Docstoc
EXCLUSIVE OFFER FOR DOCSTOC USERS
Try the all-new QuickBooks Online for FREE.  No credit card required.

impact of liquidity on credit management in nigerian bankss

Document Sample
impact of liquidity on credit management in nigerian bankss Powered By Docstoc
					                                CHAPTER ONE
                                INTRODUCTION
1.1   BACKGROUND TO THE STUDY
     Liquidity management involves the supply/withdrawal from the
market the amount of liquidity consistent with a desired level of short-
term interest rates or reserve money. It relies on the daily assessment of
the liquidity conditions in the banking system, so as to determine its
liquidity needs and thus the volume of liquidity to allot or withdraw from
the market. The liquidity needs of the banking system are defined by the
sum of reserve requirements imposed on banks, excess reserves, i.e.
funds held in excess of these requirements, autonomous factors, i.e. a
set of items on the central bank balance sheet which have an impact on
banks' liquidity needs but are not under the direct control of the central
bank (e.g. banknotes in circulation, government deposits or net foreign
assets). Liquidity management is supported by daily liquidity forecasting
of the central bank balance sheet to guide the Bank’s management on
the expected level of liquidity in the system over a period of time from the
current period so that appropriate measures are taken to prevent
undesirable market developments that may negatively impact on the
objective of price stability.

      Liquidity is the availability of funds, or assurance that funds will be
available, to honour all cash outflow commitments (both on- and off-
balance sheet) as they fall due. These commitments are generally met
through cash inflows, supplemented by assets readily convertible to cash
or through the institution’s capacity to borrow. The risk of illiquidity may
increase if principal and interest cash flows related to assets, liabilities
and off-balance sheet items are mismatched.



                                      1
       Liquidity is essential in all banks to compensate for expected and
unexpected Balance Sheet fluctuations and to provide funds for growth.
The recent liquidity crises faced by banks and financial institutions have
brought to the fore the need to review their existing Liquidity
Management Policies, Practices and Procedures.

1.2    STATEMENT OF THE PROBLEM

        Liquidity and credit management have implication on bank
profitability and authorities’ depositors and shareholders. It could trigger
off mass cash withdrawal thus plunging the bank into deeper crisis. In
analyzing the credit and liquidity management in Nigerian banks, its
assets quality shall be examined, which includes its performing and non-
performing loans. In addition efforts would be made to look into the
bank’s capital adequacy ratio and its shocks of risks assets different
measures of liquidity and solvency.

The researcher will like to tackle the following problems;

  1.    The impacts of liquidity on the efficiency of credit management of
       a bank.
  2.    The effects of liquidity on the general management of a bank.
  3.    How liquidity could effects the profitability of a bank
  4.    How effective is credit management in the bank

1.3     JUSTIFICATION OF THE STUDY

       Chukwuemeka (2002), contributed that the justification of the
study contains the benefits or values of the study contains the benefits,
or values of the various groups that would come into contact with it.

       This research will reveal whether liquidity has any impact on credit
management in Nigeria banks. It will enable the banks to know how to

                                      2
take good control of their liquidity so as not to affect their credit
management.

      Students,    researchers,       scholars,   audience,   company,   other
professional bodies and the society at large stand to benefit a lot from the
finding, of this study.

To know the impact of the chattered institute of bankers on the banking
students.

1.4   OBJECTIVE OF THE STUDY

      A bank is considered liquid if it has sufficient cash and other liquid
assets in its portfolio together with the ability to raise fund quickly from
other sources to enable it meet its payment obligations and financial
commitment in a timely manner, therefore the main purpose is to
highlight how liquidity and credit management in this Nigerian Banking
Industry is being discovered and the extent to which GTBank Plc in
Nigeria is guided in the management of its lending functions.



1.5   STATEMENT OF THE HYPOTHESIS

Hi:   the liquidity of banks could be determined efficiently from the
      effectiveness of its credit management.

Ho: the liquidity of banks could not be determined efficiently from the
      effectiveness of its credit management.

Hi:   lending and investment operations of banks depend widely and
      extensively on its liquidity.

Ho: lending and investment operations of banks do not depend widely
      and extensively on its liquidity.


                                         3
1.6   SCOPE OF THE STUDY

Banks act as intermediaries by collecting deposits and paying interest on
them and granting loan charging the borrowers interest at the higher
rate. Improving these services to borrowers and the depositors the main
goal of the bank is to make profit. Apart from granting loans, banks also
generate profit on investments. In order to maximize their earnings every
bank attempts to structure its assets and liabilities such a manner as to
yield the highest returns, subject to some constraints.

