1.0 Introduction
1.1 Background of the Study
The modern commercial banking in Nigeria data back to the early period. The colonial government experiencing decline in barter system of trade and rise in financial transaction required an institution in form of commercial bank for safety and effective transaction of fund. Because of this reason, the African banking corporation based in South Africa was invited in the year 1892 to open a branch office in Lagos. Since then, the general profile of the Nigerian commercial banks has varied in various dimensions and particularly the growth in terms of capital base has been phenomenal.
The major function of the commercial bank is to create money through loans and overdraft, this function is the distinguishing feature that separates them from their financial institutions. In accordance, their services include:
- Deposit acceptance
- Granting of loan and overdraft
- Investment advice
- Safe custody
Loan is the money that banks lend to borrowers (customers, it is the money that bank gives to customers to be repaid after a stated period of time with interest charged. Loan recovery on the other hand, is the repayment of the money borrowed by the customer with interest rate charged and as at when due.
1.2 Statement of the Problem
Banks credit facilities required for the growth and development of the economy. Credit is the life wire of business enterprises.
The basis feature of a well functioning financial system is it ability to financial the credit needs which contributes to the economic growth of the country.
The problems of the research are:
- The proprietors (shareholders) of the bank are worried to identify the likely problems encountered in loan recovery activities.
- The proprietors (shareholders) of the bank are seeking for means to avoid bad and doubtful debts in their financial record.
1.3 Objectives of the Study
The objectives of the study are:
- To ascertain the appropriate strategies that would be adopted by the bank so as to enhance effective and efficient loan recovery system.
- To identify the impact of loan recovery in Nigeria (Commercial) banks.
1.4 Research Questions
- What are the likely challenges faced by the banks in loan recovery activities?
- What are the problems encountered by the customers in repaying loans?
1.5 Significance of the Study
The research work draws from the experience of the practicing banker. It is expected that the research findings would be communicated to the shareholders and as well to future researchers.
It is further believed that the research findings will:
- Serve as a guideline to the present and potential investor in commercial banks.
- Provide curious researchers and bank analysts with some index of bank loan analysis.
- Draw the attention of the regulating authorities to the need for a standardized policy of loan recovery in commercial banks in order to maintain its impact to the economy.
1.6 Scope of the Study
This study is designed in such a way that it narrowed down merely on impact of development banks. Meanwhile, there are many other banks that contributed to the growth of industry(s) in the economy so as to boost profound bank products and to maintain adequately for the industry to improve and augment productivity.
Although reference may be made to other banks but the study is based on the loan recovery on Nigeria commercial banks most especially, commercial banks. The analysis of this commercial bank, indicating how the are been financed by developed bank in order to record high banks production and industry(s) products.
1.7 Limitation of the Study
This research work is to study all about loan recovery in Nigeria (commercial) bank. Bad debts in banks are discussed in details and further highlight the principles of good lending policies, influence on commercial bank lending is one of the areas of study, and finally the impact of loan recovery is also detained in the study as the target fact.
Several problems were encountered in an effort to carry out this research work and these problems include:
- Problems of discrete secrecy of information in Nigeria commercial banks.
- Problems of inadequate finance
- Problem of time insufficiency to carry out the work.
1.8 Definition of Terms
Loan:
Money lent on condition that is repaid either in installment or on all at once on agreed date and usually that the borrower pays the lender an agreed rate of interest.
Lending:
An act of a bank giving out money to its customers.
Beneficiaries:
People who borrowed money from the bank.
Bad debt:
A debt which has become unrecoverable as a result of the debtors death or inability to pay.
Debt recovery:
An act of repayment or borrower money by customers.
Capital expenditure:
This is the expenses the bank run during construction of offices or buying of equipment (expenses made on fixed assets).
Security:
Is the right of interest in property which is given to a lender (creditor) by a borrower (debtor) for the purpose of providing buffer or cushion on which the lender may fall back in case the borrower defaults in prepayment.
Bank lending:
Means the transfer of resources from the surplus units of the economy to the deficits units of the economy.
Bank rate:
This is the rate of interest fixed by central bank in order to regulate the rate changed by bank.
Funds:
This means cash that will be used to carryout any work or subject.
Overdraft:
An arrangement with a bank allowing one to take out more money than one's account holds.
Bank:
An organization offering financial services especially the safe keeping of money.
Customers:
A person offering patronage to an organization or shop.
Recovery:
The act of getting something back.
Commercial banks:
A financial institution which relieves deposits and deals with money and credits.
Financial institutions:
There are intermediaries between the owners and users of funds.
Creditors:
Someone whose money is owed to.
Deposits:
To put money or something valuable in a bank or other places where it would be safe.
Investor:
Someone who gives money to a company, business or bank in order to get profit.
Shareholder:
Someone who own shares in a company or business.
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