PROJECT TOPIC :CREDIT MANAGEMENT IN NIGERIAN BANKING INSTITUTION
CHAPTERS: Chapter 1 – 5
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This study, CREDIT MANAGEMENT IN NIGERIAN BANKING INSTITUTION contains concise information that will serve as a framework or guide for your project work. The project study is well-researched for academic purposes and are usually provided in complete chapters with adequate References.
Keywords:CREDIT MANAGEMENT IN NIGERIAN BANKING INSTITUTION
The Nigerian banking industry has witnessed several banking distress and subsequent failures due to inadequate credit risk management. Even though, it is not often possible to totally eliminate risks in an organization’s daily operations, the probability of a loss can be reduced by changing some of the circumstances relating to loss. According to Pandey (2004), the key to effective credit risk management is not to do away totally with the various inherent risks. For example, lending operations of banks have the inherent risks of possible loan losses (credit risk) but by taking the risk, banks are able to charge a premium for their risk taking activities and earn profits. Risks are therefore, a source of profits to the banks. It has become more important than ever for banks to effectively manage the various types of risk they confront, including market, credit, liquidity, operational and technology risks. Banks are becoming more exposed to risks as changing technology, operational environment and regulations often create new set of risk in whose answers lie in better planning and well organized risk management techniques.
Cooker (1989), as cited in (Okoye 2010), observed that “the main function of a bank is the collection of deposits from those with surplus cash resources and the lending of these cash resources to those with an immediate need for them” in fulfilling this, Banks must ensure that depositor’s funds are availed to obligors with the capacity to repay both the principal and interest. The Basel Committee on banking supervision also introduced the “New Capital Accord” which was implemented in 2007. The New Capital Accord required capital charges to be made for credit, market and operational risks. This is aimed at protecting depositors, consumers, and the general public against losses arising from bank fragility and failure (Umoh, 2005). Recently risk managers of major banks came together in Lagos to form an organization named Credit Risk Association of Nigeria (CRAN). Concerted efforts are also being made by captains of banking industry to reduce the risk exposure of banks in lending to borrowers generally but especially to commercial bank, which is traditionally prone to market and credit risk.
The Nigerian economy has become globalized by the deliberate government actions since July 1986 when the federal government began the implementation of the Structural Adjustment Programme (SAP). The SAP sought to deregulate and free the economy from government control with a view to allowing market forces determine the production and consumption decisions of economic agent within the country. The deregulation process which was accompanied by privatization and commercialization government enterprises, had far-reaching impacts on the entire economy. In particular, deregulation of interest rates affected bank lending to the real sectors of the economy. In more recent times, government adopted business consolidation strategies viz: merges, acquisitions and taken over as part of its efforts to facilitate the ability of firms in financial services industry to become global market Players.
Credit Risk Management is at the core of lending in the banking industry. Despite the creation of a Risk Management Division at Nigeria Commercial Banks, which is responsible for managing the bank’s risks including credit risk, available records show a rise in the value of non-performing loans of the bank. According to CBN Financial Stability Report, banking industry’s non-performing loans ratio to rose from N1.678bn in June to N2.084tn in December 2016. Many Nigerian banks had failed in the past due to inadequate credit risk management practices. This problem has persisted and has affected the industry with serious adverse consequences. Banks are generally subject to wide array of risks in the course of their business operations. Nwankwo (1990) observes that the subject of credit risk today occupies a central position in the business decisions of bank management and it is not surprising that every institution is assessed and patronized by customers, investors and the general public to a large extent by the way or manner it presents itself with respect to volume and allocation of risks as well as decision against them.
Other risks which all financial institutions operating within the Nigeria economic space are exposed to include insider abuse, poor corporate governance, liquidity risk, inadequate strategic direction, among others. These risks have increased especially in recent times as banks diversify their assets in the changing market. In particular, with the globalization of financial markets over the years, the activities and operations of banks have expanded rapidly including their exposure to credit risk.
The specific objectives of this study are:
- To determine the extent to which the implementation of policies against connected-party lending and large exposures to related parties affects the loan portfolio of commercial banks in Nigeria.
- To determine the effect of accuracy of loan documentation on the loan portfolio of commercial banks in Nigeria.
- To determine the effect of an independent loan review and periodic audit on the loan portfolio of commercial banks in Nigeria.
- To determine the effect of well-managed credit risk rating system on the loan portfolio of commercial banks in Nigeria.
The study will seek to answer the following questions:
- What is the effect of implementation of policies against connected-party and large exposures to related parties on the loan portfolio of commercial banks in Nigeria?
- What is the effect of accuracy of loan documentation on the loan portfolio of commercial banks in Nigeria?
- Does an independent loan review and periodic audit has effect on the loan portfolio of commercial banks in Nigeria?
- How does a well–managed credit risk rating system affect the loan portfolio of commercial banks in Nigeria?
1.5 Research Hypotheses
The following null hypotheses have been formulated to guide this research work.
H01: Implementation of policies to limit connected-party lending and large exposures to related parties does not have a significant positive impact on the loan portfolio of commercial banks in Nigeria.
H02: Accuracy of loan documentation does not have a significant positive effect on the loan portfolio of commercial banks in Nigeria.
H03: An independent loan review and periodic audit does not have significant positive impact on the loan portfolio of commercial banks in Nigeria?
H05: A well–managed credit risk rating system does not have significant positive effect onthe loan portfolio of commercial banks in Nigeria?
This study covers credit risk management practices in Nigeria Banks. It examined credit risk management during the Post banking consolidation in Nigeria, precisely between 2011 and 2017.
This study has a number of significant dimensions. The result of this study should provide information to the Nigeria commercial bank’s risk management department on the important process that should be implemented in other to reduce credit risk. This study should also reveal how much such implemented processes has impacted on the growth of the entire commercial banks in Nigeria. Essentially, this work is a step in a right direction to assist and enlighten the general public on what credit risk management in commercial banks is all about and hence guide them in their immediate decision of handling credit risk.
Furthermore, there is need to provide a reference document for further researchers and evaluation of risk management conducted by other Nigerians/other Nations. This research work will go a long way to increase the availability of literature in the field of credit risk management in banks. Finally, the study is of immense benefit to policy makers, investors, financial managers, lecturers and the general public.