      A bank is considered liquid if it has sufficient cash and other liquid
assets in its portfolio, together with the ability to raise fund quickly from
other sources to enable. It meets its payment obligation and financial
commitments in a timely manner. This study therefore aims to cover the
extent to which GTBank Plc of Nigeria, Plc is guided by the above
enumerated theories in the management of it lending functions and
know now it has been able to survive over years in spite of the global
liquidity problems to supplement his effort the lending practices and
procedure of the bank will also be evaluated.




1.7   ORGANIZATION OF THE STUDY

      The research work shall be divided into five sections, which shall be
referred to as chapters. Chapter one shall contain introduction to topic.
In chapter two, efforts shall be made to bring out the existing theories
relating to liquidity on credit and reviewing the past opinion of others in
this topic. Analytical methodology shall be the major focus in chapter


                                      4
three, models shall be specified and method of analyzing and statement
of hypothesis. Chapter four shall be for the results with a view to
empirical validate the stated hypothesis. The last chapter shall include
summary of the whole study, summary, conclusion and recommendation
shall be the major focus of the fifth chapter. The last chapter shall
include summary of the whole study, summary, conclusion and
recommendation shall be the major focus of the fifth chapter.

1.8   LIMITATION OF THE STUDY.

These are the constraints we encountered during the course of this
project:

   i. Time: this is one of the constraints and this come as a result of
long period of strike and serves as a delay for this research work.
   ii. Finance: much money was spent in the process of getting facts and
figures that we need concerning this research work.
   iii. Rigidity: the rigidities on the part of library staff to provide
necessary journals and write-ups for references.




                                     5
                             CHAPTER TWO
                             LITERATURE REVIEW
2.1   INTRODUCTION
      Liquidity has a great impact in any business, this is even more so
in the banking industry. Without company being liquid, company could
not function effectively. In the banking industry especially, the need for
adequate capital could not be overemphasized.
      The essence of surplus fund is to cushion against capital erosion or
any loss which may arise from landing activities. A bank whether
commercial or merchant must therefore have enough capital so that
depositor’s risk are reduced to the barest minimum Pandeyi M (2007).
2.2   REVIEW OF RELATED LITERATURE
      Myra R. (2010) defines bank credit as the ability to borrow money on
the promise of future repayment.
      The document which details new prudential guidelines and loan
loss provisioning requirements takes effect from July 1, 2010. Banks are
required to be guided by the guidelines and ensure strict adherence.
Loretta M (1997) remarked that the document supersedes the one earlier
issued dated May 5, 2010, CBN said: “the guideline, which compares
with the    former document addresses various aspects of             banks’
operations, such as risk management, corporate governance, know your
customer (KYC) anti-money laundering, counter financing of terrorism,
loan loss provisioning, peculiarities of different loan types and financing
different sectors of the economy, among others Mather L.C (2008).
The CBN stated that the guidelines became necessary to correct the
extremely fragile financial system that was tipped into crisis by the global
financial meltdown and which manifested in macro-economic instability,

                                     6
major   failures   in   corporate   governance,   lack   of   investors   and
transparency” Odufuye B.M (2007).
2.3   CONCEPTUAL FRAME WORK
Liquidity means the case at which a firm converts its most current assets
into raw cash to meet its current liabilities.
      Liquidity and credit management are critical to the efficient and
profitable management of a bank in analyzing the liquidity and solvency.
      According to Ikotun (2005) he defines liquidity as a real cash item
that can be quickly converted into cash. Liquidity is also the life wire of
any organization particularly banking industry.
      The theories can be examined, which include its performing and
non-performing loans. As this paper exercise a number of strategies and
liquidity management theories.
      It is important to define credit and also underscore its usefulness
in the operation of any bank, which can only be made possible by
reviewing the works of the export in the field Pandeyi M (2007).
      Credit management is of great importance to the survival and
growth of any institution.
      The progressive developments of Nigeria banks are inextricable
linked to the growth of the national economy.
      The relationship between banks and the national economy will be
borne out of the central roles played credit creation banks influences
money supply, which is important element in this development of
national income as well as level of price. Banks facilitate economy units
that banks have channel money from those who have idle fund to those
who put the money in to constructive use Pandeyi M (2007).
      Furthermore, Acher and Ambrose opined that Money-Deposit
banks are in business to make loans. They however, added that the loan


                                      7
portfolio and solvency of the bank. This view appreciates that though
some dangers may arise, lending is, and should be a major activity of
Money-deposit banks. The techniques and complexities of lending have
been changing with growth in the society.



2.4   LIQUIDITY THEORY
      Banks like all other economic units need liquidity. This is the
quantity of an asset that makes it easily convertible into which little or
no risk of loss. When viewing liquidity of a bank from a flow approach,
considers the ability of the bank and economic unit to borrow and
generate cash from operation.


