THE ROLE OF FINANCIAL INSTITUTION IN THE MANAGEMENT OF LOAN SYNDICATION IN NIGERIA ECONOMY

ABSTRACT

The role of a financial institution is to transfer savings from surplus economic unit to deficit economic unit who will utilize the savings in generating investment. The savings surplus economic unit would in the process have earned income in the form of interest on those funds that would have been lying idle, while the saving deficit economic unit would have been in the process of earn profit from the investment attempts.  The attempt would now be made to briefly mitigate some financial institutions. In terminology, the difference and relationship among four basic concepts that will be used frequently in the discussion must first be explained. These are the financial system, financial system, financial market, financial instrument, rules, conventions and norms that facilitate and regulate the flow of fund s through the macro-economy. The system is controlled by the government through agency of the central bank of which supervise  the activities of financial intermediaries and monitors adherence to  the government monitory and ficial- policies the major types of financial intermediary are commercial banks, merchant bank, Development financial institution insurance companies, credit and saving institution, investment  trust and mortgage institution. The financial market, on the other hand, are simply the various facilities provided by the financial system for the creation of custodianship and distribution of financial assets and liabilities and the market is divided into two major segments, we have the money market and capital market.

CHAPTER ONE

INTRODUCTION

Financial institution occupies a vital position and plays a land role in the economy of the nation.  Their major purposes are proper mobilization of fund as well as provision of capital for industrial development which is aimed at enhancing economic- growth and development in the early year off banking operation in Nigeria, bank performed their intermediary function by giving loan mainly on individual basic (ie separately) but as   the country  entered the threshold of development and more investment opportunities opened up, industrialist started demanding  large sum of money which is provided by bank on medium or long  term basis. However, baking is a highly regulated industry the world over with restrictive monetary and credit guideline in long  growth and reserve requirement, sector  of the economy and excess liquidity mop-up through the assurance of stabilization securities to the bank to mention few due to these restrictions, it is difficult for a bank to meet up with the huge loan demanded for customers.  Also, it is well known that lending is not risk-free and that bank prefers to spread their risk with others in the banking industry.

1.1       BACKGROUND OF THE STUDY

Against this background, banks came to get her performing what is known as a consortium to advance funds is called loan syndication and is sometimes called “consortium” lending can be defined as the agreement between two or more lending institutions to provide a borrower with credit facility utilizing common loan documentation. Loan syndication is now being practiced in Nigeria starting from 1960’s when a consortium of commercial banks and acceptance houses discounted trade bills for marketing boards under the produced bills finance scheme formalized loan syndication came into being during the oil boom of the jobs when there was the need for adequate capital of finance, the industrialization programs.  During this period, few merchant banks had been incorporated.

Loan syndication has assumed international dimension because it need to provide adequate capital to finance the fast-growing of the world economical international syndicated credit is managed and underwritten by one or more financial institution  normally from a location other than the domicile of the borrower lenders from different countries could provide the borrower with access from their  countries or move than its own currency from other contracts of domine.

1.2  STATEMENT OF THE PROBLEM

To investigate why loan syndication is not properly managed given priority attention by monetary authorities Despite strategic place in financing viable projects capable of injecting foreign currency creating employment and facilities acting rapid economic development.

I) To examine critically the place of a financial institution in the management of loan syndication in the economy. Loan syndication is a child of circumstance airing from legal lending restrictions, risk- sharing and liquidity problems.

RESEARCH QUESTION

The research would like to know the despite these constraints- prevailing it is still a supplementary option for business financing?

 OBJECTIVE OF THE STUDY

For an economy to develop, there must be a supplementary source of finance viable investment projects beyond the limits of an individual financial institution it is on this basis that it would like to identify those fundamental problems confronting loan syndication and suggest how many problems can be solved.

To ascertain the effect of loan syndication in economic- development.

To highlight the potential of loan syndication in the economy.

To recommend that syndication loan is noted differently from another loan rather, it is subjected to conditionalist attracts, high-interest rates, subject to default and time lapses in packaging as a result of bureaucracy involved by consortium Banks.

SIGNIFICANCE OF THE STUDY

This study is expected to provide useful information on loan syndication to the following

STUDENTS:- the student by the use of this project makes the researcher and source information on the role of a financial institution in the management of loan syndication.

FINANCIAL INSTITUTION:- financial institution via these projects will learn how to keep to their loan syndication agreements.  It will also encourage the financial institution to give financial accommodation through loan syndication because it is more beneficial to the financial institutions will also learn how to reduce the time frames in packaging a syndicated loan.

