APPRAISSAL OF LOAN ADMINISTRATION ON BANK LENDING
(A CASE STUDY OF SKYE BANK OF NIGERIA PLC)
This research work was undertaken to assess the effect of loan administration on bank lending in Nigeria a case study of Access Bank Nig. P.l.c. This work intend to achieve the following objectives: To identify the determinants of commercial banks’ lending behavior, to determine the effects of the identified determinants on commercial banks lending behavior and to determine if loan administration actually has effect on bank lending. Relevant data were collected from both primary and secondary sources. Questionnaire was the main primary data collected instrument employed while data from various relevant publications constituted the sources of secondary data. Upon the analysis of data, the following conclusions were drawn; that an effective loan administration has a significant effect on bank lending especially when the loan is effectively monitored in order to avoid diversion of the fund which might likely pose a problem in the recovery of the loan. It was concluded that the interest rate ceiling posed by Central Bank of Nigeria is the main determinant of the amount of loan the bank can grant. It was recommended that banks and the loans granted should be charged at a lower interest rate. Finally, the loans when granted should be effectively administered by apportioning a loan administrator to each borrower to foster repayment of the loan and avoid any diversion whatsoever this which majorly is the gap that this project work filled in comparison to all other researches that have been done .
- BACKGROUND OF THE STUDY
Lending which may be on short term, medium or long term basis is one of the services if not the core service that commercial banks usually render to their customers. In other words, banks do grant loans; overdrafts and advances to individuals, business organizations as well as government in order to enable them embark on developmental activities as a means of aiding their growth in particular or contributing towards the economic development of a country in general.
The process by which the loan granted by the banks is effectively administered and monitored is what is termed as ‘loan administration’. Loan administration entails both pre and post lending services. Pre-lending service in that the loan administrator would consider the loan application of their various customer, consider the collateral security they have in stock and decide if the customer worth to be granted the loan. In the case of a firm, the loan administrator would simply consider the balance sheet of the firm by calculating some specific ratios and see if the firm is worthwhile to be granted the loan.
The post lending service would come in when the loan administrator effectively monitor the loan granted and ensure that there is no diversion of loan i.e. utilization of fund for actual purpose. Lending practice in the world could be traced to the period of industrial revolution which increased the pace of commercial and productive activities thereby bringing about the need for large capital outlays for projects. Many captains of industry at this period were unable to meet up with the sudden upturn in their financial requirement and therefore turned to banks for financial assistant.
However, the emergence of banks in Nigeria in 1972 with the establishment of the African Banking Corporation (ABC) and later appearance of other banks in the scene during the colonial era witnessed the beginning of banks lending in Nigeria. Though, the lending practice of the then colonial banks were biased and discriminatory and could not be said to be a good lending practice as only the expatriates were giving loans and advances. This among other reasons led to the establishment of indigenous banks in Nigeria.
Prior to the advent of Structural Adjustment Programme (SAP) in the country in 1986, the lending practices of banks were strictly regulated under the close surveillance of the banks’ supervisory bodies. The SAP period brought about some relaxation of stringent rules guiding banking practice. The Banks and Other Financial Institutions Decree (BOFID) 1991 required banks to report large borrowings to the Central Bank of Nigeria (CBN). The CBN also requires that the total value of loan/credit facilities or any other liabilities in respect of a borrower, at anytime, should not exceed 20% and 50% of the shareholders’ fund unimpaired by losses in the case of commercial banks and merchant banks respectively.
Planning a bank loan which is one of the functions of a loan administrator in loan administration process according to Bennett (1984) is inherently a long process and therefore it shouldn’t be taken with levity but with caution and care. That is why the place of bank giving out loan only on safe ground and majorly on certainty of recovery cannot be overemphasized. This process involves organizing, formulating, and creating of proper lending policies and criteria. Also by applying the analysis and consequently a set of prudent lending decision and techniques should be included.
This research work has attempted to study the lending criteria and administration strategies of commercial banks of Nigeria in which focus is been made on Access bank Nig plc as the case study. Also, the degree to which total deposits affects the volume of loan and advances. It also examined the strategies of recovering loans which is a part of loan administration and how these strategies conform to the theoretical background, this in which so many researches has not really looked into.
- PROBLEM STATEMENT
It is a widely accepted fact that lending as a service of commercial banks is of paramount importance to economic growth and development, since the capital outlays needed for most developmental projects come majorly from these banks. However, there is inefficient arrangement with respect to the most appropriate strategy to be adopted by these banks for recovering loans and stopping the high waves of default in payments on the part of borrowers. The most pressing problems that commercial banks face in their lending behavior are as follows:
- What constitutes a good lending behavior?
- What are the need for security and other requirements before granting loans?
- Does this practice enhance promptness in the repayment of borrowed funds by the banks’ customers?
- How effective are their lending principles and behaviors in the face of financial distrust and impropriety in the economic system of the country?
- What are other adjustments needed to ensure that the principles and lending behaviour achieve the needed objectives.
1.3 OBJECTIVES OF THE STUDY
This research work has the following as its major objectives.
(i) To identify the determinants of commercial banks’ lending behavior.
(i) To determine the effects of the identified determinants on commercial banks lending behavior.
(iii) To determine if loan administration actually have a significant effect on bank lending.
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