AN ASSESSMENT OF LOAN MANAGEMENT IN BANKING SECTOR
( A CASE STUDY OF UNION BANK OF NIGERIA PLC)
CHAPTER ONE
1.0
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Generally in Nigeria, banks
are usually accused by customer’s of number of short comings, which are
regarded as problems and failure in banking system. These include lack of
awareness by customers of the services they offer subjecting the customers to
long queues unsympathetic staff in terms of courtesy and efficiency, intricals
and unprogressive lending policies and procedures irregular issue of statement
etc, all these result in low level of customer satisfaction.
At moment, Nigeria is fast
attempting to transform into a modern industrial society whether this attempt
will be achieved or not is still questionable. The urban area having now high
population densihes from rural, which are supposed to be the sources of raw
materials for the industries. Hence the achievement of industrial objective
rest squarely on the shoulders of the banks.
Banks could help Nigeria reframe
herself and produce raw materials for her mills and not solely depend on
imported ones.
This could be done by
diversifying the source of income from the present mono (based solely on
petroleum revenue) to that of (diversified one)
The banks role in
attaining the above objective ultimately, specially and efficiently is very
crucial.
Having experienced the
strain, intricale and procedures of obtaining banks loanable fund that
researcher mind was directed to the questions as to what participates such
stumbling blocks in our banking system. It is the blame on the banks, the
customer and the government for not appreciating the place of credit in our
society for instance, the banks by the nature of their business exercise a high
degree of economic power. To them belong to the naira power which is the
lubricate/accelerator of our economy. They have the prerogative in the choice
of assets (businesses) they place their disposable portion of funds deposited
with them by customers. Tough they know and have experienced the positive
results of attempt in the effective provision and use of credit, the banks have
been rather very skeptical in exercise this their power not withstanding the central bank of Nigeria
issues annual directives to licensed banks allocating prescribing quantitative
ceiling as well as sectorial allocation of their loans and advances to the
economy through the monetary policy circulars conveying the central banks,
credit guidelines.
However, it has come to
be realized that these are certain problems associated with he present lending
schemes which must be highlighted and solved by the customers, the banks and government in providing loanable fund so that
more benefit would be taped from this usage.
Hence, the motives
behind the caring out of this research study.
1.2
STATEMENT OF PROBLEMS
There is hardly any
approach to obtaining bank loans/credits that is devoid of problems. This
project thus sets out to identify the lending problem of bank and customer in Kaduna and its
environments.
–
high rate of interest/charge
–
banks lend on short term basis cannot accommodate medium and long term
borrowers.
–
High rate of defaut
–
Difficulty in banks policy/central bank policies
–
Lack of security to back-up the lending
–
Customers request are not well packaged.
1.3
OBJECTIVES OF THIS STUDY
Specifically, there are
some factors outside management control such as the Central Bank credit guideline
(rule and regulation), policies and the value of managers implementating bank
policies, which influence in one way or the other on the lending decisions and
outcomes for the bank. The aim and objectives of this research include:
i.
how can we reduce the high rate of interest charge bank.
ii.
How can customer be educated on how to package their request correctly.
iii.
How possible it is to evaluate the lending difficult policy of both
bank/central bank
1.4
RESEARCH QUESTION
Ho: To what extent will judicious utilization of
loan lead to effective management control.
Hi: To what extent will judicious utilization of
loan not lead to effective management control
Ho: Will
assessment of loan management and accountability
serve as an aid to
increase the capability of Nigeria
banks?
Hi: Assessment of loan management and
accountability will not serve as an aid to increase the capability of Nigeria
Banks?
1.5
SIGNIFICANCE OF STUDY
After identification of
certain problems, on this research work recommendation will be made for
solution, considering their specific cause and nature. Such recommendation and
findings hopefully will be useful to management of banks in the countries who
have similar problems to the banks studies.
It is also hoped that
such recommendations will be of use to potential borrowers from the bank,
banking and accountancy student in the higher school of learning, and to the
numerous private management consultancy firms throughout Nigeria.
1.6
SCOPE OF THE STUDY
The scope of the study
is on commercial banks in Nigeria
or banking sector as a whole but using Union Bank Nigeria Plc Kaduna as a case
study.
