DEBT RECOVERY PROCEDURES AND STRATEGIES OF MONEY-DEPOSIT BANKS IN NIGERIA ( A CASES STUDY OF 3 BANKS IN NIGERIA)
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DEBT
RECOVERY PROCEDURES AND STRATEGIES OF MONEY-DEPOSIT BANKS IN NIGERIA ( A CASES
STUDY OF 3 BANKS IN NIGERIA)
Introduction
The role of
credit facilities in any modern economy can not be over emphasized. This could
be best appreciated when it is realized that the rate of development of the
economy would be showed down without credit, lack of credit is often the
greatest single impediment to the growth and diversification of most industries
(bolt small and large) in Nigeria first bank 1997. Further more, the
availability of credit facilities influence what is produced and how much of
each product is produced
Bank-lending
serves as a major avenue for resources allocation. This is by mobilizing credit
from surplus economic unit (Orji, 1997) it allows for the survival of the
debtor of maintaining resources. This helps the two parties to optimize their
position, because creditor obtains returns for parting with their resources,
while debtor makes profit on the resources borrowed. The function of credit
derived from the fact that individual and firm on their own have very limited
resources to carry on the activities of production, commerce and development of
nation economy lending discourages accumulation of sterile money as available
capital is full utilized (Nwanchukwu, 2008).
This is
especially important in a developing economy like Nigeria and particularly in
this period of economic recession and political long Jam where foreign
investors are scared to invest in crises prove environment.
The increase
in the involvement of banks in the domestic economy as a result of the Nigeria
enterprise promotion degree of 1973 (popularly known as the indigenization
degree) and the amendment made in 1975 have result in the emergence of various
sector looking into the commercial bank and other financial intermediaries as
the sources of find to finance their project (Owosho, 2002). A total of
N4268.1million credit was granted by commercial bank at the end of June 1977 as
compares to the N242.7million granted in December 1968 more importantly
increasing shares of these loans and advances have been persistently channel
away from less preferred factor (General commercial and consumption loans) to
the preferred sector of the economy manufacturing, mining, construction and
agriculture (CBN Bullion, 2003). According to credit guidelines a minimum of
50% of loans and advances of commercial banks should be made available to the
preferred sector (Business time 1988).
Lending aids
the credit of money that is in the process of lending commercial banks credit
money; they create a liability in form of demand deposit against themselves in
favour of the debtors (first bank 1997). This money created by commercial bank
to the money supply which help in stimulating the level of economic activities
in various sector of the economy lending bellows flexibility on payment
structure and consequently on the economy.
The lending
through bank and other financial institution involves the collection of liquid
funds not currently in use and placing them through its ending activities at
the disposal of persons, institutions and government in need of liquid funds to
elect payment of different kind (Drucker, 1964). This way, those with
enterprise kill and know-how without personal wealth who find it extremely
difficult to acquire control of production assets will find a saving grace in
the use of credit facilities or lending, therefore, their rave and invaluable
human ability will not waste (Funess, 2005).
Agene (2004)
notes that lending can be used as a
powerful instrument by monetary authorities to turn the economy abound depending
on what they want or intend to achieve most fluctuation in the flow of credit
can have large consequences on the price level employment and the rate of
economic growth for instance. In order to reduce the rate at which commercial
bank grant loans and advances to their respective customer, Agene (2004) says
that the central bank have a crucial role to play in achieving macro-economic
objective of full employment potential growth and output and price stability.
On the other hand, this can also be raised to curb excessive borrowing and
hence reduced inflation.
From this
fore-going, it is obvious that layman’s view of bank lending is only in term of
cash loans and overdraft granted to a customer is too narrow in view of the
phenomenal develop0ments which as been taken place in the field of finance,
banking, commerce, industry and general economic activities of modern society.
Major causes
of bank failure
According to
Dare (2003), the problem in many banks arises from the inefficiency, of the
board and management or wrong choice of personnel who rather than being
committed to the progress of these institution where careless, self centered
and greedy.
In view of
the committee on banking and regulation and supervision practices report of
2004, the head of the committee chaired by Umoh P.H. reported that decline in
assets quantity where often associated with the depressed condition in the
general economy, external consideration of these were the sole clause of
failure in the small minority of causes. Also, the Nigeria Deposit Insurance
Corporation (NDIC) in its 2001 annual report viewed that the important subject,
particularly the role of the board and management of some insured banks have
played in their depositors bank failure and what they and their depositor can
do to assist the banks to come out of the failure, for many banks the processes
of deterioration in their financial condition, (especially those already
liquidated) began with poor lending practices. For example, management lack of
attention to the details of the loan function concentration of credited
extended to director, shareholders and related companies opened the door to
credit weaknesses and left many banks venerable to economic changes, some of
these issues which are common to both commercial and merchant bank are
discussed below.
Capital
Inadequacy
Capital
inadequacy according to Ebhodaghe (2004), put many financial institutions in a
questionable state. according to him, the principle function of capital in any
bank is to service as this remains a means by which losses may be absorbed.
