AN EMPIRICAL EVALUATION OF CREDIT MANAGEMENT AND THE INCIDENT OF BAD DEBT IN BANKS

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In a modern economy, there is distinction between the surplus economic units and the deficit economic units and in consequence a separation of the savings investment mechanism. This has necessitated the existence of financial institution whose job includes the transfer of found from savers to investors.

One of such institution is the money deposit banks, the intermediating roles of the money deposit bank place them in a position of trustees of the saving of the widely depressed surplus economy units as well as the determinant of the rate and shade of the economic development the techniques employed by banker in the intermediary function should provide them with perfect knowledge of the out-come of lending such that funds will be allocated to investments in which the probability of full payment is certain.

However, in practice no such tools can be found in the decision of the lending banker.

Virtually all lending decision are made under creditors on uncertainty associated with lending decision, situation are so great that the concept of risk and risk analysis needs to be employed by lending bankers in order to facilitate sound decision making and judgment.

This statement implies that if risk are to be objective assessed, lending delicious by the money deposit bank should be base less on quantitative data and more on principle too subjective to proved sound and unbiased judgment.

Furthermore the bank depends heavily on historical information as a basis for decision making.
Apparently aware of the inadequacies of his decision base the lending banker has often sought solace in tangible and marketable assets as security giving the impression that lending against such security is an insurance against bad debt.

This makes the bankers complacent his loan portfolio.

The increasing trend of provision for bad and doubtful debt in most money deposit banks is a major source of concern not only to management but also to the shareholder are becoming more aware of the dangers posed by these debts.

Bad debts. destroy of the earning asset of bank such as loan and advance which have been described as the main source of earning and also determines the liquidity and solvency which generate two major problems that profitability and liquidity, has to earn sufficient income to meet its operating cost and to have adequate return on its investment.
1.2 STATEMENT OF THE SEARCH PROBLEM
In view of the consequences of bad debt in Nigeria money deposit banks, it is necessary to form emulate some research question which will enable the research formulate statistical table for testing hypothesis.
1. Has inadequate collateral security provision by borrowers caused bad debt in union bank of Nigeria plc?
2. Does fund diversion have any effect on bad debt of union bank of Nigeria plc?
3. To what extent has government intervention in lending policies of money deposit bank influenced bad debt in union bank of Nigeria plc?
4. To what extent does improper project evaluation influenced bad debt of union bank of Nigeria plc?

1.3 OBJECTIVE OF THE STUDY
i. To determine and appraise the lending procedure of banks using union bank of Nigeria plc as a case study with a view to highlighting the effectiveness and adequacy or otherwise the credit management policy of Nigerian banks in reducing the occurrence and consequences of bad debts.
ii. to highlight the rate at which inadequate collateral security provision by borrowers increases the incidences of bad debt in Nigeria.
iii. To determine whether fund diversion has any effect on bad debt of money deposit banks in Nigerian.
iv. To ascertain the extent to which government intervention in lending policies of money deposit bank has influenced bad debts in Nigerian money deposit banks.
Banks have direct influence on union bank of Nigeria plc, bad debt.
Ho: improper project evaluation has no significant relationship with bad debt in union bank of Nigeria plc.
Hi improper project evaluation has direct relationship with bad debt in union bank of Nigeria plc.
1.4 SIGNIFICANCE OF THE STUDY
It is hardly an exaggeration that the difference between the success and the failure in the banking industry is in the effective management of the banks loans and advance.

Efficient loan management it vital to the protection of assets and the achievements of adequate returns to investment.

Though much work abound in the literature of the technique of lending.

The methods of securing such lending and the pitfalls that await the unwary bankers.

By comparison it appears to be very little in point on the subject of loan management and recovery.
A study of this subject will therefore be a addition to the existing volume of banking literature.
Effective loan management recognized that beyond the application of sound banking principles whenever a loan is made, there is need for urgency in appreciating the point when a loan begins to look doubtful in arriving at a decision as to the appropriate action and in taking that action.

This will enable the bank to at least obtain full payment including accrued interest or at worst to mitigate the capital loss in the face of increase competition drug banks, future profits are likely to be harder to come by and since bad debts are a charge against profits it is appropriate that we review the methods, proportions and margins of lending to b ad and doubtful debts.
Hence the significance of this study to bankers will enable them to appreciate an appraisal of their lending and control mechanism now that they are expected to lend under tight monetary conditions.
The economy as a whole will benefit from the expected contributions to the development of the economy left with more profits to enable them make the expected contributions to the development of the economy.
1.5 THE SCOPE OF THE STUDY
In the study of credit management in Nigeria, union bank of Nigeria plc was used for my analysis.

All reference therefore relate to union bank of Nigeria plc. A six year period covering 1988-1993 will be studied.
1. THE LIMITATION OF THE STUDY
The limitations of this study include some of unable constraints problems encountered in the process. They are as follows.
i. Finance the problem of finance was adopt left out in the course of research to this study. This type of study required adequate money and time to enable the researcher visit the necessary places for collection of data. Insufficient fund hindered an in depth study of this reach since it ideas financed from meager pocket money of the researcher.
ii. Non – availability of records: this is one of the most important limiting factors in the course of the study. This include the problems of easily getting the appropriate data due to bureaucracy which hinders the information flow in the country.
iii. Non challant attitude of bank official: the reluctance of bank official to reveal information on the Neal for this study for fear of breach of duty of secrecy to customer’s exposure of banks administrative short Comings.
iv. Ignorance of respondent/ borrowers: most bank customer were semi illiterate and most often it was very difficult to collect adequate required from them.
v. Time: since the study is one of the many courses offered by the researcher.

The researcher was constrained by time to carry out an indent research on the study