THE PROBLEMS OF OBTAINING BANK LOANS BY SMALL-SCALE INDUSTRY FROM NIGERIA BANK
The purpose of this chapter is very simple. It is the presentation of element practice and principles of good lend in our banking institution. These have and will continue to have considerable influence on the MODUS OPERANDI of the banking industry anywhere in Nigeria.
It ought to be stared at the outset that one cannot generalize with any measure of authority about tending practices in the banking industry. This is because each bank tending practice more a variant rather than replican of the other banks. Indeed two lending offices sitting side by side in the same bank may read differently to the same bank may reach differently to the same loan request”. In Nigeria for example one can therefore over 220 different varieties of lending practices for a general and global surveys, this kind of variety be multiplied for the number of countries considered. To compound further these practice are instantly changing in response to changes in the lending environment.
Commercial banks are unequally multipurpose lending satisfying the needs of commercial industry agriculture etc. for their lending practice and principles to be appropriate and useful, these have to be tailored to fit these different functional lending operation. This also further introduces complexities with into loan practices of banks.
Practice, generally, again depend on the number of varying factors such as the economic environment of lending the experience and expertise of the bank “the tradition” and culture of the individual engaged in the lending functions.
Inspire of these complexities and varieties there still exist, some general accepted basic principles and practices in bank lending. Attempts will be made in the following paragraphs to consider these points of congruency ion bank lending practices and to highlight these important difference among bank and countries. The relevance of all those is that we are enable at the end of the day to see to what extent lending practices in Nigeria are in line and up to date compared with the practices in the industry at large.
More importantly, it will be possible to compare and contrast lending principles and prepare and contrast lending principles and practices in Nigeria with these in other countries and to question the appropriateness to these for a ade3veloping environment. Also by this analysis will be establishing some kind of criterion for judging specialized banking institution on the ground of adoptiveness.
Common element are found among bank in the principle that guides their lending rather than in the actual practice. The well known 4 –cs of bank lending are basically the guiding principles are character capacity, capital and collateral in a generally agreed order of importance to lending decision making like the loan concept, these principles have become reliable tools in the hands of lending bankers, both young and old in fact these “ sound principles and standard can be likened to an anchor for which a boat strong that wind and tide, while its position shifts in response to changing circumstance the boat never breaks its with the ground tackle (matter 1975, p.25) based on the above principles bankers analysis of loan proposals are done from two different but practically complementary view point. These are the going – concern the going concern bases (matter 1979 p. 23) a going concern view of a business assumes that the business has and even infinite future ahead. Consequently its assets and the financial capacity are assessed in the light of this out look. This approach is not only forward looking but positive and optimistic. The gone – concern approach on the other hands assumes the worth of the borrowers in the closing down situations. It is a pessimistic and rather of rural communities Area e.g. ugu, udi etc
In research project like everything in human endeavor there have this limiting factors is financial. As a student the researcher could not alford the needed finance to penetrate into the two most banker particularly in the case of sizeable loan, thus rather than being mutually exclusive, these approach are complementary as they should be.
In the rest of this chapter, we shall consider the level of delegation of authority credit evaluation system and security consideration, in lending practice of selected countries. These review is done with specific reference to the observed practice in Germany, France Italy Japan, USA and the U.R data availability move than anything else defines these choice of these countries as example (seciBRO 1978) banking practice with regard to the delegation of authority is similar in all of these countries. Branch manager have varying credit limits that are usually a function of their experience qualification and responsibilities proposals beyond their state limits of discretion go to higher authorities with the hold office at the apex of the structure as the financial arbiter, among all these countries the U.S.A operates a distinctly different system instead of a branch manager and higher officer considering lending proposals in turn the U.S.A makes move an extensive use of the committee system at all level of lending decision making. The system considerable enhance the lending limits of the lower level of more gement in the herachy of loan decision making process.