Capital provides a cushion to withstand abnormal losses not covered by current
earning, this enables the bank to regain equilibrium and to re-establish a
normal pattern, and unfortunately a good number of the country’s banks are
still gross under capitalized. Adekanye (2006) notes that this situation could
partly be attributed to the fact that many of the banks of the state government
owned banks operate with little capital. This problem of inadequate capital has
been worsened by the huge amount of non-performing loans which have eroded the
banks capital base.
Available
statistic on banks capitalization reveal that as at the end of 1992, the 120
banks operating in the country required an additional capital of N56billion to
support their volume of business as prudential minimum capitals funds required
by banks supervisors. By the end of 1993, the bank required additional capital
fund of about N9.1billion? (Adesuwa, 2001).
In-depth
Management
The quality
of management can no doubt make an important difference between sound and
unsound banks. Poor ban management his in the past resulted in excessive risk
taking by some banks.
According to
Ebhodaghe (2004), “banks were often at fault through excessive operating
expenses, inadequate administration of loan port/folio an over laying
aggressive growth policy attact deposit, interest rate speculation coupled with
other instances of poor judgment that resulted in stress for the banks.
According to
Furness (2006), in-depth management was
evident in credit administration, many of the bank has poor credit policies and
in case where good polices are in place, such policies were never implemented
faithfully. Also, many of the banks management environment were often
characterized by instability of tenure of directors and key management staff,
bound room quarrel, insider abuse, weak internal control system as well as
control venations of well intended statuary regulations. All these had
contributed in no small way to the bank financial failure (Furness, 2006).
Frauds and
Forgeries
Fraud is one
of the causes of losses of many Nigeria banks. According to Nwachukwu (2008),
it is not uncommon to find bank staff concluding with outsiders to defraud a
bark and director concluding with management. For example, which the management
acquires to lend to unviable companies related to the bank director even when
they are aware that such companies are being used as vehicles to siphon the
banks funds to the private pockets of such director. Oluyemi and Mamman posted
the management mobility to put in place, adequate control has resulted in
series of fraudulent activities by staff and huge loses the wipe out large part
of some bank income (Nwachukwu, 2008).
Aggregate
terms for example, the sum of N1, 3777.15 million was involved in commercial
bank fraud and forgeries in 1993 compared with N351.9million in 1992 (N.D.I.C)
1993 this is an increase of about 291%. According to the NDIC 1993 report that
aggregate actual expected loss was N241.0million in 1993 compared with
N64.8million in 1999, showing an increase of about 272% (percent).
Lack of
adequate supervision and the inexperience syndrome
It has been
argued that the management of banks in over regulated credit environment, like
Nigeria encourages arm chain banking according to Agene (2004) “the failure of
the management to determine whether or not sound policies laid down by
management are been carried out” such lapse can seriously undermine a bank
security arrangement as well as international control systems.
According to
Adesuwa (2001), bank boards are supposed to be composed of people with a wide
range of experience in business management, particularly financial matters,
similarly the executive management are supposed to comprise practice men and
women of proven track record in banking, who have distinguished themselves as
managers of human and material resources in banks. Unfortunately, we observe
that those standard are hardly met these days. Adesuwa states further that these banks directors have
tended to be nominee’s of major shareholders (usually the chairman) and some of
these directors are unable and even unavailing to lean about financial matters.
Their roles are to rubber-stamp what the chairman and management present to the
board. Their major interest lies in what financial and material benefits the
board membership can bestow.
Credit
information and policy
Credit
information according to Van Homes (2000) is “the decision variables that
influences the amount of trade credit that is the investment in debtors” it
provides guidelines for the determination of the need to extend credit to
customer or note the amount of credit to extend the period of the credit term
and procedure for the collection of cash from debtors (Van Homes, 2000).
Ownership
structure/political interference in the bank management
Bank owners
and directors (especially in government owned banks) in the internal management
of banks have contributed to the financial failure in most banks. Akomaye
(2006) notes that some shareholders borrow from their band and this is usually
done through direct related companies for example, in a recently liquidated
bank, it was found that the bank even borrowed from the central bank of Nigeria
to fund its director loans (Akomaye, 2000).
Most of the
government owned banks were often treated as political banks. Some of these
banks were characterized by inept management whose tenures of office were often
very unstable. Appointment to the board and key management position were usually
based on criteria other than merit (Adekanye, 2006). In most cases, as the
other state government charged frequently, so also did the board and key
management staffs of the banks one result was inconsistent, policies due to the
fact that what one board did is the succeeding (for political reason) ever
turned with reckless abandon loans and advances to owner, government and their
agencies were often not repaired either were the loans collaterised (Adekanye,
2006).
Loan Policy
When lending
is based on guess work, credit may be extended to now and old businesses that
are inadequately capitalized, for example speculative purpose, base on
securities that can be easily realized. According to Agene
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