AN EXAMINATION OF THE IMPACT OF BANK LENDING AND RECOVERY POLICIES ON COMMERCIAL PERFORMANCE IN NIGERIA

AN EXAMINATION OF THE IMPACT OF BANK LENDING AND RECOVERY POLICIES ON COMMERCIAL PERFORMANCE IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Banks, the world over thrive on their ability to generate income through their lending activities. Banks are germane to economic development through the financial service they provide. Their intermediation role can be said to be a catalyst for economic growth (Funso, Kolade&Ojo, 2012). The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. The extent to which a bank extends credit to the public for productive activities accelerates the pace of a nation’s economic growth and its long term sustainability.

Commercial banks in Nigeria are important institutions who engage in savings, mobilization and financial resource allocation. These roles make them an important phenomenon in economic growth and development. Olokoye, (2012) noted that commercial banks mobilize financial resources from surplus agents and allocate them to productive investment. Profitability, liquidity and solvency are their guiding principles in giving out loans and advances to their numerous customers.

Commercial banking in Nigeria witnessed an era of impressive profitability, characterized by high competition, huge deposits and varied investment opportunities. In an effort to make quick profits, commercial bank relied essentially on self-liquidating loans and diversified their portfolio into less risky investments with safe margin. The current trend in Nigerian banking and finance sector, suggest that the days of cheap profit are now over and only banks with well conceptualized lending and credit administration policies and procedure can survive the emerging competition (Adedoyin&Sobodun, 1991).

Lending practices in the world could be traced to industrial revolution which increases the pace of commercial and production activities thereby bringing about the need for large capital outlays for projects (Olokoye, 2012).

However, the emergence of banks in Nigeria in 1872 with the establishment of the African Banks Corporation (ABC) and later appearance of other banks in the scene during the colonial era witnessed the beginning of banks’ lending practices in Nigeria. The colonial banks were biased and discriminates lending practices this lead to the establishment of indigenous banks in Nigeria. Lending practices of banks was brought under strict regulation under close surveillance of the bank supervisory bodies prior to the advent of Structural Adjustment Programme (SAP) in the country in 1986.

According to Adedoyin, and Sobodun, (1991) lending is undoubtedly the heart of banking business. Therefore, its administration requires considerable skill and dexterity on the part of the bank management. While bank is irrevocably committed to pay interest on deposit it mobilized from different sources, the ability to articulate loanable avenues where deposit funds could be placed to generate reasonable income, maintain liquidity and ensure safety requires a high degree of pragmatic policy formulation and application.

Osayameh, (1991) supported this view by stressing that the days of armchair banking are over and that the increasing trend in debts and absence of basic business corporate advisory services in most Nigerian commercial banks suggest an apparent lack of use of effective lending and recovery policies in these banks. Because of the lack of using effective lending and recovery policies in banks, this work therefore wants to find out what causes ineffectiveness in bank lending and recovery policies and their impact on commercial banks performance in Nigeria.

1.2       Statement of Problem

Lending which may be on short, medium or long-term basis is one of the services that commercial banks do render to their customers. In other words, banks do grant loans and advances to individuals, business organizations as well as government in order to enable them embark on investment and development activities as a mean of aiding their growth in particular or contributing toward the economic development of a country in general (Olokoye,  2012).

Commercial banks are the most important savings, mobilization and financial resource allocation institutions. Consequently, these roles make them an important phenomenon in economic growth and development. In performing this role, it must be realized that banks have the potential, scope and prospects for mobilizing financial resources and allocating them to productive investments. Therefore, no matter the sources of the generation of income or the economic policies of the country, commercial banks would be interested in giving out loans and advances to their numerous customers bearing in mind, the three principles guiding their operations which are, profitability, liquidity and solvency.

However, the extent to which the loans and advances and recovery policies such as the interest rate charge and liquidity ratios etc. influences the performance of commercial banks in Nigeria is yet to be empirically determined. Exacerbating this problem the more is the absence of studies that seek to examine this influence. It is in view of the forgoing that a study that seeks to empirically investigate the impact of lending and recovery policies on the performances of commercial banks in Nigeria has become absolutely imperative.

1.3       Aims and Objectives of the Study

The broad objective of this study is to examine the extent to which lending and recovery policies of commercial banks in Nigeria influences their performance. Specifically, this study seek to accomplish the following stated objectives

1.    To examine the extent to which loans and advances (LOA) influences the return on assets (ROA) of banks.

2.    To examine the extent to which interest rate charge by banks (IR) influences the return on assets (ROA) of banks.

3.    To examine the extent to which liquidity Ratio (LR) influences the return on assets (ROA) of banks.

TOPIC: AN EXAMINATION OF THE IMPACT OF BANK LENDING AND RECOVERY POLICIES ON COMMERCIAL PERFORMANCE IN NIGERIA

Chapters: 1 - 5
Delivery: Email

Number of Pages: 65

Price: 3000 NGN

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