1.0 Introduction
1.1 Background of the Study
In recent times distress has become a common phenomenon knocking on the banking industry in Nigeria. This concept is synonymous with the inability of the banks to meet its obligations to its depositors in an environment where the trust and confidence of the society towards banking is falling beyond expectations such a situation creates a worrisome scenario to all interest groups in the economy.
This is based on the premise that the bank remains the most important guide and catalyst for economic growth and maturity. Anything short of this will definitely affect all spheres of the economy negatively. Following the duties and responsibilities of the bank as the custodian of other people's treasures, it then ensures the security and protection of all things kept under its cases. It is on this premises that the researchers attention is drawn to work on strategies for bad debt recovery in Nigeria. (A Case Study of Fidelity Bank Plc) 2005-2010. Effort is made to find out the strategies for bad debt recovery of banks (Fidelity Bank Plc).
The problems that are being encountered in the process of these debts the need for recovery is principally due to the fact that the bad debts affects the banks aggregate earnings and assets, capital funds and consequently affect the dividends payable to shareholders of the bank. Huge bad and doubtful debts also affect depositor's confidence in the banks in particular ad in the banking system in general. Invariably, excessive bad loans may lead to distress and capital reconstruction. In every of their factors, banks adapt two strategies.
- Evolve measures to avoid the incidence of bad and doubtful debts.
- Evolve strategies to fully or partially recover provisioned bad and doubtful debts.
However in a volatile economic environment as we have in this country where things change rapidly and with banking education and business experience yet to become well entrenched a bank should not be caught off guard because of poor administration control of its loan portfolio “Asuzu (1997:322)
1.2 Historical Background of Fidelity Bank
The bank was established as a merchant bank in 1988. it converted to a commercial bank in 1999, following the issuance of a commercial bank license by the Central Bank of Nigeria the national banking regulator.
In 2005 The bank merged with the former Manny Bank Plc.
Fidelity bank is today ranked amongst the top ten in the Nigerian banking industry, with presence in the major cities and commercial centers of Nigeria.
Over the years, the bank has been reputed for integrity and professionalism. It is also respected for the quality and stability of its management.
1.3 Statement of the Problem
Most banking industries find it difficult to survive in the face of serious competition and some of them have gone distress and failure due to their inability to recover debt from their customers.
Some banks find it difficult to meet up with basic responsibilities such as provision of money to their customers on demand, paying the workers salaries and allowances, purchasing and maintaining of assets, settlement of debt at all level and this is as a result of unhealthy strategies for bad recovery.
One of the basic causes of bank distress is inability to recover debts from their customers, which has given rise to the following problems.
- Loss of confidence in the banking industry by depositors.
- Decrease in the level of profitability and growth of banks.
- Bank distress and decline in the economy.
An effective debt recovery strategy will undoubtedly enhance and stabilize profitability in banking industry. Considering the effort in any economy no bank will encourage it rather the banks should go on debt drive using debt recovery strategies.
1.4 Objective of the Study
To address the problem of bad debt recovery which has created a vacuum in our present economy this research arise at revealing the main cause of loan being bad. However banks grant credit facilities to their potential customer for profit purpose. This cannot be achieved when the loan goes bad. In order to achieve this objective, the researcher aims at carrying out case studies on strategies for debt recovery.
Therefore, the purpose of this study includes:
- To find out whether negligence to follow lending procedure contribute to loan being bad.
- To find out whether unhealthy debt recovery strategies influence the profitability of banks.
- To see how bad debt can decrease the liquidity ratio of banks.
- To find out whether improper planning contribute to loan begin bad.
- To suggest practical solution to the problem of debt recovery strategies.
1.5 Research Questions
In order to carry out an effective research study, research questions are formulated as well as research hypothesis. They are as follows:
- What are the objectives of banks for giving out loans?
- What factors have led to rampant bad debts in banks?
- Has the central banks monetary policies in sectional loan allocation been helpful in reducing the level of bad debts in banks?
- Which strategies are best for efficient debt recovery?
1.6 Significant of the Study
Lending as we all know is a vital function in banking operations because of its direct effect on economic growth and business development.
In view of that the researcher has chosen a successful banker (Fidelity Bank Plc) as an “Apparatus” for the experiment with a view to highlighting some strategies for debt recovery in the banks.
1.7 Scope of the Study
The scope of the study covers the effect and the cause of bad debt in banks (Fidelity Bank Plc) between 2005-2010 which is traced to be because of the non performing loans or credits and also the strategies which can be used to recover these debts.
1.8 Definition of Terms
Loans / Advances:
These are credit facilities that the bank lends to their customer's inflow or borrowing with an agreed rate of interest usually for a specific period of time. Individuals and government alien can obtain loans fro banks which can be withdrawn in cash or used for payment or the liquidation for premises; but the fund so borrowed will be rapid at a future and it may be short time or long term period.
Bad Debt:
This refers to the portion of loan portfolio classified as uncollectible can be also defined as debt that cannot be recovered rapid.
Profitability:
This is the ability of the banks to make profits from any credit facilities granted to their customers.
Capital:
This is the amount used for the commencement of business with addition subsequently made. It is also assessed aside wealth for the production of most wealth.
Shareholder:
They are people who subscribe to shares capitals of a particular company or banks. They contribute to pay a reward from the profit of the company or bank as dividend warrants.
Dividend:
This is the payment of a share holder in a business company or banks.
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