ABSTRACT
This term
paper was tailored at designing bank lending policies and recovery procedures
in Nigeria.
The piece of work looked into bank services and the rules that guide their
monetary policies.
Research was carried out on ways of
improving bank lending policies and good measures on how money could be
recovered. Recommendation for the future improvement ion this policies was
described.
I vividly described procedures for
taking securities for Bank lending. To those in the financial industry, this
piece of work could serve as a reference manual to them.
The manual can also educate people on
the roles of Banking in economic development of Nigeria.
TABLE OF
CONTENT
TITLE PAGE
APPROVAL PAGE
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF
CONTENT
CHAPTER ONE:
1.0 INTRODUCTION
1.1 BANKING
SERVICES IN NIGERIA
1.2 STRUCTURE OF
BANKING
1.3 COMMERCIAL BANK
1.4 MERCHANT BANK
1.5 DEVELOPMENT
BANK
1.6 CENTRAL BAK OF NIGERIA
CHAPTER TWO
2.0
ROLES OF BANKING IN GENERAL ECONOMIC DEVELOPMENT
2.1
POLICIES
2.2
CHARACTERISTICS OF A GOOD POLICY
2.3
PROCEDURE FOR TAKING SECURITIES FOR BANK LENDING
CHAPTER THREE
3.0
FINDINGS, RECOMMENDATION AND CONCLUSION
3.1
FINDINGS
3.2
RECOMMENDATION
3.3
CONCLUSION
BIBLIOGRAPHY
CHAPTER ONE
1.0 INTRODUCTION
A bank
could be described as a major financial institution, other such institution
include finance house, insurance companies, mortgage companies etc. the main
function of these financial institution are to provide financial support to those
who are in need. Apart form this function, banks perform other functions like
rendering advice and counseling, acceptance of deposits, provision of loans and
advances of providing a safekeeping place for people valuable many banks plays
intermediary roles in the financial sector of the economy which focus primarily
on the following.
1.
Moderation of the rate of inflation
2.
reduction of pressure on the external sector so as to
achieve a sustainable balance of payment positions.
3.
establishing the Naira exchange rate in Nigeria
banks could be
classified into the following categories below.
a.
Central bank
b.
Commercial bank
c.
Merchant bank
d.
Development bank
e.
Community bank.
Obviously, with
an observer first contact with a developing economy, all those categories of
bank plays crucial roles in stimulating the economy. They deal with members of
the public.
Firstly, they all provide first
information and investment advice to willing customers community banks for
instance, were established primarily 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 function effectively because they diversify into specialized
areas such as agricultural and industry. Example of development bank are the
Nigeria Agricultural and industrial development (NACB) and Nigeria
industry development bank (NIDB). Hence the development of economy is
stimulated through these agency function.
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
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 function in banking operations. It provides money for
investment which in turn yields turn over 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 were banks and
their lending activities have been usefully. Integrated into government policy
formation in the national economic development process. In Nigeria for
instance, where majority of the population live in object poverty funds are
very difficult to come by either for investment purpose or otherwise. Thus the
federal government finds it necessary and critical to intervene to formulation
of bank lending policies. Lending is giving something to someone else for use
over short period of time (in this case money with interest where being paid
back)
In the objectives of tending
activities the bank 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 these policies are designed to
have relevance to the interval constraints of each bank for instance sector
performance deposit base, risk existing exchange while others are derived
mainly from the guidelines issued periodically by the central bank for control
reasons and known as monetary and credit policy guidelines for each fiscal
year. A lending policy of 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 account of
liquidity available in a bank, it may find it practically impossible to satisfy
all the request it gets for loan since the request may out ship available
resources. The bank thus has to discriminate in its decision to lend. Such
action must however be based on objectives, funds available for loans must be
juidiciously applied strictly along the bank policy guidelines. When the policy
has been formulated lending procedures evolves as check towards ensuring that
the objective of the policy guidelines are achieved includes
i.
How loans are to be processed
ii.
What documents are required
iii.
Necessary securities
iv
Where various documents should be sent
v.
Recommendation to be forwarded etc.
like any other
operational procedures, these should not be breached in anyway otherwise it
could cause doubtful debt etc. due to improper lending, most banks makes
provision for bad debts but on the other hand what is known as recovery
procedures in saving doubtful debt. They include step by step action by this
specialist unit either legal or otherwise to this effects.
In summary, this tends to take a
critical appraisal at this lending policies and procedures for loan recovery.
These policies and procedure play important role in achieving a good and
effective banking system.
1.1 BANKING SERVICE IN NIGERIA
Banking services in Nigeria dates
bank in 1892 when the older Dempsters company was engaged in the business of
moving coin up and down the country. In the same year, African banking
corporation was formed to provide banking services to the Dempsters company.
This banks failed in the same year and was over run by the bank of British West
African. The national Bank of Nigeria Ltd was established in 1933 as the first
indigenous bank, the Agbonmagbe bank was registered in 1943 And the Africa
Continental bank was found in 1949 by the late Dr. Anamdi Azikiwe. This was as
a result of the shoddy treatment he receive in one of the expatriate banks
cooperative bank of western and eastern Nigeria was established between
1984 and 1951.