1.7
HISTORICAL BACKGROUND OF THE CASE STUDY
Union Bank of Nigeria
Plc was established in 1917 as a colonial bank will its first branch in Lagos. In 1925, Barclays
bank acquired the colonial bank which resulted in the change of the bank’s name
to Barclays Bank (Dominion, colonial and overseas). Following the enactment of
the companies act 1968 and legal requirement for all foreign subsidiaries to be
incorporated locally, Barclays bank remained un-changed until 1971 when 8.33%
of the banks share were offered to Nigeria’s in the same year, the bank was listed
on the Nigerian Stock Exchange. As a result of the Nigeria enterprise promotion act of
1972, the Federal Government of Nigeria acquired 51% of the bank’s share, which
left Barclays bank plc. London
with only 40%. By the enactment of the 1972 and 1977 Nigeria
enterprises promotion act, Barclays bank International disposed its
shareholding to Nigeria
in 1979 to reflect the new ownership structure and in compliance with the
company and alied matter act of 1990, it assumed the name union Bank of Nigeria
Plc.
In line with the Central Bank of Nigerian banking
sector consolidation policy, Union Bank of Nigeria Plc. Acquired the former
universal trust bank Plc. And broad bank ltd. And absorbed it erstwhile
subsidiaries Union Merchant bank ltd. The bank also increased its shareholders funds
through a public offer/rights issue in the last quarter of 2005. with these
development Union Bank remains one of the most capitalized developments Union
Bank in Nigeria.
It has a shareholder fund of N102,542 billion and operates through 368 net work
of branches that are well spread across the country, all of which are line,
real time subsidiaries.
a.
Union homes saving and loans plc
b.
Union trustees limited
c.
Union assurance company limited
d.
Union bank UK Plc
e.
Banquet Intenational Benin,
cotonou
f.
UTL communications services limited
g.
UBN property company limited
h.
Union capital markets limited
i.
Union registration limited
ASSOCIATED COMPANIES
a.
consolidated discount Ltd
b.
HFc banks Ghana
limited
c.
Unique venture capital management co Ltd
Union bank group
operates in Interlocking organizational structure whereby some board members of
Union of Nigeria Plc act as external director in the subsidiaries and over
sight and participation in the decision making process of these companies,
thereby safeguarding the banks investments.
Today, Bank in a
leading regional bank in sub-sahara Africa in
terms of its diverse investments across the globe. A glance at the bank’s
financial summary reveals its solidity. As at 31st march 2007, the
banks gross earnings was N88.095 billion, profit before tax was N17,393
billion, total asset, was 699.24 billion shareholders fund was N102,245
billion.
The bank’s management
is headed by Dr. B. B. Ebong as the group managing director/chief executive
others are:
Ado Abdullahi executive
director (operation, up-country south).
Dr. K. S. Adeyemi
executive Director (information technology/services).
S.I. Ayniuem executive
director (Risk management and control)
E.U. Emeruem executive
Director (Lagos
operations)
A. E. Esangbedo executive
directors (operations up country north)
WCO Mbeh executive
director (Corporate resources)
A. I.N Obigwe Executive
Director Co-operate and International Banking.
1.8 DEFINTION OF TERMS
The author considers it
necessary to define the following terms as applied within the context of this
project.
Asset portfolio: Arrangement of bank assets on order of its
liquidity
and profitability.
Advances: These are monies lent by a bank generally
in
the form of an
overdraft on a current account and also by means of a loan or personal loan.
Affidavit form: This is a written statement used as a legal
proof.
Bank credit: Credit created by a bank
increasing the size of
the account of a
depositor e.g. when making an advance.
Branch banking: the typical commercial bank in most
countries is a very
large institution with a large number of branches.
C.O.T: Commission on turn over or cost of
transaction, this is
normally charged on the total of debt turn over of current account.
C.O.F.O: Certificate of occupancy
Cash ratio: This is the ratio of cash to
demand deposit
usually
calculated on percentage.
Clean lending: Loan and advance granted without any
security.
Collateral security: properties perhaps in the firming deeds to
a house or stock and
shares deposited with a creditors to guarantee that a loan will be repaid.
Demand deposit: this is the total amount of money deposited
with
the bank.
Deed of release: this is the document usually signed by
customers when any
property held by bank is returned.
Equitable mortgage: Property pledged to the bank as security
without
legal backing.
Guarantor: One who makes or gives a
guarantee or
security
for loan.
Liquidity preference: this refers to the degree at which
invaluable prefer that
funds to be near cash. They many prefer to hold saving in a completely liquid
form that is as cash.
Lieu Distain: this is a document issued by the
bank to an
insurance company
declaring their interest in a customer share.
Loan: It is the lending of money
borrower one of the
credit services
rendered to account holder by banks.
Monetary policy: this refers to the use of certain monetary
controls
by the government.
Moratonum period: A period when loan yield
no return
Overdraft: This involves letting the customers to draw
money in excess of the
draw money excess of the balance in the customers account.
Pledged property: this is delivery of goods or
document, of
little goods by the
customers to the Bank as security.
Standing order: An authority given by a customer to his
banker to transfer,
e.g. a fixed amount from his current account to his loan account.
Secured loan: Loan granted with proper
security.