Credit Management in Nigerian Banks

Credit Management in Nigerian Banks – The primary function of commercials bank is the extensions of credit to borrows in making credit available banks render great service not only to borrower out also to the economy in general.

Through their actions production is increased capital investment are expanded, implements opportunities generated and a higher standard of living is realized. Hence, the monetary authority pays greater attention to the level of banks loan and advances.

Ado and wole asserted to this when they said that the most important asset item in the balance sheet of commercial bank is loans and advances. For both the size of its activities in this field can make a very significant importing the level of economic activities.

The importance of credit management therefore cannot be over-emphasized as it is the major source of income to a bank. According to Adekanya (1988) the more money bank can lend the higher their profit. However, this function is constrained by several factor which if ignored might lead to liquidation of a bank. Therefore it is absolutely essential for enemy bank to effect a careful balance between the maximizing of lending in pursuit of profit and the maximization of liquidity to the lowest level consistent with safety.

However, it has been observed that the assets with high rate of return are risky investment in order words, loan portfolio from which bank earn the highest rate of return is the most risk investment of a bank, therefore, bank management has to balance profitability and acceptable rate risk.

Infact, the act of large scale lending is never easy. Whatever the skill of the banker May be or reception he may take bad debt is unavoidable the lending hence the object should be to provide the level and impact of risk at least to an acceptable rate. Ability to lend without loss of money is the major concept and aim of modern banking. And to achieve this, the banker should not only bring into practice his skill and experiences but also should exercise due care and preferences. In other words, the principles of good lending should be following.

This may vary from banker but the basic aim is to minimize the incidence of bad debts. Dyre suggest that the borrower competence in the business past experience, source of repayment, period of the advance etc. should be considered in addition to security to cover the borrowing. It is also essential that customer, whether an individual or cooperation should be of unquestionable character and in addition prove that the money should be used funding the proposed project as agreed with the bank.

SECURITY FOR BANK LENDING:

The need for security for bank lending arise as a result of high probability of credit rise.

The bank should not rely in security while making decision to lend or not in that the lest favorable action a bank is the exercise the right of fire closure. The security is there as a substitute to prudent and through credit analysis. Writing on the security for bank lending Adeniyi (1981) emphasized the bank lending is based principally in trust and faith in the customer and this business, the subject matter for which the loan is being sought but because generally insist in obtaining security for loan granted.

Therefore, the bank will look just closely the fact and figures concerning the source of repayment as it would do if no security was to be lodged.

CAUSES OF BAD DEBTS:

One of the major principles of classical banking is to ensure effective lending and to accomplish this, the banker competence, skill and ability must not be questionable, in other words the incidence that lead to default in loan repayments can to a large extent be directed at in time loan request is being evaluated or in the course of operations of the loan of the borrower.

However there are some father that cannot be dictated by the banker and such factor are the real risk factors.

These include:

1) Incomplete knowledge about the customer

2) Bad management of loan account by the customer as well as poor supervision and monitoring of the loan account by the banker.

3) Misappropriation and dishonesty on the part of the borrower over trading by borrower dishonesty on the part of the bank officials level of risk of sectarian lending and changing in economic conditions

4) Government internee purpose higher level of bad debt provision signifies bad management in lending good integrity.

According to Walter (1926) explained clearly when he said if the customer has be personal account, the manager may be able to form an opportunity as to whether or not he or she lives beyond existing means. If the account suggests that means are modest, test customer drive around in a very extra-vagrantly, the manager may doubt suitability for advance.

A banker must ensure that the amount sought by the customer is adequate in relation to the project. If the amount is too much neither is the tendency that the surplus will be direct to uneconomic venture and hence inability of customer to reply the loan. On the other hand, insufficient borrowing will lead to incompletion of the project and hence poor debt recovery rate. The banker should as much as possible ascertain the purpose for which the loan is being sought in order to guard against illegal lending which the law does not condoler to ascertain this, the banker should utilize all available source of information to him.

Walter (1926) explained clearly when said, in recovering his money, hels largely passive, he will open credit account with no more than assurance by introduction or reference that his customer is a respectable person. But when he has to lend, he has to assure himself by insuring in enemy way in his power that his loan will in the first place for what period, the advance is required and what is the prospect of its repayment by the expiration of the period. His chief goal must be for the liquidity of his advance.

In addition, the banker should ascertain and evaluate the financial commitment of the borrower in the project and ensure that it is appropriate.

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