THE APPRAISAL OF COMMERCIAL BANKS SECTORIAL DISTRIBUTION OF LOANS AND ADVANCES
Commercial Banking is a relatively old and well-known business in Nigeria. Dating back to 1912, the year of the establishment of the West African currency board, an expatriate bank the bank British West African (Now first Bank of Nigeria Ltd) was already in existence.
The evolution of Commercial Banks in Nigeria dates back to 1892 when the first Commercial Bank, the African Banking Corporation was opened in Lagos. The bank folded up soon after wards and was replaced by the Bank for the British West Africa in 1894. this was followed by another expatriate bank with a branch in Lagos in 1917 which is the Barclays Bank D.C.O.
The first attempt forwards the establishment of an indigenous bank in the country came in 1929 with the establishment of the Industrial Bank, which eventually folded up in 1930 due to under capitalization, poor management and aggressive competition from the expatriate banks.
A group of prominent lagosians including Dr. A. Maji, Chief T.A. Doherty and the late Mr. H.A. subair, a chartered accountant formed the second indigenous bank in 1931 (THE Nigerian Mercantile Bank) which was dissolve like its predecessor in 1936. With greater coverage and planning, the same group of pioneers in 1933 launched the National Bank of Nigeria Limited which turned out to be the first indigenous bank to survive.
The next private indigenous back to be established was the Agbomagbe Bank by Chief Okupe in 1945 now Wema Bank.
The Nigerian Penny Bank was set up in the early forties and collapsed in 1946 under the weight of mismanagement.
The next successfully established indigenous bank was the African Continental Bank founded by Dr. N. Azikiwe in 1947. The Nigerian farmers and Commercial Bank was established but went under in 1953 with untold losses to the Nigerian Public.
In 1949, another expatriate Bank, the British and French Bank (Now United Bank for African ltd) was established in the country. The success recorded by the indigenous banks notably the national Bank of Nigeria, Idema Banks and African Continental Bank. Spurred by the proliferation of the banking industry by many small indigenous banks. The members bank registered as Banking Companies between 1949 and 1952 was high as 185 out of which 145 were registered in 1947 and 40 in 1952. These new entrants into the banking industries were all informed about the involvement in the business and this resulted in many bank failures.
In a bid to protect depositors from suffering a further loss which they had suffered from the bank failure, the colonial government appointed the panton commission to look into the existing state of banking in the country and make recommendation. The recommendation led to the passing of the first Banking Ordinance in 1952.
Thus Banking Ordinance stipulated requirement for the entry into the banking business. Such requirements included the provision of a minimum paid up capital of #250,000 for banks incorporated in Nigeria and #200,000 for bank outside Nigeria.
The enactment of the 1952 Banking Ordinance did not prevent Banks from indulging in certain malpractices.
The situation, therefore called for the establishment of a body that would supervisor and control the operations of these banks.
Thus in 1959 the C.B.N. was set up.
- STRUCTURE OF THE NIGERIAN COMMERCIAL BANKS
BRANCH BANKING:
Commercial Banks in Nigeria operate the branch banking structure. This is a structural arrangement whereby very few large banks with network of branch offices dominate the economy.
These branch offices are not autonomous from the head offices, they take instructions from their head offices.
INDIGENOUS BANKS:
This is a Banking structure in which the ownership of banks is vested completely on the indigenes of the country.
In Nigeria, the indigenous banks are mainly owned by the government and private entrepreneurs. The federal government does not partake in the ownership of indigenous banks.
These banks operate mainly in their states of origin. Some of them have head offices in their states of origin. They serve mainly indigenous interest.
UNIT BANKING:
A situation where we have independent banks operating without a branch Network.
GROUP BANKING:
Is define as a situation where two or more banks is under the control of a company (holding company) as their parent companies which means two or more company of ownership.
MIXED BANKING:
These are banks that are jointly owned by Nigerians and foreigners. The maximum ownership interest of the foreigners in mixed banks is 40%.
The indigenous business have a 60% minimum ownership interest on the mixed banks.
Correspondent Banking, this is a situation where various units banks make use of each others facilities in areas where they have business without a banking office.
- FUNCTIONS OF COMMERCIAL BANKS
The Nigerian Commercial Banks perform the following primary functions for the economy.
- DEPOSIT ACCEPTANCE:
The Commercial Bank accept deposits from the household, the business sector, and the government. The deposits are kept in either the savings accounts, the fixed deposit accounts and the current deposit accounts. The savings so mobilized are employed for development project in the country.
- GRANTING OF LOANS AND OVERDRAFT FACILITIES
Economic deficit units go to the Commercial Banks to obtain loans and overdrafts for financing their business ventures.