Except in Italy, credit evaluation in these countries is based legally on the analysis of financial statements dating back to fine or a minimum of three fears. This is supplemented with cash flow analysis and the assessment of the character and other qualities of the proprietors or management. The elation exertion is due to the general unavailability in the country of reliable financial statements on which any useful analysis can be based on the banking industries of tending of loan country of reliable financial statement on which any useful analysis can be based.
This makes the bank fall back heavily sin the knowledge of their customers. This is a considerable degree of flexibility in the banker’s demand of securities in these countries. Invariably secured advance low proportion of total lending in all countries expect in Japan, where the secured advance amount to much as 40% of all the loans. Italy has the lowest proportion with only 40% of all its advance secured. Apparently in these countries as in the U.K. “The bankers experiences has through him to make loans to people rather than the security of things” (safer, 1967, p. 192)
In the final analysis a bank’s contribution the development of its community must be measured in terms of the increase in the volume and qualification of the products and services it is able to provide through it financial and reacted services. The bank’s level of contribution is influenced or control. In theory government control of banks exist in is all these countries in varying degrees. In practice, it is least pronounced in U.S.A for example, credit ceilings or similar restrictions or credit volume and allocation are still unknown to the American bankers. In Italy and France: government has considerable financial states in the bank of these countries. The three largest banks in France are owned by the government and with the government operated financing facilities, it is able to except considerable influence on the size and allocation of aggregate credit. Similarly in banks is substantial and with this goes considerable control over credit allocation in other countries there is little or no government direct equity interest in banks and government control is, at the best only subtle. The monetary authorities in the U. K have. There sorted to credit control intermittently since 1955 rather severely however, between 1965 and 1971 (Bluden, G. 1995) completions and credit control (C.C.C) was introduced in 1971 giving true meaning to the concept of “perfect competition. The free atmosphere of c.c.c. Was however, short-lived as the CORSET:’ the special supplementary deposit requirement was introduced in December, 1973 with repaid to lending to an individual borrower, that is in all the countries being considered some restriction on the maximum that can be lent in the U.S.A. lending to a single borrower is limited to 10% of the bank’s capital fund. In Germany. Italy and France where control banks or a government agency there are requirement for credit above specified sums to be reported to these institutions, although no outright courting are imposed on lending to a single customers.
Through controls can significantly influence credit creation and allocation by commercial banks it is the nature or the relationship of banks to industry that substantially dipsticks the level of financial assistance and co-operation between the two. Due largely to tradition the financial and economic his troy, there are to be found differences from countries via their lending and allied services. In the U.S.A. Unlike in all other countries banks are for bidden be legislation from taking equity interest in nom financial biz. The relationship is limited, there fire to that of largely true for the U.K banks and their individual clients even through there is not legal prohibition on banks taking equity interest in industrial concerns. Indirectly, their subsidiaries and participation. It is worthy to note that “ there are good ground for believing that the traditional relationship between the clearing banks and their industry customers are undergoing a permanent charge. The bank are much more involved in their customers affairs than they were a decade age. And the involvement is likely to increase still further in the next few years. (Financial times June 6, 1981) in the 1940 the Italian government acquired interest in the big industries concerns of the country with its ownership of interest in the commercial as well. It is natural that the relationship between these two subsections by a close one. Traditionally, banks in Germany have always had close association with the industries through their ownership of equity interests in businesses. The close association involves the appointment of bank personnel to the financial interest. Germany share holders often appoint banks as provides and these substantially boast the power of the banks not uncommonly lending to a situation in which they can conveniently block proposals requiring a three quarters majority. However it is clear up” (mathis, 1975p. 125). The relationship between industries and the banks in France is close for the same reasons as in Italy is government ownership of financial interest in both subsections of the economy.
1France industrial companies rely heavily on the big banks and the special credit institutions for investment finance, much of which is project related. At a result, the big banks with the encouragement of the authorities and in close co-operation with the special with institutions have acquired detailed and in depth knowledge of the technical operations of their they have setup industrial departments which are staffed by specialists. In sum, it can be said that there is little doubt that these relationship between banks and industries have significantly influenced and enhanced the level of the banks contributions financial and otherwise to the development of their business environment.
