An Evaluation of Credit Management and its Effects on Banks’ profitability; A comparative study of First Bank PLC and Fidelity Bank PLC is concerned with examining the process of credit management in the banks and the effect of non performing loan on the performance of Nigeria Banks.

The results show that the impact of loan loss reserve has a negative impact on profit. This implies that higher credit risks, the higher the profit.

The methodology used was interview technique for data collection. Managers and lending officers of the two Banks were interviewed, and it was discovered that Fidelity Bank PLC which is a new generation bank performed better during the period under review.

This was discovered to be as a result of their highly skilled personnel and intensive computer network.

In summary, it was recommend that Nigeria banks discard other internal problem that delay credits to worthy customers in order to build confidence in the system and make bank credits worthwhile venture at the same time improving performance.

Also, there should be less interference from top management staff and board of directors.

TABLE OF CONTENTS

Title Page – – – – – – – – – – i
Certification – – – – – – – – – ii
Declaration – – – – – – – – – iii
Dedication – – – – – – – – – iv
Acknowledgement – – – – – – – – v
Abstract – – – – – – – – – – vi
Table of content – – – – – – – – – viii
List of tables – – – – – – – – – – xi

CHAPTER ONE: INTRODUCTION

1.1 Background of study – – – – – – – – 1
1.2 Statement of Problem – – – – – – – – 2
1.3 Objectives of Study – – – – – – – – 3
1.4 Research Questions – – – – – – – – 3
1.5 Research Hypothesis – – – – – – – 4
1.6 Significance of Study – – – – – – – – 4
1.7 Scope of Study – – – – – – – – 4
1.8 limitation of study – – – – – – – – 5
1.9 operation definitions of Terms – – – – – – 5
Reference – – – – – – – – – 7

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 Introduction – – – – – – – – – 8
2.2.1 Profile of First Bank Plc – – – – – – – – 8
2.2.2 Profile of Fidelity Bank Plc – – – – – – – 8
2.3 Conceptual Framework – – – – – – – 9
2.3.1 Concept of Credit Management – – – – – – 9
2.3.2 Concepts of Credit Analysis – – – – – – – 10
2.4 Theoretical Framework – – – – – – – 13
2.4.1 Origin of Bank Credit – – – – – – – – 13
2.4.2 Credit Management – – – – – – – – 14
2.4.3 Types of Bank Credit – – – – – – – – 15
2.4.4 Classification of Loans as to Purpose (Selected Cause) – – – 22
2.4.5 Syndication Credit- – – – – – – – – 25
2.4.6 Loans to the Rural Sector – – – – – – – 25
2.4.7 Loans to Small and Medium Scale Enterprises – – – – – 26
2.5 Role of Bank Credit in the Economic System – – – – 27
2.6 Credit Risk Management – – – – – – – 27
2.7 Credit Policy of Banks – – – – – – – 30
2.7.1 The Purpose of Credit Policy – – – – – – – 31
2.7.2 Factor Effecting Credit Policy Thrusts of Banks – – – – – 33
2.8 Empirical Review – – – – – – – – – 36
References – – – – – – – – – 39

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Area of Study – – – – – – – – – 41
3.2 Design of Study – – – – – – – – – 41
3.3 Source of Data – – – – – – – – 41
3.4 Population of Study – – – – – – – – 41
3.5 Sample Size – – – – — – – – 41
3.6 Instrument of Data Collection – – – – – – – 42
3.7 Validation of Instrument – – – – – – – 42
3.8 Data Collection Technique – – – – – – – 42
3.9 Data Analysis Technique – – – – – – 42
References – – – – – – – – – 43

Chapter Four: Data Presentation Analysis and Results

4.1 Introduction – – – – – – – – – 44
4.2 Data Presentation – – – – – – – – 44
4.3 Securities Accepted for Granting of Facilities at First Bank PLC – 46
4.4.1 Classification of Credit Facilities at First Bank PLC – – – – 47
4.4.2 Credit Control Measures at First Bank PLC – – – – – 48
4.4.3 Credit Management and Control at Fidelity Bank PLC – – – 48
4.4.4 Securities Accepted for Granting of Credit Facilities at Fidelity Bank PLC – – 49
4.4.5 Classification of Credit Facilities at Fidelity Bank PLC – – – 50
4.4.6 Credit Control Measures at Fidelity Bank PLC – – – – 50
4.4.7 Causes of Substandard, Doubtful and Bad Loans – – – – 51
4.5 Data Analysis – – – – – – – – – 53
Reference – – – – – – – – – 68

CHAPTER FIVE: SUMMARY CONCLUSION AND RECOMMENDATION

5.1 Introduction – – – – – – – – 69
5.2 Summary of Findings – – – – – – – – 69
5.3 Conclusion – – – – – – – – – 70
5.4 Recommendation – – – – – – – – 70
Bibliography

INTRODUCTION

1.1 Background of the Study

The banking industry today plays a very important and significant role in the economic development of the country due to the variety of services and  opportunities  it  provides  for the populace and nation at large.

Banks are distinguished from other types of financial firms because, they accept deposits and provide credit facilities to its  clients.

Thus  Bossone,  (2001) suggests that banks are special intermediaries since they have unique capacity to finance production by lending their own debt to agents that are willing to accept it. Banks manage liabilities, also lend money and thereby create bank assets.

Again, banks play twofold roles of backup sources of liquidity for all enterprises in the economy and transmission belt for monetary policy (Corrigan, 1982).

At  the  same  time, there is a special feature of banks. They act as delegated monitors of borrowers on the behest of the ultimate lenders, where monitoring is costly.

The history of bank lending could be traced to the era when British  goldsmiths  acted  as banks. The goldsmiths discovered that only small  proportion of the  money  kept  with them for safety yielded enough interest for them.

As banks emerged, the practice of the gold smith was adopted and it was found encouraging (Brealey, Myers and Marcus, 2004). With this discovery, banks started issuing out loans to those in need of them and  paying interest on fixed and saving deposits.

REFRENCES

Abole, A. (1998). Effective Liquidity Management in Banking Industry: Lagos, Nigeria Institute of Bankers (NIB) Journal.

Adekenye, F.I. (1984). The Nigerian Banking; A Factual Introduction to the Banking and Environment, Herrad Books Limited.

Ahmadu, A.S, Takeda .C. and Shawn. T. (1998). Bank loan loss Provision: a re-examination of Capital Management and Signalling effects, working paper, Department of Accounting, Syracuse University, 1-37.

Al-khouri.R.(2011). Assessing the Risk and performance of the GCC Banking sector, international journal of finance and economic, ISSN 1450-2887 issue 65, 72-8.

Altunbas, (2005). Merger and Acquisitions and Bank Performance Europe. The Role of Strategic Similarities. European Central Bank Working paper Series, No. 398.

Ben-Naseur, S. and Omran, M. (2008). The Effects of Bank Regulations, Competition and Financial Reforms on MENA Banks : Profitability, Economic Research Forum Working Paper, No. 44.

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