The banks charge some interest on the loans and overdrafts based on the duration and risks associated with such facilities.
- AGENCY SERVICES
Commercial act as an agents to their customers by collecting proceeds of payments for their accounts of their customers.
Also banks funds transfers on behalf of their customers. In return the Commercial Banks charge commission for rendering said agency services to their customers.
- SAFE CUSTODY FACILITIES:
People who have valuable items such as academic certificates share certificates; title deeds and other valuables may keep them with the banks for safe custody.
The banks provide facilities for securing items on behalf of their owners.
Some rewards are paid to the bank for rendering such services.
- PROVIDING STATUS REPORTS:
Banks write reports or answer to inquiries about the financial standing of their customers when the need arises. In writing the report, the banks must cross check their information and be sure of its accuracy and reliability. Negligent reports by banks may attract legal action on the banks.
- ACCEPTANCE OF STANDING ORDER:
This is standing instruction which customer leave with their banks to remit certain sum of money periodically to a named beneficiary. The banks continue to render such services so long as the customers have enough money in their account to cover the remittance.
- GRANTING FOREIGN EXCHANGE FACILITIES:
Travelers and businessmen obtain travelers cheques and foreign currencies from their banks.
The banks by offering the needed foreign exchange to their customers help to promote foreign trade.
Buying and selling of shares for customers:
The banks may act as issuing houses for the purpose of selling share on behalf of their customers. Also, the banks buy shares on behalf of their customers.
- EXECUTORSHIP FUNCTION:
The bank may act as executors for deceased persons. The bank here will have to distribute the estate of the deceased according to the provision of his will.
- LOAN AND ADVANCES BY COMMERCIAL BANKS
According to Dr. John Orji, Pg. 111, Banking Operation in Nigeria defined Bank loan as a financial facilities granted by a bank which is intended to be applied for financing of a specific purpose.
According to Mr. B.N. Anibueze, 1998, Banking practice volume two, defined Advances as a credit facility given to its customers by way of overdraft.
Usually, a bank loan and bank advances has a defined duration and fixed repayment programme.
Before bank loan and advances are made, the bank by tradition and practice make a critical appraisal of the customers request, by ensuring that such loan and advances meets it principles.
(CANNONS) of lending as detail below:
Integrity and Reliability of the customers:
- Can the customer pay
- Will he pay
The character and integrity of the loan seeker is very important to the banker. This is because the bank has to provide loan to a person of transparent honesty who will be very willing to repay the loan on maturity without being compel to do so.
AMOUNT
The banker will consider if the amount needed by the customer is within the limit of what the bank can lead.
– Adequacy : The amount sought by the customer should be adequate for his level of investment. Underestimation of the firms needs may lead to difficult decision on “topping up” lending at a later stage, this may lead to abandoning the project uncompleted and repayment may not be done.
PURPOSE:
The purpose of the loan must be within the regulatory lending framework provided by the Central Bank of Nigeria. Borrowers ability to apply the advances as evidenced by his past track record.
REPAYMENT PROGRAMME
The lending banker must ensure that the prospects of repayment are high. Bankers do not like their loans to go bad. If a sector is seeking financial statements must show that adequate cash flow can be generated to repay the loan.
SECURITY
Is the security offered adequate? Security is the bankers safety net which he requires if unforeseen circumstances render the proposed loan repayment programme. Unattainable, they include cash, land, guarantee, security.
- LOAN AND ADVANCES TO PREFERRED AND LESS PREFERRED SECTOR
Commercial Banks gave out loans and advances to Agriculture, forestry and fishery, manufacturing sector, mining and quarrying.
Real Estate and Construction and also they gave out loan to the less preferred sector (Commerce) Bill discounted, Domestic trade, Exports Imports, Public utilities. Transport and communications, credit and financial institutions, governments, personal and professional and miscellaneous.
- IMPORTANCE OF LOANS AND ADVANCES TO THE PREFERRED
– Loans and advances contribute immensely to the maintenance of the economic stability to the country (agric, forestry and fishing).
– It help in the appreciate or realizes its natural resources (mining and quarrying).
– It helps to improve the skills and development of its country (Manufacturing).
THE LESS PREFERRED SECTORS
– It provides finance for small and large scale businesses.
- It provides fund for export and import of goods and services.
- Loan helps for the expansion of small scale businesses to large scale businesses.
- It helps to boost the volume of domestic trade.
- It provides finance necessary for carrying out various researchers and projects.
- FACTORS THAT AFFECT GRANTING OF LOANS
- Risks of bad debts
- Inadequate collaterals
- Credit facility and inflationary trends in Nigerian economy.
- Inability of the borrowers to repay the loans.
- Unrealisable projects.
[simple-links category=”3210″]