BORROWER: – the borrower, with the aid of this project, will know the appropriate- procedures involved in-obtaining loans through syndication.  Since loan syndication contributes immensely to the development of our economy both the government the targeted audience will benefit from this project know more about the benefit of loan syndication in our economy.

PROFILE OF LOAN SYNDICATION BENEFICIARIES FLOBE AGRO-VENTURES LTD:-  this is an agricultural division of Bhojoson industrial LTD which engages in large scale commercial and industrial activities and employs about 4000 staffs in its effort to support the economy from the agricultural sector.  The purpose of the syndicated loan facility was to part-finance the cost of farmland development and the acquisition of machinery for cotton and farming project in forme Gongola and Niger state   Nnamdi-Azikiwe stadium management corporation.  This federal government corporation was formally managed by the former Anambra state sports council.  The sports council in October 1980 applied for a N10m loan for the completion of first phase of the sports stadium which    comprise the main Bowl with estimated sitting capacity of 50,000 persons, tartan track, field range electrical and mechanical equipment and installation turnstile and ticket machines electronic score board-building and vehicle, estimated- labor requirement was put at 79 and total annual gross revenue generation on put at   N 627, 000 in the first year of putting the stadium to use (1982 to N1534,000 in 1987 and subsequent year.

UNION AUTHOPARTS, MANUFACTURING COMPANY LIMITED: -This is wholly owned Nigeria company situated at Nnewi, the company manufactures completely charged motor and motor-cycle  – Batteries  of sizes 45AH,60AH, 135AH and 150AH other auto spare parts and accessories the company manufactures are auto-lamps, front and rear height cores, fan-brakes, front trickles, wheel covers, reflectors, brakes pads, and liming clutch fitting   and other plastic products.  The company Obtained loan of N30m in 1987 from the corporative and commercial Bank- limited and African continental Bank  limited to complete the factory building and procedure    and install the plant the security for the loan was secured on landed property of a member of the union auto- company the project was completed in 1990  and production started the  same year  presently,   the company operates between 80%-90% of installed capacity of one  thousand- batteries of different sizes per day.  Producing between 750 and 900 batteries per day.  The company has an excess demand for its product particularly the batteries by December 1992  the company liquidated syndicated loans include interest accused.

AKWA IBOM STATE GOVERNMENT:- the state government is one of Nigeria’s largest 20for oil and natural gas production. The state has the greatest agricultural resources and is blessed with a favorable climate and abundance of rich fertile soil for agriculture. The state has a potentially wide variety of good and cash crops for using local industries as well as for export it’s way or agricultural products are as follows:-

FOOD CROPS: – Rice, Cassava, Yam, Cocoa yam, Cocoa, Plantain, Banana, and Maize

CASH CROPS: – Rubber, Palm oil, Raffia palm, Palm kernel, Cocoa, Coffee, Coconut and Citrus fruits.

In fact, Akwa Ibom is one of the leading states in the production of oil palm products in Nigeria in 1989 Akwa Ibom states government applied to obtained a syndicated loan ofN12m from the bank led by Nigeria Wema bank limited.

 DEFINITIONS OF TERMS

Adjusted Capital:   It is the paid – up-capital plus a statutory      reserve of Banks

Commitment fee:   This is a fee paid to lender form a formal line             of credit

Default: This is referred to as the failure to pay interest and or principal at maturity

Financial intermediation:  financial intermediation brings savings units together with saving deficit units so that savings can be re-distributed of their most productive use

Financial market:  This is an arrangement or a place in which the creation and transfer of financial assets and financial- liabilities takes place

Load/Agent Bank:  It could be the original (banks of syndicating it.  The first bank the borrower consulted or the bank that contributes to the interest amount of financing of the loan.  It oversees the procedures and activities of such borrowers and passes information to other participating- Banks.   The lead bank can also be known as the big- bank.

Inter – Bank- agreement:-  This is the document the at spells out common – agreement binding all the participating – Banks.

Loan- agreement:- This is the document that calumets the borrower and the participating lenders to terms and conditions of the loan.

Loan syndication:-  It is an arrangement between two or more ending institution – provide a Borrower with credit facility vacating common- loan  to documentation

Offer/commitment:-  The letter spells out the terms and conditions governing the credit while the former is the offer for an acceptance

Participating Banks:- They are Banks involved in- particular loan syndication.

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