CHAPTER ONE
1.0 INTRODUCTION
1.1 GENERAL DECRIPTION OF THE STUDY
Commercial
banking activities started when an expatriate shipping company based in
Liverpool, England known as elder dumpster and company limited invited African
banking corporation {ABC} of south Africa to e establish a branch of it bank in
Lagos in 1892 in order to enhance trading activities of companies. Later in
1894 another bank was registered by elder Danyster company limited under name
bank of British west Africa {BBWA}which open its first branch in Lagos that
year.
Later
in 1899, the Anylo-African bank was establish by royal Nigeria company {Now UAC
of Nigeria PLC}.In order to break the complete monopoly of the Nigeria since by
BBWA in 1912, the bank was sold out to BBWA since could not be a monopoly.
Subsequently, in 1949 another expatriate bank known
as the British and French {Now united of Africa PLC} was established.
Moreover,
between 1994 and 2003, not more than banks in the country close shop due to
insolvency. The failed banks had certain thing in common under capitalization
and unethical sharp practices presently the dominant banks in Nigeria are the
indigenous banks, while there are few with foreign interest but are
incorporated.
The rate of growth banking industry in Nigeria today
as well as it expansion and survival depends on efficient on their dealings
with customers give them the confident that they are operating, investing or
banking with a reliable. It will also affect the performance of the industry
positively.
Generally, debt managements is a professional system
of managing the investments of banks in order to avoid debt and recognize
losses arising from exposures and income thereof, to the extent that debt
management will greatly affect the improvement and performance of commercial
banks, since the aim is to reduce the effect of debt by regulating how interest
on loans and advances and other risk should be recognized and disclosed in the
financial statement.
According
to Adams{2006} debt management represent action of the government or the
investing bank to influence the composition of debt. debt can be managed in the
following ways;
(1) Economic
restricting programmed.
(2) Debt
repudiation.
(3) Debt
equity SWAP or debt conversion program
me, which was introduced in July 1988.
Furthermore,
in order to reduce the liquidation and bankruptcy of commercial banks for debt
management, commercial provide financial services and intermarries to the
various segments of economy. As part of the services rendered, they are coming
between surplus economic units and deficit economic units.
1.2 HISTORY OF THE CASE STUDY ORGANIZATION
The
case study used in this research, debt management of commercial bank in
Nigerian problems and prospects, is union bank of Nigeria plc. Union bank of
Nigerian plc was establish in 1917 as colonial with its first branch in Lagos.
In 1925, Barclays bank acquire the colonial bank, which resulted in
the change of the banks name to Barclays bank (Dominion, Colonial and
overseas).
In 1969, the bank was incorporated as Barclays bank of
Nigerian limited. The ownership structure of Barclays bank remained un-changed
until 1971 when 8.33% of the banks share were offered to Nigerians. In the same
year, the bank was listed on the Nigeria stock exchange. As a result of the
Nigeria enterprises promotion Act of 1972, the federal government of Nigeria
acquired 51.67% of the banks share,
which lift Barclays bank plc, London with only 40%. By the enactment of the
1972 and 1977 Nigeria enterprises promotion Acts, Barclays bank international
disposed its shareholding to Nigerians on 1979. To reflect the new ownership
structure and compliance with the companies and Allied matters Act of 1990, it
assumed the name union bank of Nigeria plc.
In
consonance with the governments program me of privatization commercialization
of public enterprises, the government in 1993 sold its shares in union bank, and it become fully owned by
Nigeria citizens and organizations. The bank also increased its shareholders
funds through a public offer/rights issue in the last quarter of 2005. Union
bank has 379 branches across the country, all o which are on-line real time.
With the development, union bank remains one the capitalized banks in Nigeria.
As at December, 2015 union banks has a shareholder fund of #1,19,160 billion
and operation through 405 network of branches that are well spread across the
country. The union bank of Nigeria has some subsidiaries and associated
companies which are listed below.
SUBSIDIARIES
-Union home, saving and loans plc.
-Union trustees limited.
-Union assurance company limited.
-Banque International and bennine cotonou.
-UTL Communication service limited.
-Union capital market limited.
-Union registers.
Associated
Companies
-Consolidated discount ltd.
-HFC Bank Ghana ltd.
-Unique venture capital management company ltd.
Union
bank group operate an internal locking organizational structure whereby some
board members of the union bank of Nigeria plc act as external auditors in the
subsidiaries and associated companies. This arrangement ensures affective
oversight and participation in the decision making process of these companies
thereby state guarding banks investment.
Today, the bank is a leading regional bank in sub-share Africa in terms
of its difference investment across the global, as the banks financial summary
reveals it solvency. On 30th September,
2016 the bank gross earning was #193.44 billion, profit before task stood at
#13.28 billion and profit after task stood at #13.01 billion and on 26th
September, 2016 the total assets was #1095.4998.1 billion till 2017.
The
bank management is headed by Mrs Funke Osibodu as the group managing director
and the chief executive officer is Mr Emeka Emuwa.
1.3 OBJECTIVE OF THE STUDY
The broad objective of this study is to examine the
debt management, the problems and prospects of Commercial banks in Nigeria.
