ABSTRACT
The focus of this study is on Credit Control Policies in Financial Institutions and its efficacy in minimizing loan losses. In order to achieve a purposeful study, the research reviewed related literatures on Banking, Bank lending and credit administration. An analysis of the responses from credit officers and information obtained from the secondary sources was carried out. The major findings among others are that:
1. Most financial institutions have formal credit polices enshrined in a manual to guide the credit officers and management.
2. Financial institutions usually include in their credit policies the loan territory, types and tenors of loans, acceptable securities, and the procedures for assessing, approving and monitoring credit facilities.
3. Financial institutions operate under a highly regulated environment through some government agencies such as the Central Bank of Nigeria (CBN), the ministry Finance, among others.
4. that despite the laudable credit policies, many finance organizations still suffer loan losses mainly because of unsound judgment by he credit officers, management override, lack of adequate supervision, or frauds and forgeries.
5. the provisions of, and compliance with adequate and sound Credit policies is paramount to minimizing loan losses.
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CHAPTER ONE
INTRODUCTION
1.0 PREAMBLE
Banking business is generally that of accepting deposits from the saving
surplus sector of the economy with a view to paying on demand or at an agreed
future date and lending to the savings deficit sector of the economy. Banks are
usually custodians of money and values of individuals and body corporate.
The Paton Commission (1948) defined banking as the business of receiving
from the public on current account money which is to be repayable on demand by
cheque and of making advance to customers. The 1958 ordinance defined banking
business as “the business of receiving money on current account, of paying and
collecting cheques drawn by or paid in by customers, and of making advances to
customers”. Banking business is defined in the 1969 Act as “the business of
receiving monies from outside sources as deposits irrespective of the payment
of interests, and the granting of money loans and acceptances of credits or the
purchase of bills and cheques or the purchase and sale of securities for
account of others or the incurring of the obligations to acquire claims in
respect of loans prior to their maturity or the assumption of guarantees and
other warranties for others or the effecting of transfers and clearings, and
such other transactions as the commissioner may, on the
1.1 THE
BACKGROUND OF THE STUDY
Lending of money (or credit extension) is a major service provided by
banks. In its bid to do this very efficiently, some guidelines are usually set
out in other ensure that loans granted are repaid at the time and in the way
agreed.
Bank lending is highly regulated as can be observed in the monetary
circulars issued by the regulatory Authorities at the commencement of each
(financial) year. The Nigerian financial system comprises of bank and non-bank
financial institutions which are regulated by the Federal Ministry of Finance
(FMF), Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation
(NDIC). Securities and Exchange Commission (SEC), National Insurance Commission
(NIC), Federal mortgage Bank of Nigeria (FMBN), and the National Board for
Community banks (NBCB).
There are a number of reasons why bank are regulated. One is to protect
the deposits of their customers, another reasons is to encourage or limit
particular kind of lending because of the expected impact on the
This paper will look at the guiding factors which do influence a bank’s
loan policies with particular references to the bank being used as
case-study-citizens international Bank Limited. Items to be included while
making or preparing a loan policy shall also be discussed. Attempts will be
made to find out while banks still report much loan losses despite the policies
and regulations in place.
1.2 STATEMENT
OF THE PROBLEM
Banks and non-bank financial
institutions usually adopt some policies in granting credits to their customers
so as to minimize the risk of loan loss by matching Risk and Return, cash flow
and loan repayment.....================================================================
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