Actually, for every successful business there must be a debt in the sense that one person or customer must own the owner of a business. Banks are not exempted from this, this due to the activities involved in their operations. Debts can be accrued as a result of bank over draft, frond and forgeries, borrowing and so no therefore banks recover these debts through the rules and regulations guiding the available sources of repayment of the debt.
The process of recovery is the cove of the management of bad debt as it is quite an unfriendly exercise carried out by the bank against default customers to forcefully retrieve the banks money. In recovery of debt, there must be consideration of the security position of the bank, borrowers, ability to pay bank the use of debt collections recover by legal preceding and so on.
Debt recovery can be described as responsible for the effective and economic planning and regulation of operations of an enterprise in fulfillment of a given purpose or task. Failed bank recovery debt and financial malpractices defined debt recovery as a means of any loan, advances, credit, accommodation guarantees, or any other facility, together with the interest there on which outstanding and unpaid against a customers of a banks, do encounter problem between the customers for inability to pay. Besides, improper documentation, credit concentration, poor supervision of the funds can or way consequently make the bank be unable to meet its obligation.
1.1 Background Of The Study
The importance of banking in economic system singles out the industry for much heavier regulations than any other. Unlike many other economic activities banking industry involves with statutory activities that governs it practice and laws constitute it. The currant distress in banking sector been widely acknowledge arising primary form non performing loans which have been tarsal to a number of factors such as poor management, loan policy concentration of credit, credit information emphasizes on income growth and unsound judgment, found and forgeries etc.
Therefore, the federal government set up the Nigeria deposit insurance corporation (NDIC) to protect the customers, which would have resulted to a problem towards their operation. The Nigerian deposit insurance corporation (NDIC) was establish by decree No 22 of 1988, the banking system has been singled out for this special protection because of the vital role bank play in an economy especially in the process of economic development.
The federal government by decree No18 of 1994 establishes failed bank (recovery of debt) and financial malpractice tribunal which has the power to recover debt owed to failed bank. Fidelity bank plc formally known as barcklays bank domino colonial and oversees an it became barcklays bank colonial and oversees in 1954. In 1995, barcklays bank domino colonial and oversees was granted license in 1960, regional managers were appointed for the administration of eastern, western and northern Nigeria region. As a result of the development the bank was able to open over 50 additional branches between 1959 and 1970, in 1987 fidelity bank of Nigeria has over 200 branches.
The gross, earning has grown from #13.8 billion which showed an increase of 33% over the10.4 billion in 1997 profit before and after tax increase from #14 billion and #1.3 billion in 1997 to #2.1billion and #1.7 billion is September 1998 indicating an increase of 38% and 43% and respectively. Total assets increased by 27% from #81 billion in 1997 to #1,200 billion in 1998 while total deposit stood at #77.2 billion in 1998 representing an increase of 30% over #59.3 billion in 1997.
1.2 Statement Of The Problems
Debt has implication in the life of every banking sector. Poor analysis of debt recovery and debt management affects a firm adversely. It could be recalled that the effective capital structure of a firm emaciate from the ability of the financial manager and the management to blend debt with equity. It is pertinent to note that many banking industry have gone into compulsory liquidation due to poor analysis. Which leads to poor debt recovery and debt management. The cost of capital therefore shall be bargained with critical consideration of the organization internal rate of return (IRR). On the sale relationship, the credit term shall be determined with an absolute review of the overall banking environmental factor. While resisting debt for its risks, the goodwill of the customer shall not be overlookable entirely.
This work tends to deal in its relation with a banking sector. It brings about a number of problems which includes among other:
a) The cost of capital in financing market is an extra charge to the banking sector such a cost eats deep into the owner's funds.
b) Secured debts do not only affect the liquid assets of the firm but also Dave to extend its effects into the fixed assets of the firm.
c) Preference share has fixed periodic changes, which accumulates inconsiderate of wetter a profit is made or loss suffered. This gives a firm an adverse concern especially during unfavorable banking atmospheres.
d) Inability to melt the financial obligation of a banking sector eventually lead to the organization liquidation, which is an economic death of the firm as an entity. In the banking treading policy, a firm tries as much as possible to minimize credit for the following reasons.
i) It brings about bad debt, which is a deadly disease to a bank.
ii) Late settlement of debt in beating the stipulated credit return destabilizes the liquid stability on the firm and eventually leads to bad debt.
iii) Protracted debt denies the banking sector the chance of using their banking opportunities as they fall due. This project is not pessimistic to debt at all neither does it intend to criticize debt and anything about it, rather it delves into the problem management situation.