      The more liquid an investments, the easier it is to sell quickly for
its full value. Because interest rates are more volatile in the short-term,
the premium on short versus medium-term securities will be greater
than the premium on the medium versus long-term securities. For
example a three year treasury note might pay 1% interest, a 10-years
treasury note might pay 3% interest and a 30-years treasury bond might
pay 4% interest.

2.6   CREDIT ADMINISTRATION IN BANKS

      In Nigeria today, we have two different types of banks, commercial
and merchant banks, operating under the regulation of the Central Bank
of Nigeria. The commercial banks engage in retail banking services
through branch networks and operate with a broad deposit base
consisting of demand and time deposit- they provide short term lending.
On the other hand, merchant are licensed to provide wholesales banking,
take deposit and arranged syndicated loan facilities for long term by

                                     8
pooling, sometimes, a consortium of banks , including other financial
institutions, to finance capital intensive projects. From the foregoing, it is
realized that banks are generally debtors; they borrow money in order to
lend them out to make profit. No bank can ever survive by just being a
custodian of deposit, but they exist by lending from the deposit on fixed
interest charged. Money lent on interest is always supposed to be
secured on some guarantees or security.

      Since banks depend largely on lending, the need to adhere to the
basic principles of lending is quite inevitable. The principles, if strictly
followed, will guarantee depositors and shareholders’ funds, increase
profitability and make a healthy turn over. Such advances in turn assist
in the transformation of rural environment, promote rapid expansion of
banking habit and improve and boost the nation’s economy.

      The basic considerations in bank lending are the character of the
client seeking loan from the bank. The client must be an honest, upright
customer whose record of transaction with the financial institution or in
the society is remarkable. The information on the character of the
borrower could be obtained through a completed form of his guarantor or
his statement of account.

            The capital base of the borrower and the amount of money
injected into the project must be considered before granting any credit
facilities. A customer who expects a bank to fund an entire project
should not be considered, unless he provides clear evidence of his
injection of initial capital into the project before consulting the bank.
Ability and capability to repay the money sought should also be
considered. The method of repayment period and collateral put forward
to the bank, in addition to a strong recommendation from a highly


                                      9
respected guarantor from the society, are basis for major lending to avoid
default and abscondment after approval. Not all projects may be
profitable to the customer seeking loan. In that case, the bank should
examine and study the purpose of such loans. Some projects may be
against cardinal government policies like money-laundering, drug
trafficking, smuggling, among others, while others may just be a kind of
charitable project, which may not yield any profitable result. This is why
the lending should be known and the amount required for it should be
vividly stated for the bank to judge its merit. After all, banks are not
established as charitable organizations.


2.7   Liquidity and Credit Management
      Every bank has to develop and implement comprehensive procedures
and Information systems to follow up the condition of individual credits. An
effective loan monitoring system according to Odufuye (2007) will include
measures to:
      Monitor    compliance    with   established   covenants,    Assess,   where
applicable, collateral coverage, relative to creditor’s current condition, Identify
contractual payment delinquencies and classify potential credits on a timely
basis, and, Direct actions at solving problems promptly for remedial
management Mather L.C (2002).
      Myra R. (2010) Loan monitoring which is the work of the relationship
manager in most cases is not a choice, but an imperative for effective and
efficient credit administration in the banking sector. Problem loans can easily
be spotted out. The banker’s experience, knowledge of the customer’s business
and above all, faith in the customer can be a guide in taking a decision as to
how far the customer can be supported before declaring the loan as bad. In
some occasions, the customer may be in need of more support. Any or a
combination of the following strategies can then be employed:


                                        10
(a) Alteration or waiver of some of the terms and conditions of loan covenant in
a way not to tamper with the bank’s interest. However, this must be
communicated to the credit department, Loretta M (2006).
(b) Issue of additional collateral security, if available.
(c) Granting of additional funds, if borrower’s circumstances and analysis
require the need.
(d) Extension of loan repayment period supported by fresh cash flow statement.
Regardless of genuine efforts of parties to a loan, default can still occur.
       The recovery of loans should be a prerogative of the Recovery Unit to
ensure that appropriate recovery strategies are implemented. However,
assistance may also be sought from Corporate Banking / Relationship
Management Pandeyi M (2009). The Recovery Unit must perform the following
functions:
1. Determination of account action plan.
2. Pursuance of all alternatives to maximize recovery, including placing
   customers into receivership or liquidation as may be appropriate.
3. Ensuring that adequate and timely loan loss provisions are made based on
   actual and expected losses, and, Regular review of deteriorating loans.
4. It should be emphasized that after a loan has been classified as
substandard, it should be assigned to a specific Account Manager in the
Recovery Unit. The Account Manager serves as the primary customer contact
during the recovery process. A number of methods exist for recovering debts
owed by banks. Some of these, according to Ademu (2008) are:
(i) Appeals to debtors
(ii) Threats and blackmail
(iii) Legal action
(iv) Use of debt-factoring companies
(v) Invoice discounting
(vi) Seizure and sale of collaterals
(vii) Use of Nigerian Deposit Insurance Corporation’s Services


