CREDIT MANAGEMENT TECHNIQUES IN UNITED BANK FOR AFRICA (UBA) PLC. GBOKO BRANCH

ABSTRACT This work was carried out to appraise credit management techniques in United Bank for Africa (UBA) Plc, Gboko. Primarily, the work sought to find out the credit management techniques adopted in United Bank For Africa (UBA) Plc. Gboko, to trace the loads and advance granted by United Bank for Africa (UBA) Plc, Gboko and to establish the relationship that exist between credit management techniques and the performance of  the Bank, among others. A  survey research method was used in the work and the data collected analysed using the descriptive and inferential statistics. From the analysis, it discovered that in United Bank for Africa (UBA) Plc, Gboko, the major credit management techniques used are the appraisal, approved limit and installment disbursement techniques.   These techniques have positive influence on the performance of the bank. The conclusion is that even through the financial institution has high performance rating as a result of  the  use  of  sound credit  mismanagement techniques, the bank still needs to improve upon its efficiency level by giving its credit management staff more orientations on self discipline and adherence to professional ethics and by reducing its organizational levels to reduce bureaucratic tendencies.

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND STATEMENT

Lending is one of the main functions of the Banks. Banks extend credits to their customers in the form of loans, overdraft and advances. The sum of these credits forms the debt or credit portfolios of the financial institutions. Debts are presented as liabilities to the customers as they are under obligation to pay interest and principal upon maturity (Edwin, 2005).

One outstanding problem in lending is that some customers fail to pay the interest and principal as agreed in the loan contract. This constitutes a major risk element to Banks, shareholders and the financial system as a whole. Credit risk as noted by Ehbodaghe (1995) is the chance that those extended credit by an organization will not repay with the result that the moment, the risk with the largest loss incidence to Nigerian Banks. For example, at the end of

1990, total classified (bad and doubtful) loans and advances which could not be recovered by Banks stood at N11.9 billion. This represented 44.2% of the total Bank loans and 43.8% of total Banks shareholder’s funds Ehbodaghe (995).

Similarly, Adeyemi  (2005)  observed that  as  at  June  2004, nonperforming   assets (i.e bad debt) constituted 19.5%  of total loans and advance granted by Banks in Nigeria. Situation as reported here hinders the performance pf many Banks in the country and cause distress in the system hence Banks require effective and efficient credit management strategies in order to cope with the environment. Personal observations over the years indicate that some Banks in the midst of this problems are still performing very well. This implies that such Banks have adopted more effective and efficient credit management techniques which give them competitive advantage over others. One of such banks is UBA. It therefore  became  necessary to  appraise  the  credit  management techniques of this bank in order to identify their strength factors and recommend same to the other banks for improved performance.

The focus of this work has been on an appraisal of credit management techniques in UBA Gboko. As noted above, the choice of this topic was informed by the observed high level performance and stability of the Bank.

1.2  STATEMENT OF THE PROBLEM

One of the main functions of Banks is to grant loans and advances to customers (i.e borrowers). The loans and advance created are the prime sources of income to the Banks which enable the financial institutions to achieve their profitability and shareholders wealth maximization objectives.

However, as noted by Davidson (2005) a high proportion of the total loans and advances granted by Banks are not usually repaid as at when due. Some turn into bad debts which may not be recovered. The implications are:

(a)    Higher write-off of bad debts by Banks with negative consequences for Banks profitability and shareholders wealth.

(b)     High reduction in the quality of the Bank’s risk assets and;

(c)      Gradual reduction in customers’ confidence in the Banks e.g as happened to Spring Bank Nigeria Plc and sky Bank Nigeria Plc among others.

It is instructive therefore that for improved performance, banks need more effective and efficient credit management techniques. Personal observations as noted earlier indicate that UBA has a higher performance rating as compared to what is obtainable in other Banks (such as mentioned above) which prompted this research in order to recommend the techniques of credit management used by the firm to the other Banks.

1.3  RESEARCH OBJECTIVES

This work was carried out generally to appraise the management techniques at UBA, Gboko Specifically, the research was conducted to:

i.                  Find out the credit management techniques adopted at

UBA. Gboko.

ii.                 Trace the trend of loans and advances granted by UBA

from 2007 to 2011.

iii.                Determine   the   influence   of   credit   management techniques on the performance of the Bank

iv.                Identify  the  difficulties  associated  with  the  credit management techniques adopted by UBA, Gboko

1.4  RESEARCH QUESTIONS

In this work, the following research questions were formulated:

i.          What are the credit management techniques adopted at

UBA, Gboko?

ii.         What is the trend of loans and advances grated by UBA, Gboko from 2007 to 2011?

iii.        What are the influences of credit management techniques on the performance of UBA, Gboko?

iv.        What are the difficulties associated with credit management techniques employed by Access Bank, Gboko?

v.         What are the possible credit management techniques and strategies that could be recommended to other Banks?

1.5  RESEARCH HYPOTHESIS

The following research hypothesis were formulated and tested in the study:

i.        Ho: There is no significant relationship between credit management techniques and the volume of deposits mobilized by UBA, Gboko.

Hi : There is a significant relationship between credit management techniques and the volume of deposits mobilized by UBA, Gboko.

ii.         Ho :  There  is  no  significant relationship between credit management techniques adopted by UBA, Gboko and the volume of loans and advance granted by the Bank to its customers.