In passing it is instructive to note that the lending function, like other function of commercial banks is not now treated is isolation. Up to the end of the 1950s were preoccupied with assets management the major concerns of banks management were the maintenance of “adequate” liquidity and the viability items were treated somewhat as exiguous variables with the arrival attentions was truned to liability management (knomer, 1971). Because of the inter-relationship of the assets and liabilities for the banks these early preceded approaches are inadequate in handing bank problems.; also “ computer has made it possible for the banks to evaluate multitudinous impacts that alternative decision have an income statement and balance sheet relationship (Banker yr.1978, p.43)
Thus today, the banks approach is a general system one particularly in advanced countries, banks of all sizes now pay some attention to assets liabilities management rather than to any one side or function in isolation. This is understandable because after all loans, investment and other functions are subsets of the total bank and their management policies and tactics must be incorporate into the overall assets/liability management the benefits of the approach to bank lending is that it allows taken management is to enable us to see how the loan functions affects and is being affected by the other functions of e banks.
In the last few pages an attempt how been made to survey worldwide development in lending concepts, principles and particle. A relevant and useful question that might be asked and answered is, where in the logic – historical structure analyzed above does Nigeria banking practice fall?
That is to how up-to-data and consequently useful in one banking practices, compared to other economically development and development countries are not of data and automated loans and advances as a percentage of the assets of commercial banking system in selected development and undeveloping 1970 – 1977.
The data in table appears to lend credence to this view it can seen from this table that banks in Nigeria carry relatively poorer to total assets ration than banks in Japan great Britain, Ghana and Jamaica since loans are the most profitable asset that banks can invest in outmoded banking practices appears to the most valid explanation for the relationship poor performance in Nigeria banks on this score.
The maintenance of a poor leans-total assets radio by Nigerian banks it is the major implication of the above to contribute sufficiently to the economic development of the country as it has potential to the banks and bank will in turn not to be able to grow and develop up to the optimum level Corinne surate to the opport unity, the industry has.
In the light of this undesirable consequence generally accept that bank have used their power to promote industrial growth and also come, when necessary to the rescue of allying companies, although Japanese bank are not committed on a long term basis like THEIR German counter parts “semi frozen loan are the ruler with usually no serous consideration of full repayment of short-term loans or periodic class up” (mathis, 19975 p, 125). The relationship between industries and the banks in France is close for the same reasons as in Italy is government ownership of financial interests in both subsectives of the economy.
French industrial comprise rely heavily on the by banks and the special credit institutions for investment finance, much of which is project related. At a result, the big banks with the encouragement of the authorize and in close co-operation with the special, institutions have acquired detailed and in depth knowledge of the technical operations of their customers. Following the example of American banks they have set up industrial departments which are staffed by specialists. In sum, it can be said that there is little doubt these relationship between banks and industries have significantly influenced financial and otherwise to the development of their business environment.
In passing, it is instructive to note that the lending function, like other functions of commercial banks, is not now treated is isolation.
Up to the end of the 1950s were preoccupied with assets management” the major concerns of banks. It is the interest of the bankers and society at large that will fit the social economic and cultural environment of Nigeria. It is when this happened when the banks develop economy and they grow as a natural consequence of this, that the institution can be adjudged efficient.
Table one was computed from
- Bank of Tokyo, Japan, semi-annual reports (various issues.)
- British Banking and other financial Institute (London Hmso 1974)
- Central statistical office, monthly depest of statistical (London: umso, various issues).
- Bank of Ghana Quarterly, economic Buitetin (various issues)
- Bank of Tamara, report and statement of accounts (various issues).
- Twenty Research of central banking of Nigeria (Lagos research department, central bank of Nigeria 1979), p. 12