ABSTRACT
INTRODUCTION
Every nation both developed and developing economies requires money. Productivity which is the hallmark of all economy is anchored on the availability of required fund. Fund which stimulates production in the economy is managed by banks through their loan administration and management; which must be liberal enough to produce the required level of encouragement to both entrepreneurs and government. Moha (2006:110), said, for any developing country to escape the vicious circle of poverty, there has to be foresight and insight into the funding of entrepreneurial activities to stimulate production in all sectors of its economy. One major constraint to production in the sub-Saharan Africa, as opined by Adeniyi (2006:62) is poor funding. Leadership be said, is the rallying point of all activities. This vital point (leadership) the Central Bank of Nigeria recently took up headlong to make commercial banks assume their proper place in the funding of production activities in the economy. It means not only profit to the banks, but also creation of new jobs and increased capacity utilization. Bank loan have to affect different sectors of the economy, viz; Agriculture, Commerce, Mining, Education, Industry and different services which yawn for holistic development. Soludo (2006:08), lent his support to the above when he said, the heartbeat of any nation is its diversified and effective production sustained economy. It is a bull- wave against any external infiltration. Loan policy meaningfully framed and religiously implemented is all that is needed to transform Nigeria. This study has much impact on all and sundry. Development of the society, very much lies on investment put into it. By virtue of loans and advances, a society can be made vibrant and the economy monetized to accommodate all; that is, the ordinary man can be uplifted to investment levels.
METHODOLOGY
The research has a survey design, which evaluated the extent to which loan administration and management is being carried in the banks currently and the historical design appreciates what had been the extent of loan administration and management in the past. Both designs are used to make deductions to the better credit administration management in the banks. In the pilot study carried out on both senior and junior staff of First bank and Intercontinental Banks, 20 questions were served, asking whether they imbibed the culture of performance management. Out of the 20, 16 affirmed, representing 80% of success in the population (P) while 4 (Q) dissented, representing 20% of failure. P and Q are dichotomic: P + Q = 1. A sample size of 397 was determined using Yamens method from a population size of 45678. With status of staff as basis, stratified random sampling was also used. Questionnaire was analyzed using percentages, mean etc. Hypotheses tested at 0.05 level of significance using Z-test.
RESULT
Several observations are revealed in this study, but a few shall be named here as by way of summary. Loan administration bears significant relationship with profitability in banks as confirmed by the Z-test value of33.20 against critical value of 1.96. There is significant variation in the effectiveness of loan management among banks in Nigeria confirmed by the Z-test value of 8.66 as against critical value of 1.96. Loan beneficiaries are duly assessed by business connections. Loan credit officers of banks are not always enriched with special seminars. Loan default or misuse of loan fund by borrowers is singularly and severally caused by: inadequate credit/loan analysis, loan diversion, outright fraud by beneficiary, collision with bank officials, change of government policies, general economic downturn. Manipulation of interest rates helps failure of loans. Most applicants for loan (especially industry and agriculture) seek for long term while banks are willing to settle for short term.
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria as a developing nation is in dire need of a vibrant economy anchored on productivity, which is in turn anchored on liberal loan management and administration of Nigerian banks. According to Moha (2006:110), for any developing country to escape the vicious circle of poverty, there has to be foresight and insight into the funding of entrepreneurial activities to stimulate production in all sectors of the economy. This function has to be undertaken by the banks through effective and profitable loan administration and management.
According to Lopez (2005:210), Japan was one country known for making fake products. These products, he noted, have been greatly improved as a result of liberal loans management and administration from banks. In his own submission, Adeniyi (2006:62), said one major constrain to production in the Sub- Saharan Africa, is the poor funding. Leadership, he said, is the rallying point of all activities, which is far from policies. For any economy to be transformed, there must be efficient loan administration.
Accordingly, Moha (2006:181), opined that bank is the center point of macro economic nexus because all productive capacities in any economy hinge on its loan administration and management. Bank loans which activate the economy are those that are channeled to productive ends.
Ogwuma (1996:11), noted that the bane of Nigeria’s dwindling economy is excessive dependence on imported goods which in itself is a clear evidence of a castrated economy that cannot sustain itself. Soludo (2006:08), in his submission noted that the heartbeat of any nation is its diversified and effective production sustained economy. It is a bull-wave against external infiltration. He added that loan policy meaningfully framed and religiously implemented, is all that is needed to transform Nigeria.
Successful lending has direct effect on economic growth and development on the economy. It means that not only profit to the bank, but also creation of new investment opportunities, creation of new jobs and increase of capacity utilization. Sambo (2005:93), stated that bank loans have to affect different sectors of the economy, viz, agriculture, commerce, mining, industry and different services, which yawn for holistic development.
DEFINITION
Loan administration means the range of activities involved in extending a credit facility to a bank loan applicant i.e. the borrower.
Loan management is the lending officer’s responsibility to supervise, monitor and keeping close contact with the borrower in his financial activities; culminating into planned visits, securing the borrower’s periodic financial statements and reviewing requests for additional funds (Roussakis: 1977.5)
1.2 STATEMENT OF THE PROBLEM
The growth of any nation follows from the state of its economy. A vibrant economy implies diversified investments which generate employment opportunities. Macro economic environment is hinged on the state of the banking sector. The government has a lot to control in the banking sector in order to re-direct the economy to vibrancy through efficient loan policy and administration. It is expected that the loan policy and administration should encourage investment in all sectors of the economy.