However, the following specific objectives would be achieved;
i. To identify and appraise the lending procedure of
banks using union bank of Nigerian plc as a case study with as view to
highlighting the effectiveness and adequacy or otherwise the credit management
policy of Nigerian banks in reducing the occurrence and consequences of bad
debt.
ii. To find out the rate and which inadequate collateral security provision by borrowers
increasing the incidences of bad debt in Nigeria banks.
iii. To identify whether fund diversion has any
effect on bad debt commercial bank in
Nigerian.
iv. To examine the extent to which government
intervention in lending policies of commercial banks has influenced bad debts
in Nigerian commercial banks.
v. To find out the extent to which improper project
evaluation influence bad of commercial banks in Nigeria.
1.5 RESEARCH QUESTIONS
By answering the following questions, the objectives
of the study would be achieved.
i. What is the lending procedures and credit
management policy of commercial bank in Nigeria?
ii. What are the provision for collateral security
to loan granted to customers by commercial banks?
iii. To what extent does fund division have any
effect on bad debt of union bank PLC?
iv. To what extent has government intervention in
lending policies of commercial bank influenced bad debt in union Bank PLC?
v. To what extent does improper project evaluation
influenced bad debt of union bank of Nigeria PLC?
1.6 SCOPE OF THE STUDY
The study will centre on the management of bad and
doubtful debts in union bank Nigeria PLC. Loans and advanced department of the
bank were studied. The research will cover the identification, possible avoidance,
minimization and management of bad and doubtful debts in the bank.
It is expected that the result from the study will
also be useful and relevant to other commercial banks in the country, since
they are all in the same financial market and face similar problems.
1.7 ASSUMPTIONS
Based on the findings of some researchers on the
debt management of commercial banks in Nigeria. problems and prospects''. These
assumptions are made to guide the researcher in the following that;
i. It was assumed that union bank PLC in accordance
with generally accepted according principle (GAAP) and the statement of
accounting standards (SAS) just like other ventures.
ii. It was also assumed that the result generated
from the union bank PLC organization could be generalized to other companies in
the industry.
iii. it was also assumed that the result of the
study will be up to date and concise.
1.8 SIGNIFICANCE OF THE STUDY
The study is about the debt management of commercial
banks in Nigeria: problems and prospects.
The
significance of this study to management of commercial banks will enable them
to appreciate an appraisal of their lending and control mechanism now that they
are expected to lend under tight monetary conditions. The economy as a whole
will benefit from the study because if the level of bad debts is reduced,
banks will be left with more profit to enable them make expected contributions
to the development of the economy. The
study will also add to our understanding of how Nigerian commercial banks grant
their credits.
The
significance of the study to government face policy choice concerning debt
management objectives it preferred risk tolerance, when part of the government
statement of financial position those managing debt should be responsible for,
how to manage contingent liabilities and how to establish sound government for
public debt management. these include; recognition of the benefits of clear
objectives for separation and coordination of debt and monetary management
objective and accountabilities.
Hence
the significance of his study to students this study could be of immense help
to students of Accounting or Banking and fiancé to equip them when they go into
the field of the course they read.
1.9 DEFINITIONS OF UNFAMILIAR TERMS
DEBT:-This is described for as an obligation to make
future payment, it is credit received by a borrower from a pure lender who may
be a formal or informal institution against
the borrower's promise to make future payment. Ike (2004).
MANAGEMENT:- According to Onyemesim (2009)
management is the coordination of all
the resources of an organization through the process of planning, organizing,
directing and continuous in order to attain organization objectives.
PROBLEM:- These means difficulties to deal with, it
also means a question to be answered or solved.
PROSPECTS:- According to Orjih (2011) prospects is a
legal document given to every investor who contemplates purchasing registered
securities in an offering it describes the details of the company and the
particular offering.
COMMERCIAL BANK:- According to Steven (2003;P.511)
commercial bank is regard to as a bank or a division of a bank that mostly
deals with deposit and loans from corporation on large business, as opposed to
normal individual member of the public.
DEFICIT ECONOMIC UNITS:- According to Ibiam (2016)
deficit economic units is any individual, group or entity (such as a broker or
dealer) obtain its funds surplus economics units by way of the financial
markets.
SRUPLUS ECONOMIC UNIT:- According to Ibiam (2016)
surplus economic unit is an economic unit with income that is greater than or
equal to expenditures on consumption or real investment over the course of a
period.
DEBT REPUDIATION:- According to Anonymous (2005)
Debt equity swap is an arrangement used for solving debt problem. it involves
the internalizing for foreign debts and the bound holders exchange their
instruments for equity holing.
DEBT CONVERSION:- According to Ihimohu (2008: P.194) Debt conversion in a broad sense is
the exchange of monetary instrument for tangible assets conversion financial
instrument. In Nigeria, the debt conversion exercise involves the sale of an
external debt instrument for a domestic debt or equity participation in
domestic enterprises.
DOMESTIC DEBT:- According to Ihimohu (2008:P.183)
Domestic debt is a debt incurred by the government through borrowing from its
citizens in domestic market in order to finance investments.