CHAPTER ONE
INTRODUCTION
A bank
could be described as a major financial institute; other such institutions
include fiancé house, insurance companies, mortgage companies etc. The main function
of those financial institutions is to provide financial support to those who
are in need. Apart from this function, counseling, acceptance of deposits,
provision of loans and advances and also providing safekeeping place for people
valuables. Many banks play intermediary roles in the financial sector of the
economy which focus primarily on the following
i.
Moderation of the rate of inflation
ii.
Reduction of pressures on the external sector so as to
achieve a sustainable balance of payment position.
iii.
Establishing the naira exchange rate in Nigeria.
Banks could
be classified into the following categories.
a.
Central Banks
b.
Commercial banks
c.
Merchant banks
d.
Development banks
e.
Community banks
Obviously
with an observers first contact with a developing economy, all these categories
of banks play important roles in stimulating the economy. They deal with
members of the public. Firstly, they all provide first information and
investment advice to willing customers to spread banking services to the
grass-root considering the fact that a
greater percentage of the country’s population reside in the rural areas.
Development banks by implication tend
to carry out their functions effectively because they diversify into
specialized areas such as Agricultural and Industry. An example is the Nigeria
Agricultural and commercial bank (NACB) and Nigeria Industry Development Bank
(NIDB). Hence the development of the economy is stimulated through these agency
functions.
In order to achieve their set out
objectives all these banks rely on certain instruments and policies which
include reserve requirements, stabilization of securities, interest rate policy
(lending policy) exchange rate and foreign exchange management. Discount rate
policy among others which in Nigeria
a developing country are put in place and over seen by the government owed
central bank.
Lending has over the years become one
of the most important functions in banking operations. It provides money for investments which in
turn yields turnover and increases the liquidity in circulation, due to this
direct effect, it has on the economy and business development, it is being
pursed in many developing countries where banks and their lending activities
have been usefully integrated into government policy formulation in the
national economic development process.
In Nigeria
for example, where majority of the population live in object poverty, funds are
very difficult to come by either for investment purposes or otherwise.
Thus, the federal government finds it
necessary and critical to interview in the formulation of bank lending
policies.
Lending is giving something to someone
else for use over a short period of time (in this case money with interest
where being paid bank).
In the objective of lending activity,
the banks in the country have come up with policy guidelines which basically
provides the frame-work for dealing with loans and advances. Some of these policies are designed to have
relevance to the interval constraints of each bank for instance, sector
performance, deposit base, risks existing exposure while others are derwed
mainly from the guidelines issued periodically by the central banks for control
reasons and known as monetary and credit policy guidelines for each fiscal
year. A lending policy if properly articulated
could provide a guide for safe. Sound
and profitable banking activities. If on
the other hand, the lending policy is not properly formulated, it could lead to
the banks liquidation.
Irrespective of the amount of
liquidity available in a bank, it may find it practically impossible to satisfy
all the requests it lies for loans since the requests may outstrip available resources. The bank thus has to discriminate in its
decision to lend. Such actions must
however be based on objectives funds available for loans must be judiciously applied
strictly along the banks policy guidelines.
When the policy has been formulated, lending procedures evolves as check
towards ensuring that the objectives it realized.
Lending procedures which acts as
checks towards making sure that the objectives of the policy guidelines are
achieved includes.
(i)
How loan are to be processed
(ii)
What documents are required
(iii)
Necessary securities
(iv)
Where various documents should be sent
(v)
Recommendation to be forward etc
Like
any other operational procedures, these should not be breached in any way
otherwise it could cause doubtful debts etc.
Due to improper lending, most banks make prevision for bad debts but on
the other hand, what is known as recovery procedure in savouning doubtful debts. They include the steps by steps action by
this specialized unit either legal or other wise to this effect.
In
summary, this tends to take critical appraisals at these lending policies and
procedures for loan recovery. These
policies and procedures for play important role in achieving a goal and
effective banking system.
1.1
BANKING SERVICES IN NIGERIA
Banking
services in Nigeria
dates back in 1897 when the elder Dumpster company was engaged in the business
of moving coins up and down the country.
In the same year, African Banking Corporation was formed to provide
banking services to elder Dumpster company.
This bank failed in the same year and was over run by the bank of British west Africa.
The National Bank of Nigeria Ltd was established in 1933 as the first
indigenous bank, the Agbonmagbe bank was registered in 1943 and the African
continental Bank was found in 1947 by late Dr. Nnamdi Azikiwe. This was as a result of the shoody treatment
he received in one of the expatriate banks.
Co-operative banks of western and Eastern Nigeria
was established between 1984 and 1951.
Indeginisation of the Nigerian Banking system started ORJI
LINDA N. AC/N2002/077 essentially and banking facilities in the economy. These credit facilities could be placed under
two broad groups long term facilities and short term facilities. The former normally covering long term
investment. Capital market investments,
credit financing, self-employment, consumer credit etc. funds obtained are usually for either
commercial purposes or for industrial development. In recent years, the major interest of loan
seekers is earning of profits. Banks in
their realization of the need to develop the economy, encourage the
disbursement of loan. In aid or assistance
of variable projects, such projects will either result in the expansion or
development of firms and industrial corporations.
Transactions of businessman and other professionals are
also not left out. In the need for
liquid cash, which are sometimes made possible through the provision of credit
facilities from banks. The availability
of funds gives to the growth in other sectors of and economy. As indicated earlier, there are direct and
indirect beneficiciries of a loan administered by a bank. The direct benefit is the one obtaining the
loan for him even if it is for self employment.
However the facilities is there for other people who will directly
benefit from it in terms of employment and job creation in the same way short
and long term loans do the same.