Hi : There is a significant relationship between credit management techniques adopted by UBA, Gboko and the volume of loans and advances granted by the Bank to its customers.

iii.       Ho: There is no significant relationship between credit management techniques and the  level of  profits made by UBA, Gboko from 2007 to 2011.

iv.      Hi : There is significant relationship between credit management techniques and the  level of  profits made by UBA, Gboko from 2007 to 2011.

1.6  SIGNIFICANCE OF THE STUDY

This research is significant in many perspectives. Firstly, it has the potentials of providing information and inputs that could be used in improving debt management efficiency in other Banks.

Secondly, the work would generate information and strategies capable of minimizing credit or debt risk and discuss in the banking sector in Nigeria. Thirdly, the research would provide additional stick of secondary data for further researches in the subject area or other related topical issues. Above all, the work increases the researcher’s knowledge and understanding of credit management techniques and its relevance in improving the performance of Banks and the Nigerian financial system as a whole.

1.7 SCOPE AND LIMITATIONS

The issue of credit management is quite embracive covering customer relationship and confidence building loan application appraisal, loan approval and disbursement techniques and system, loan supervision, loan recovery and bad debt management strategies. These issues require adequate information about the business or employment activities and status of the customers, other  sources  of  their  income,  their  spending  or  consumption habits, assets base as well as their business and office locations, residential address and the banking history and relationship with other banks. Hence,

information management and supports are vital. All these aspects are incorporated into the work.

In terms the date collection through questionnaire, the focus was on the branches of UBA located in Gboko metropolis were drawn from. Periodically, a two (2) year period i.e. 2007 to

211 were covered. However, it should be noted that some aspects of the information required for the study were confidential or classified and could not be obtained directly from the Bank in the form of real documents. To this end, it became necessary for the respondents to make some estimates based on their experiences in the Bank. Above all, it was necessary to cross-check the  response obtained  from  the  respondents to make them more valid and reliable for the research.

1.8  RESEARCH ASSUMPTIONS

This research was carried out based on the assumptions that:

i.          The  respondents  were  assumed  to  have  adequate knowledge of credit management and the techniques adopted in their management.

ii.         The respondents were independent and unbiased in the information supplied in the questionnaire.

iii.        The information obtained from them was assumed to represent the real debt management activities and situation in their Bank.

iv.        The  variables identified and  studied  in  the  research were assumed to be constant throughout the period  of  the study as variations may invalidate the research findings.

1.9  ORGANIZATION OF THE STUDY

This research was organized into specific chapters. The first chapter is the introduction with focus on background statement, statement of the problem, research objectives, questions and hypothesis. Other items covered in the first chapter include significance of the study, scope and limitation, research assumptions, organization of the study and definition of terms.

In chapter two, a review of related literature was presented under sufficient sub-topics reflecting major areas of interest in the work. Te third chapter was designed to discuss research methodology and  while  chapter four  was  set  aside for  date presentation, analysis and interpretation. The work was summarized and concluded in chapter five. Some recommendations were also made in the last chapter.

1.10 DEFINITION OF TERMS

Liabilities:      They are debts payable in the future by A company to its creditor. They represent economic obligations to cash (Nelly, 2004).

Asset Portfolio:      The combination of different investment

(Pandey 1999)

Bank Risk:             These are type of risk that is associated with    Bank lending activities

(Umoh, 1997).

Financial Institution: They are defined as firms that supply the basic financial services to the community (Adikanye, 1986).

Surplus Economic Unit: These are lenders who have enough funds than they need and could afford

to lend the surplus (Akpan, 1998).

Interest Rate:     Mean charge made for borrowing a sum of money expressed as a percentage of

the total sum loaned for   a stated period of time. (Oxford University Press and Market House Books, 1993).

Bank Performance: this can be defined in terms of either private performance which is maximizing the long term profit of the firm or social performance with its maximizing the overall welfare of the society. (Ojo, 1984).

Financial Instruments: These are financial asset traded in the

Financial system (akpan, 1998).

1.11 BRIEF HISTORICAL BACKGROUND OF UBA

United Bank for Africa dates to 1948 when the British and French Bank Limited (BFB) commenced business in Nigerian, following Nigeria’s Independence from Britain, United Bank for Africa Plc was incorporated in 1961 to take over the business of Britain and French Bank Limited.

Today’s United Bank for Africa is the product of the merger of  one  of  the  Nigeria’s third  largest Banks namely the  Old United Bank for Africa (UBA), standard Trust Bank, plc (STB), Continental Trust Bank Limited, Trade Bank and Metropolitan Combination induced by regulations, the consolidated UBA was born out of a desire to lead the domestic sector to a new era of global relevance by campaigning the creation of the Nigerian consumer finance market, leaving a private/public economic development, and growing the institution from a banking to a one-stop financial services institutions, while spreading its footprints across Africa to earn the reputation as the face of the banking in the continent.

Finally, UBA is one of Africa leading financial institutions offering universal banking to more than 7 million customers across 750 branches in 14 African countries with presence in New York, London and Paris and asset in excess of $19b. UBA is your partner service for Africans and African related business

globally.

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