CREDIT MANAGEMENT AND THE INCIDENCE OF BAD DEBT IN NIGERIA MONEY-DEPOSIT BANKS

BACKGROUND OF THE STUDY
In a modern economy,there is distinction between the surplus economic units and the deficit economic units and inconsequence a separation of the savings investment mechanism.This has necessitated the existence of financial institution whose jobs include the transfer of funds from savers to investors.one of such institution is the money deposits banks,the intermediating roles of the money-deposit banks places them in a position of “trustees´´ of the saving of the widely dispersed surplus economic units as well as the determinant of the rate and shape of the economic development.The techniques employed by bankers in this intermediary function should provide them with perfect knowledge of the outcomes of lending such that funds will be allocated to investments in which the probability of full payment is certain.However,in practise no such tool can be found in the decision of the lending banker.Virtually all lending decisions are made under creditors on uncertainty.The risk and uncertainty associated with lending decision, situation are so great that the concepts of risk and risk analysis need to be employed by lending bankers in order to facilitate sound decision-making and judgement.This statement implies that if risks are to be objectively assessed,lending decisions by the money-deposit banks should be based less on quantitative data and more on principles too subjective to provide sound and unbiased judgement.Furthermore,the banks depend heavily on historical information as a basis for decision making.

Apparently aware of the inadequacies of his decisions base,the lending banker has often sought solace in tangible and marketable assets as security giving the impression that lending against such securities is an insurance against bad debts.this makes the banker complacent with his loan portfolio.The increasing trend of provisions for bad and doubtful debts in most money-deposit banks is a major source of concern not only to management but also to the shareholders who are becoming more aware of the dangers posed by these debts.Bad debts destroy part of the earning assets of banks such as loans and advances which have been described as the main source of earning and also determines the liquidity and solvency which generate two major problems, That is profitability and liquidity, has to earn sufficient income to meet its operating costs and to have adequate return on its investments.

1.2 STATEMENT OF THE PROBLEMS
The problem for this study is to appraise the lending and credit management policies of a typical Money-deposit bank(the first bank of Nigeria Plc) with a view of finding the causes,consequences of bad debts in banks.Year after year,banks suffer much from the part of full loan extended which has for one reason or the other proved unrecoverable.Banks lose millions of Naira in various bad debts yearly and despite efforts by bank management, committee of chief inspectors and the bankers committee on the other hand,the wave of bad debts in banks is still on alarming proportion.This is gathered from a combination of literature reviews on the topic.

On the other hand,many banks experienced a lot of bad debts when the new government abandoned the project awarded to the contractors by civilian government.These contractors borrowed to execute the project awarded to them but could not repay the loan,due to government action on reramping the economy thereby abandoning the project.Other experiences were during the time of draught or poor rainfall and pest.These however led to low harvest which did not give the farmers enough time to repay their debt.

Again, experience may arise in respect of lapses on the part of the banks credit officers.For instance, there may be excesses over approved facility,unformatted facilities and expired facilities not renewed on time.In each of these cases the customer may easily deny even owing the bank all or part of the amount.Money.deposit banks have always borne the burden alone,but this may not continue in future as the banks may be unable to take the risk of lending more but when eventually they do,they would seek the best way they come out of the risk with a realistic reward which they are clearly failing to achieve at present.