Indeginistation of the Nigeria baking
systems started essentially and banking facilities in the economy. These credit
facilities could be placed under two broad groups below
i.
Long term facilities
ii.
Short term facilities.
The former
normally covering long term investment, capital market investment, credit
financing, self employment, consumer credit etc. funds obtains 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 project will either result
in the expansion or development of firms and industrial corporations.
Transaction if businessmen and other
professional 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 contribute to the growth in other sectors the
economy. As indicated earlier, there are direct and indirect beneficiaries of a
loan administered by a bank. The direct benefactor is the one obtaining the
loan for himself 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’s colonial heritage as the first two banks to operate in Nigeria were
of British origin while the new sub country as a result of a decree stipulating
40% indigenous participation in foreign owed banks was viewed which was put in
place after the introduction of federal constitution in 1954 to indigenes the
banking system. Apart from the central bank, banking facilities in Nigeria were
provided by two classes of banks. The foreign banks and led to the
establishment of indigenous banks.
As a result of the indigenization
process and also the oil boom of the 1970’s more commercial, merchant and
development banks spray up in the country so as to keep up with the increase of
cash flow in the economy.
Banking system services in Nigeria are
rendered to various sectors of the country’s economy and they include Health,
Industry, agriculture, Trade and Tourism 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 is uniform of fund from banks and other financial
institution. Loans and advances, credit facilities utilized by individuals
companies, corporate bodies and the government. This facilities not only
beneficial by obtaining it directly but its also indirectly creates jobs for
the people who provide the labor 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 benefit derived from loans
in order to show its importance in the development of a nation and in the
maintenance of a stable indigenous banks attracted the back up of their staff
from the pioneer British bank are drawn extensively from British experience.
The banking business was defined in section 41 of Nigeria Banking Act of 1969
as the business of receiving money from outside source as deposits irrespective
of the payment of the interest or the granting of loan and acceptance of credit
or the purchase of bill and cheques of the purchase and sell of securities for
account of others or the assumption of guarantees and clearing and such other
warranties for others and for affecting of transfers and clearing and such
other transactions as the ministry may on recommendation of central bank by
order published in the federal gazette designated as banking business.
Also
according to ASUZU (1996) he stated that section 61 of the banks and other
financial institution Decree no 25 of 1995 (BOFIO) defined banking business as
the business of recovering deposit on current account, saving account or other
similar accounts, paying or collecting cheque drawn by or paid in by customers,
provision of finance or such other business as the governor may by order
published.
To differentiate between commercial
banks and other banks, the act went further to say that any person who
transacts banking business in Nigeria and whose business includes the
acceptance of deposit, withdrawal by cheque is a commercial banker while
merchant banking was defined as wholesale banking, medium and long term financing,
equipment leasing, debt factoring, investment management, issue and acceptance
of bill and the issue management of unit trust.
1.3 COMMERCIAL BANKS.
The main
featured of a commercial bank includes: Acceptance of deposit that are
withdrawn 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 ban king 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 embrace both the branch banking and
the unit 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.
1.4
MERCHANT BANK
They provide special services which includes below
i.
Corporate financing
ii.
Equipment leasing
iii.
Portfolio management
iv.
Acceptance bill of exchange
v.
Provision of medium and long term loans
vi.
Debt factoring and investment management.
In Nigeria,
merchant banks came into existence with the oil boom of the 1970’s and
subsequent increase in liquid cash available in the economy due to the fact
that the cash in circulation had dwindled, merchant bank are diversifying
participating in international finance and short term capital market. Thus, the
demarcation lines between the function of merchant banks and commercial banks
are now less clearly defined them in the past.
1.5 DEVELOPMENT BANK
Their
unique features as their name implies includes loan that help in developing the
nation. Loan for capital project such as road construction, building of
infrastructures, agricultural investment that provide for the nation, such
banks in Nigeria have specialized sector which they serve and they include the
Nigeria Industrial development bank (NIOB) for the Industrial sector, Nigerian
Agricultural and Cooperative bank (NACB) for the agricultural sector.
The federal mortgage bank of Nigeria for
assisting customers in acquiring their own houses.
1.6 THE CENTRAL BANK OF NIGERIA.
According
to Famoyin (1973) central bank is defined as an institution which is in charge
with the responsibility of managing the expansion and contribution 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 ban king system of any
country in which it operates and it is vested by the authority to exercise
certain powers not possessed by any other banks.
The Nigeria
banking industry has at its peak and in control of its regulation by the
central bank of Nigeria.
This was created to achieve the following objectives below.
i.
To issue currency in Nigeria.
ii.
To safeguard the international value of currency
iii.
To maintain external reserves
iv.
The promotion of money stability and a sound financial
structure in Nigeria.
v.
Lenders of last resort.
But CBN has its
main functions as bank below
i.
Currency issue
ii.
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 affair to each
and every regulated include: liquidity and reserve requirement, maintenance of
reserve funds, adequacy of equity extension of credit, reporting and auditing.
Banks are required to extend a minimum percentage of that total lending to
indigenous enterprises. A sector distribution of loans and advances is also
enforced. An overall ceiling is usually imposed on the growth of the bank loan
and advances through the annual monetary policy circulars issued by the central
bank of Nigeria.
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