Despite the above, in the optical structure, some financial mangers commend debt financing for the following reasons:
1) Difficulties in raising ordinary share capital.
2) People reluctance to spearhead risks
3) For expansion and speculative purpose, that debt funding is preferable since further use of equity may dilute the control of the firm.
4) It may even affect the price of the stock properly handled. On the transactional terms absolutes refusal of credit for debt aversion has its own adverse effects.
a) It reduces the sales volume and hence the profit prospects
b) It affects the goodwill of banking hence firms in the face of its customer and degrades its inedibility in market scene.
c) The firm can only stand in an absolutely monopolistic market and this is verily obtainable.
1.3 Objectives Of The Study
The objectives of debt recovery and debt management are:
a) The capital structure of a firm
b) The role of marketing manager
c) How the financial manager decide on the organization credit policies
d) The expansion and speculative objective
e) The inability to melt the financial obligation of a banking sector.
f) Difficulties in raising ordinary share capital.
These are the areas this work will look into and it will be of great importance to the interest group and prospective scholars on the field.
1.4 Research Questions
How does debt financing bring about an optional capital structure in a banking sector
Will good analysis of trade debt recovery and debt management help measure an effective debts recovery in every banking sector
How dose the important element in decision ambiguity-surrounding concept of the cost capital
1.5 Statement Of Hypothesis
In a continued effort to reach an appreciable equilibrium in the problem and consequences of debt and its effective recovery, we (researcher) employed a selected statistical to enable us reach a fair conclusion.
In the light of the above, therefore the following major hypotheses have been formulated. Hypothesis means a tentative statement made by a researcher, subject to tests with a view to forming basic to study of phenomenon. This hypothesis when tested can confirm or repute the extent at which these advanced statement can be upheld. It can equally place the researcher on the solid ground of drawing his conclusion and a subsequent recommendation.
HO: Effective debt financing does not bring about an optional capital structure in a banking sector. (NULL)
HI: Effective debt financial brings about an optional capital structure in a banking sector (ALTERNATIVE)
HII: Good analysis of trade recovery is a good measure of an effective debts recovery in a banking sector. (ALTERNATIVE)
HI: Effective debt financing brings about an optional capital structure in a banking sector.
Hi: Good analysis of trade debt recovery and debt management is a good measure of an effective debts recovery in a banking sector.
1.6 Significance Of The Study
The role of the marketing manager
The decision of the financial manager on the organization credit policies
The debts prospect of the organization project is to be considered and a careful decision made to avoid setting off will a long loot.
To strike of fair balance in their turn and risk of debt.
1.7 Scope Of The Study
The scope of the study covered was on analyzing debt recovery and debt management technique in Nigeria banking sector with much concerned to fidelity bank however, for further reference and clarify, emphasis are made from other reasons and these are consider vital, thus such emphasis are an profitability, solvency, flexibility, conservation and control.
1.8 Limitation Of The Study
Analyzing debt recovery and debt management situation is not a shallow topic to be handled haphazardly, it is not only technical but also sensitive and broad.
For the purpose of this project, it is restricted to be banking sectors it excluded every non-business concern also for want to time resources, fidelity bank is sampled out as a base for the research work so many factors are dermal to militate quicker and easier completion of this work.
These include among others:
Cost: Inadequate fund may stunt this work beyond our taste. Lack of fund (money) may also affect not only the period of the research but also its quality. To exults everything about analyzing debt recovery and debt management situation and come out of legacy for the posterity, one needs to travel far and near. At least one ought to touch various industries in the four basic geographical area of the country.
Time: Time is as costly as money, it is ever easier facing financial problems than time. Time lost as hardly regained. Financial markets do exist but time existed for time. With the school academic leader, the period for the research work is tool short, putting other courses into the budget.
Reluctant To Cooperate: The recovery of some banking sectors are two reluctant to disease the required information and more so, when it comes to disclosing or exposure of the organizational books record- the idea equally affected the quality of facts given in the research. Some do piths pact to suit their firm.
1.9 Definition Of Terms
Debt: Money or something owned by or someone. It is a liability or an obligation.
Debtor: One who owns the liability or obligation
Recovery: The process of planning organizing lending, and controlling the work of organization member and of using all available organization resources to reach stated organization goals.
Credit: Trust or confidence in a buyer's ability intention to pay at the same future time, exhibited by out resting his with goods and services without present payment.
Equity: The risk bearing portion of the long term capital of a banking sector.