AN EVALUATION OF THE IMPACT OF DEBT MANAGEMENT ON CORPORATE PROFITABILITY: A STUDY OF UNION BANK OF NIGERIA MAKURDI

AN EVALUATION OF THE IMPACT OF DEBT MANAGEMENT ON CORPORATE PROFITABILITY: A STUDY OF UNION BANK OF NIGERIA MAKURDI

CHAPTER ONE

INTRODUCTION

1.1          Background to the Study

In June 2012, the former Finance Minister, Anthony Ani, predicted that “the merged banks will eventually die” (Daily Sun, June 18, 2012). There have been debates about the banking industry and its rising and falling status, mergers and acquisitions, recapitalization and nationalization of banks, failed banks tribunal and so on since early 1980s (Chigozie & Okoli, 2013). The underpinning was a lasting solution to the crisis that seems to engulf the banking industry.

Moreover, the banking industry has been known for its intermediation role in providing financial assistance (credit) needed in the economy. This role is normally carried out in many ways, for example, granting of loans and advances to customers, which constitute the major part of bank lending. Apart from loans and advances, there are other forms of banking or bank credits or bonds issued by banks for and on behalf of customers. Banks are merely custodians of the money they lend; hence interest must be paid to depositors and dividends to the investors.

Credit management can be seen as an integral part of lending and as such in its absence, good loans can turn bad (Chigozie & Okoli, 2013). It is expedient to note that the importance of credit management cannot be over-emphasized and good credit management requires the establishment of adherence to and of sound and efficient credit policies of government. For banks to be successful, their corporate credit appraisal, disbursement, adequate monitoring and repayment must be assured. But experiences over the years have shown that inadequate credit analysis and sound judgment of loans application have resulted in unperforming loans (Chigozie & Okoli, 2013).

Provision of credits, which are in the form of loans and advances, are the total amount of money a given bank lends out to its customers at any given period of time. The bank usually charges the borrower interest for using its money. These loans and advances usually have maturity period. In providing credits for business ventures, banks should as a matter of importance take all necessary steps to ensure that advances are granted to those customers who can and will make judicious use of loans so that repayment will not become a problem. Therefore credits must be made to people who are capable of utilizing it well and repaying the loan at its maturity.

The place of loans and advances in the affairs of banks can be explained by referring to the fact that “loans and advances are the largest single item in the assets structures of Nigeria commercial Banks (Ani, 2012).” It also constitutes the main source of the operating income of banks and also the most profitable assets for the employment of banks funds (Nwankwo 1980). This study is therefore a modest attempt aimed at examining the influence of debt management on the performance of commercial banks in Nigeria.

1.2       Statement of the Problem

One of the ways to totally avoid bad debts is to refuse to lend money at all. If banks should then refuse to lend at all, then issue of profitability is cancelled and hence the main purpose of carrying on a business, which is to maximize profit, is then defeated. Credit must be adequately managed so that banks could remain in business and prudent lending could do this. The provision for bad and doubtful debts rises steadily in banks annual reports which send bad signals to the investors within the economy (Chigozie & Okoli, 2013).

A critical perusal at existing literature has shown that, less research attention has been directed at examining the influence of debt management on the performance of commercial banks in Nigeria. Thus, the nexus between debt management and performance of commercial banks is hitherto missing in literature. Against this background, the need for this study has become absolutely imperative.

TOPIC: AN EVALUATION OF THE IMPACT OF DEBT MANAGEMENT ON CORPORATE PROFITABILITY: A STUDY OF UNION BANK OF NIGERIA MAKURDI

Chapters: 1 - 5
Delivery: Email

Number of Pages: 65

Price: 3000 NGN

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