CREDIT CONTORL POLICIES IN FINANACIAL INSTITUTIONS A CASE STUDY OF CITIZENS INTERNATIONAL BANK LIMITED

ABSTRACT

The focus of this study is on Credit Control Policies in Financial Institutions and its efficacy in minimizing loan losses. In order to achieve a purposeful study, the research reviewed related literatures on Banking, Bank  lending  and  credit administration. An analysis of  the  responses from credit officers and information obtained from the secondary sources was carried out. The major findings among others are that:

1.       Most financial institutions have formal credit polices enshrined in a manual to guide the credit officers and management.

2.       Financial institutions usually include in their credit policies the loan territory, types and tenors of loans, acceptable securities, and  the  procedures  for  assessing,  approving  and  monitoring credit facilities.

3.       Financial   institutions   operate   under   a   highly   regulated environment through some government agencies such as the Central Bank of Nigeria (CBN), the ministry Finance, among others.

4.       that   despite   the   laudable   credit   policies,   many   finance organizations still suffer loan losses mainly because of unsound judgment by he credit officers, management override, lack of adequate supervision, or frauds and forgeries.

5.       the  provisions  of,  and  compliance  with  adequate  and  sound Credit policies is paramount to minimizing loan losses.

CHAPTER ONE

INTRODUCTION

1.0     PREAMBLE

Banking business is generally that of accepting deposits from the saving surplus sector of the economy with a view to paying on demand or at an agreed future date and lending to the savings deficit sector of the economy.  Banks  are   usually  custodians  of  money  and   values  of individuals and body corporate.

The Paton Commission (1948) defined banking as the business of receiving from     the public on current account money which is to be repayable on demand by cheque and of making advance to customers. The  1958  ordinance  defined  banking  business  as  “the  business  of receiving money on current account, of paying and collecting cheques drawn by or paid in by customers, and of making advances to customers”. Banking business is defined in the 1969 Act as “the business of receiving monies from outside sources as deposits irrespective of the payment of interests, and the granting of money loans and acceptances of credits or the purchase of bills and cheques or the purchase and sale of securities for account of others or the incurring of the obligations to acquire claims in respect of loans prior to their maturity or the assumption of guarantees and other warranties for others or the effecting of transfers and clearings, and   such   other   transactions   as   the   commissioner   may,   on   the

recommendation of the central Bank, by order published in the Federal gazette designate as banking business”. A banker means any person who carries on Acceptance House, a Discount House or any other financial institution.

1.1     THE BACKGROUND OF THE STUDY

Lending of money (or credit extension) is a major service provided by banks.   In  its bid  to do this very efficiently, some guidelines are usually set out in other ensure that loans granted are repaid at the time and in the way agreed.

Bank  lending  is  highly  regulated  as  can  be  observed  in  the monetary circulars issued by the regulatory Authorities      at the commencement of each (financial) year. The Nigerian financial system comprises of bank and non-bank financial institutions which are regulated by  the  Federal  Ministry  of  Finance  (FMF),  Central  Bank  of  Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC). Securities and Exchange Commission (SEC),  National Insurance Commission (NIC), Federal mortgage Bank of Nigeria (FMBN), and the National Board for Community banks (NBCB).

There are a number of reasons why bank are regulated. One is to protect the deposits of their customers, another reasons is to encourage or limit particular kind of lending because of the expected impact on the

economy. It is times aimed at ensuring sanity and professionalism in the banking sector. The restrictions imposed by statutory law and administrative regulations do not provide answers to many questions regarding safe, sound, and profitable bank credit. Each individual bank must answer questions regarding the size of the loan  portfolio, desirable maturities, and types of loans to be establish the direction , and use of the funds from stockholder, depositors, and others, to control the composition and size of the loan portfolio as well as determine the general circumstances under which it is appropriate to make a loan.

This paper will look at the guiding factors which do influence a bank’s loan policies with particular references to the bank being used as case-study-citizens  international  Bank  Limited.  Items  to  be  included while making or preparing a loan policy shall also be discussed. Attempts will be made to find out while banks still report much loan losses despite the policies and regulations in place.

1.2     STATEMENT OF THE PROBLEM

Banks and non-bank financial   institutions usually adopt some policies  in granting credits to their customers so as to minimize the risk of loan loss by matching Risk and Return, cash flow and loan repayment,

Project and security deposit tenors and loan tenors, approvals and offer letters.

In drawing up the lending policies, banks are guided by the rules and regulations issues by Regulatory Authorities, and their own environment both External and internal. Some of the guiding factors are the bank’s capital base, risk and profitability of various loans stability of deposits, economic  conditions,  experience  of bank personnel,  and  the credit needs of the areas served.

Effective application of these polices helps to a great extent in minimizing loan losses. However,  a  facility  may still  go  bad  despite procedure followed in consuming the loan agreement. One will not rule off completely occurrences that could bring about loan losses such as war and natural disasters.

1.3     THE OBJECTIVE FOT HE STUDY

Credit is as old commence, and largely as human existence. This takes different shapes and forms depending on the parties involved. In all these, the lender takes precautions to minimize the risk of granting a bad loan. The organized lender therefore, usually sets out written policies for the granting of credits. This paper attempts to discuss among other things:

i.        The meaning of credit and credit instruments ii.       The general principles of bank lending

iii. iv. v. vi.	The  lending practices and credit policy formulation, The case of frequent loan loses in the financial sector Collateral Securities acceptable to Nigeria bankers Regulation of bank lending
vii.           viii.	Assessing  the  effectives  of  credit  policies  as  a  tool minimizing loan losses The ways to mitigate loan losses in the financial sector.	to

1.4     RESEARCH QUESTIONS

i.        What are the general principles of bank lending in Nigeria?

ii.       Are there restrictions as to the activities that banks should finance?

iii.       To what extent does collateral (security) reduce the occurrence of bad loans?

iv.       Why  do  banks  experience bad  loans  despites  a  laudable  credit policy?

v.        What is the way forward towards improving the quality of credits in the Nigerian banking sector?

1.5     THE SIGNIFICANT OF THE STUDY

This project will provide guide to the formulation of credit policies, thus improving on the quality of credits granted by financial institutions especially in this ear of consolidation.

It  will  provide  useful  information  to  credit  officers  on  the regulatory Guidelines for granting credits by financial institution as well as an elaborate detail on the canons of god lending.

Financial institutions   should operate in such a way as to avoid sanctions from Regulatory authorities, and that could only be achieve by knowing the rules and regulations set out by regulatory authorities.

1.6     DEFINITION OF TEMS

1.       LEASE: A lease is a contractual agreement between an owner (the lessor) and another party (the lesses ) which conveys to the lessee the right to use the leased asset for an agreed  period of time in return for a consideration, usually periodic payments called rents.

2.       BAD DEBT: A debt is said to be “bad” when it becomes uncollectible under the terms of agreement.

3.       GUARANTOR:  A guarantor is a person(s) who agrees to pay a debt on behalf of a primary debtor if the primary

debtor fails to pay or becomes incapable of paying back at the agreed time.

₦5,000.00 – DOWNLOAD FULL PROJECT DOWNLOAD FULL PROJECT Added to cart

---

---

---

---

Related Project Topics :