1.2
STRUCTURE OF BANKING
The
structure of banking in Nigeria
is similar to that of united
kingdom.
This could be attributed to the country’ colonial heritage as the first
two bank to operate in Nigeria were of British origin while the new sur-country
as a result of a decree copulating 40% indigenous participation in foreign
banks was viewed which was put in place after the introduction of federal
constitution in 1954 to indigenize the banking system. A part from the central bank, banking
facilities in Nigeria
were provided by two classes of banks.
The foreign banks and the indigenous banks on the other hand,
dissatisfactory with the facilities provided by the foreign banks and led to
the establishment of indigenous banks.
As a result
of the indigenization process and also the oil boon of the 1970’s more
commercial, merchant and development banks sprang up in the country soas to
keep up with the increase of cash flow in the economy.
Banking
services in Nigeria
are rendered to various sectors of the country’s economy and they include
Health, industry, Agriculture, trade and Torism etc.
In order
for the economy to remain buoyant, adequate funds have to be made available to
these sectors to enable them function satisfactorily and also to ensure steady
development. In this country, the
required capital in inform of funds from banks and other financial
institutions. Loans and advances, credit
facilities utilized by individual companies, corporate bodies and the
government for the purpose of expansion and development. This facility is not only beneficial to those
obtaining it directly but its also indirectly creates jobs for the people who
will provide the labour for standard of living which in turn results in the
development of the nation. In
considering the great importance of loans to the economy, it becomes imperative
to explain the benefits derived from loans in order to show its importance in
the development of a nation an in the maintenance of stable giving indigenous
banks attracted the buck of their staff from the pioneer. British banks are drawn extensively from British
experience. The banking business was
defined in section 41 of Nigerian Banking Acts of 1969 as the business of
receiving monies from outside sources as deposits irrespective of the payment
of interest or the granting of loans and aceptane of credits or the purchase of
bills and cheques or the purchase and sell of securities for account of others
or the assumption of guarantees and clearing an such other warranties for
others and the affecting of transfers and clearing and such other transactions
as the ministry may on recommendation of central bank by order published in the
federal gazettee designates as banking business.
Also
according to Asuzu (1996), he states the section 61 of the banks and other
financial institutions Decree No. 25 of 1995 (Bofio) defined banking business
as the business of recovering deposits on current account savings account, or
other similar accounts, paying or collecting cheques drawn by or paid in by
customers provision of finance or such other business as the governor may be
order published.
To
differentiate between commercial banks and other banks, the act went further to
state that any person who transacts banking business in Nigeria and whose business include
the acceptance of deposits. Withdrawal
by cheque is a commercial banker. While
merchant banking was defined as whose sale banking, medium and long term
financing, equipment leasing, debt factoring, investment management, issue and
acceptance of bills and the issue management of unit trust.
COMMERCIAL BANKS
The main features of a commercial bank includes:-
acceptance of deposits that are drawable by cheques procurement of short term
loans.
In Nigeria,
the commercial banking industry is a few large banks with a wise network of
branches extending all over the nation.
This is the type of banking system being operated in the United Kingdom in contrast to that of the united states
where they operate a unique two tier of banking structure which embraces both
the branch banking and the united banking system.
In the unit banking system, there are numerous individuals,
local or state banks with a limited number of branches in most cases just one
branch.
MERCHANT BANK
They provide special
services which includes
Corporate financing
Portfolio management
Equipment leasing
Acceptance of bill of
exchange
Provision of medium and long
term loans
Debt factoring and
investment management
In Nigeria, merchant banks came into the line light with
the oil boom of the 1970’s and the subsequent increase in liquid cash available
in the economy due to the fact that the cash in circulation had wind led,
merchant banks are diversifying participating in international finance and
short term capital market. Thus, the
demarcation lines between the functions of merchant banks and commercial banks are
not less clearly defined them in the past.
DEVELOPMENT BANKS
Their unique features as their name implies includes loans
that help in developing the nation.
Loans for capital projects such as road construction, building of
infrastructures. Agricultural investment
that provide for the nation, such banks in Nigeria have specialized sectors
which they serve and they include the Nigerian industrial development bank
(NIDB) for the industrial sector, Nigerian Agricultural and co-operate bank
(NACB) for the agricultural sector.
The federal mortgage bank of Nigeria for assisting customers in
acquiring their own houses.
THE CENTRAL BANK OF NIGERIA
According to Famoyin (1973), central bank is defined as an
institution which is charged with the responsibility of managing the expansion
and contraction of volume, cost and availability of money in the interest of
public welfare, it is called central bank because it occupies a central
position in the banking system in any country in which it operates and it is vested
by the authority to exercise certain powers not possessed by other banks.
The Nigerian Banking industry has at it speak and in
control of its regulation by the central bank of Nigeria. This was created to achieve the following
objectives.
1.
To issue lender currency in Nigeria
2.
To safeguard the international value of currency
3.
To maintain external reserves.
4.
The promotion of monetary stability an a sound
financial structure in Nigeria.
Its main functions as a
bank includes.
(i). Currency issue
(ii). Banker and adviser to the federal government.
(iii). Banker and supervisor to the regulator of
commercial and merchant banks and other financial institutions.
The central bank is empowered by law periodically to
examine the books and affairs to each and every. Licenced bank. The main are in which banks in Nigeria
maintenance of reserve funds, adequacy of equity extension of credit, reporting
and auditing. Bank are required to
extend a minimum percentages of the total lending to indigenous exterprises. A sector distribution of loans and advances
is also enforced. An overall cellina is
usually imposed on the growth of the banks loan and advances through the annual
monetary policy circulars issued by the central bank of Nigeria.
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