1.0 Introduction
Granting of loans and advances of credit is one of the bank services of investment policies. Among the crucial growth process is the adequate supply of credit to the different economic units to carry on their activities efficiently and smoothly. There is therefore the need for transferring of funds from the surplus units to the deficit units of the economy. in the case commercial banks play a vital role in the allocation of financial resources of capital formation.
There are many opportunities for profit improvement since lending of money has been widely known and accepted as an important function of the banking industry (i.e commercial banks) a function which the industry is better placed to perform in view of its position as a finance intermediary.
It is generally accepted that lending is the most risky function perform by the commercial banks and it is therefore important that lending must be done effective and efficient.
In granting loans to customers, banks are expected to critically consider various factors which should enable them to assess the risk associated with the loan and the willingness and ability of the borrower to repay.
1.2 Statement of the Problem
The following are problems associated with the study;
- Banks as financial intermediaries: Banks find it difficult to operate efficiently in the face of many borrowers.
- Banks as debtors: Banks owe the customers at any point in time, a duty to make funds available to depositors on demand.
- Banks as creditors: Banks find it difficult to properly assess and identify credit worthy customers which ensure repayment to guarantee equilibrium of funds flow.
- Commercial Banks as commercial Outlets: Banks owe as a duty to the shareholders to maximize profit.
1.3 Objectives of the Study
Commercial hanks are general all purpose retail banks. They mobilize deposits of all sizes, both from the depositor and shareholders.
They lend these mobilized fund to willing customers for investment purpose as stated earlier, loans are the most important, most profitable and most risky asset of the banks; banks may be unable to meet their obligations to depositors and public confidence will be lost due to problems of loans. These problems of loan affect the liquidity of banks, reduce their ability to create deposit restrict further lending to prospective borrowers, which affects the profitability of the bank.
Therefore the objectives of the study are;
- To find out the best ways to manage loans which adversely affect the depositors' bank.
- To find out the usefulness of the central bank credit guideline giving to commercial banks.
- To recommend possible ways of making credit policy guideline more effective and beneficial to both commercial banks and their customers.
1.4 Research Question
- Are there regulatory requirement for granting loan?
- Should the bank investigate the kind of business their customers are into before granting loans to them?
- Are customers classified based on their credit worthiness?
- To what extent can bank ensure that the borrowers' funds are granted?
1.5 Statement of Hypothesis
The following hypothesis are stated:
- Hi: Banks have adequately finance project in our economy.
- Hi: Low interests have favored the borrowing customers.
- Hi: Proper training of credit officers leads to better relationship between commercial banks and their credit customers.
1.6 Significance of the Study
- Loans are important as well as the lucrative assets of commercial banks credit.
- It is therefore important that credit proposals be properly articulated and evaluated right from the on set.
- It is crucial to avoid and minimize bad debts.
- The collection of vital information for lending and the analysis of the proposal cannot therefore be over looked to be less important.
- It should be noted that the risk element in credit proposal are usually not easy to qualify.
- Many banks today are not of business because of poor and bad credit management.
- This study is therefore aimed at providing an avenue for efficient credit management.
1.7 Scope of the Study
The study of the effective credit management on the profitability of commercial banks will review to an extent the level at which the bank is fairing.
This study will also review how positive and unable the bank is in finding project through lending and how lending and borrowing has affected the profitability and liquidity of commercial banks.
The choice of united bank being necessary is that it has passed through all the era of banking policies and regulations in the country.
1.8 Limitations of the Study
The study is limited to time. Information used are not all product of primary research but are largely obtained from banks and books. One of the major limitations is the respondents to the questions asked to the bankers who were not ready to reveal or disclose certain information concerning their banks to outsiders.
1.9 Definition of Terms
Credit Facilities:
This include loans, overdraft, advances, commercial papers, lease, and guarantee etc. that is those form of credit connected with banks credit risk.
Loan:
A credit facility extended by one party (lender) to another (borrower) subject to specific terms and condition agreed upon by both parties.
Problem Loan:
All types of credit facilities granted by banks to their customers for whom the customers are unable to repay within the agreed time and conditions.
Term Loan:
Credit facility granted for a period normally more than one year.
Liquidity:
Money of goods that can be sold or repay debts.
Guarantee:
A promise usually in writing by one person to pay in the present future debts of another, such a promise must be made to the person to whom the debt is or will be due or paid.
Portfolio:
Collection of shares or investment.
Security:
Goods or property pledged against money borrowed.