Over the years, government has been controlling the loan policies of banks to effect desired changes in the economy. More often than not, these manipulations do not achieve maximum targets. Also credit policies fail to meet the targets. Many borrowers often do not apply the funds judiciously as stipulated in the loan policy. This has a deterring effect on subsequent loan administration and management of banks. Sometimes, banks fail to recover the face value of loans as well as the interests. This drastically affects further loan administration. Some loan policies may not be in the interest of the nation at large, in which case, the Central Bank may be forced to directly effect policy changes.
The headway to monetize the economy may be hindered by socio-economic even political and religious factors. This implies dynamism in the formulation of loan policies by banks and effective administration to effect desired changes. But however, good, the formulation implementation has always not been full. This study looks at these hitches and their analyses.
1.3 THE OBJECTIVES OF THE STUDY
Every entrepreneur – small or big, require money to function. Such funds are assessable from the banks. This work shall delve into the whole lot of activities of lending officers, records analysis and practical managerial functions applied in order to achieve successful lending, using objective indexes listed below: i. To analyze variations in the loan policies of banks in
Nigeria.
ii. To analyze variations in the loan administration among banks in Nigeria.
iii. To analyze variations in effectiveness of loan management among banks in Nigeria.
iv. To analyze the relationship between loan policy and the profitability of banks in Nigeria.
v. To analyze the relationship between loan administration and the profitability of banks in Nigeria.
vi. To analyze the relationship between the effectiveness of loan management and the profitability of banks in Nigeria.
1.4 RESEARCH QUESTIONS
i. What significant variation exists in the loan policies of banks in Nigeria?
ii. What significant variation exists in the loan administration among banks in Nigeria?
iii. To what extent does the effectiveness of loan management vary among banks in Nigeria?
iv. To what extent does loan policy relate with the profitability of banks in Nigeria?
v. What is the relationship between loan administration and profitability of banks in Nigeria?
vi. To what extent does effectiveness of loan management relate to the profitability of banks in Nigeria?
1.5 RESEARCH HYPOTHESES
HO1: There is no significant variation in loan policies of banks in Nigeria.
HO2: There is no significant variation in the effectiveness of loan management among banks in Nigeria.
HO3: Loan administration does not bear any significant relationship with the profitability of banks in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The management of banks in Nigeria, both commercial and merchant, specialized in all areas of their operations. It shall help them to fashion out effective credit policies that will aid their operations. It shall expose them to also to the needs of their customers, especially in loan policy and administration. They shall also know better ways of checkmating abuses of credits as well as knowing how to administer collaterals.
Central Bank of Nigeria (CBN) shall find this research very useful in evolving better ways of making and re-examining policies on credits and interest rates. Sectoral allocation that tries to facilitate investment in certain sectors of the economy shall be better administered from the recommendations given in this research work. CBN shall also find out that the recommendations given herein shall elicit better response to their policies from both commercial banks and the society.
The government shall benefit from the research work in understanding how better to make policies that will get at the desired people. It shall help them in their poverty alleviation programmes by knowing how to give the desired credits to the poor, thereby avoiding hijack by middle class.
The society shall also know how to utilize credits from banks and not to divert it to personal ends. This is very necessary since the tendency to divert loans is high.
The management of banks shall also learn better techniques of collecting loans back from defaulting customers.
1.7 DEFINITION OF TERMS
Portfolio: These are securities held by an investor or the commercial paper held by a bank or other financial houses. The size of the portfolio will be determined by such factors as the size of the bank, its total resources, the amount of funds at its disposal after meeting the liquidity of the bank and satisfying the genuine loan demands of loan applicants.
Portfolio Management: This is the ability of an investor or finance house to source, organize and manage the securities held by the bank.
Loan and Advances: Loans are funds granted by an investor or finance house to customers for use to help the individual or company meet with the payment of the domestic or business needs. Also, advances are short-term funds granted to a customer in the form of overdraft, loan discounting off bills etc. The loans and advances attract interest on the actual amount drawn. Repayment is usually made on a monthly installment based on standing order from the customer.
Loan Repayment: This is an agreement between bank and the bank customer or the beneficiary on the method of repaying a loan. This can take the form of monthly installments.
Loan Policy: These are guidelines or rules stipulated by a bank or financial house on the method of granting loans to customers. The lending officers and managers are to adhere strictly to the policy in granting a loan request.
Loan Beneficiary: A loan beneficiary is a customer whom the bank granted a request for loan for purpose of which it was applied for. This may be with or without collaterals.
Loan Default: This is a situation whereby a loan beneficiary or customer is unable to repay as stipulated. Under this circumstance, the bank is forced to take actions to recover their fund through workout or security liquidation.
Loan Diversion: This a situation whereby a loan beneficiary diverted the loan for another purpose other than what it was approved for by the grantor. This is one of the causes of loan default.
Collateral: These are securities pledged by a customer or loan beneficiary on the loan granted. They are in form of assets, stocks of merchandise and securities.
This material content is developed to serve as a GUIDE for students to conduct academic research
LOAN ADMINISTRATION AND MANAGEMENT IN SELECTED THREE NIGERIAN BANKS
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