                                          11
2.7    LIQUIDITY AND CREDIT MANAGEMENT

       Credit risk management is the process used to systematically
manage the exposure of financial institutions to loan delinquencies and
defaults;

       Evaluation of the potential frequency and severity of losses from
credit risks; development and selection of methods for managing the
risks so as to minimize losses and maximize business value; and
implementation and ongoing monitoring/ review of the selected methods.

       Thus, maximization of business value by preventing or minimizing
losses from delinquency and default, and promoting prompt loan
repayment by borrowers is the principal objective of credit risk
management.

       A Bank’s business value depends on the expected magnitude,
timing and variability (risk) associated with future net cash flows that
will be available to provide shareholders with a return on their
investment. Delinquency and default results in losses that reduce
business value. Credit risk management seeks to mitigate this reduction
in business value by designing a system that prevents, reduces or deals
with    delinquencies      and    defaults     when   they    occur.   Credit   risk
management is therefore both an ex-ante and ex-post activity. Wisdom
after the event may be pretty easy, but wisdom before the event is
essential if credit risk management strategy is to be successful. Resorting
to    litigation   to   recover   loans   is   expensive,    time-consuming     and
demoralizing and cannot be considered as part of normal banking
business. A good credit risk management system will have loan

                                          12
repayment rate of over 90% without resort to the ‘extra ordinary
businesses’ of court litigation.

2.8   IMPORTANCE OF LIQUIDITY ON CREDIT

      Credit serves the recovering in many ways. First, it provides a
convenient and economical medium of exchange by supplementing or
super ending other forms of money. It saves the community the labour
and the cost involved in handling metals and the loss through wear and
fear and the incidental by the use of precious metals. Secondly, it
facilitates the production and exchange of goods and services in the
economy by enabling business managers to adjust the volume of capital
employed to the changing requirement of their enterprises and thus
increasing the scope sales of goods and services. Thirdly, credit increases
consumption through installment credit consumer is enabled to enjoy
consumption of a large range of goods. With the increase in demand
consequent upon the extension of credit facilities, the commodity market
becomes broad enough to warrant the large-scale production with
consequent reduction in costs.

      The result in raising the standard of living and converting future
income present in purchasing power.

      Finally, by influencing the rate of capital formation, credit
influences output and employment in the economy. Expansion of credit
helps to pull the economy out of depression, while that of restriction of it
may exercise a restraining influence upon boom.

2.9   REGULATORY DIRECTORIES ON BANKS LIQUIDITY AND CREDIT

      Over the years, the objectives of monetary policy have remained the
attainment of internal and external balance of payments. However,
emphasis on techniques/instruments to achieve those objectives has
                                     13
changed over the years. There have been two major phases in the pursuit
of monetary policy. The first phase placed emphasis on direct monetary
controls, while the second relies on market mechanisms.

2.10 PRUDENTIAL GUIDELINES ON CREDIT

      The document which details new prudential guidelines and loan
loss provisioning requirements takes effect from July 1, 2010. Banks are
required to be guided by the guidelines and ensure strict adherence. The
document supersedes the one earlier issued dated May 5, 2010, CBN
said: “the guideline, which compares with the former document
addresses    various    aspects     of    banks’   operations,     such   as   risk
management, corporate governance, know your customer (KYC) anti-
money laundering, counter financing of terrorism, loan loss provisioning,
peculiarities of different loan types and financing different sectors of the
economy, among others.
      The CBN stated that the guidelines became necessary to correct the
extremely fragile financial system that was tipped into crisis by the global
financial meltdown and which manifested in macro-economic instability,
major   failures   in   corporate        governance,   lack   of   investors   and
transparency”.

2.11 THE ROLE OF ASSET MANAGEMENT COMPANY OF NIGERIA
(AMCON) ON CREDIT

Asset Management Company of Nigeria shall perform the following role in
order to achieve its objectives:

   a. Acquiring Eligible Bank Assets from Eligible Financial Institutions
in accordance with the provisions of the Act.
   b. Holding, managing, realizing and disposing of Eligible Bank Assets
(including the collection of interest, principal and capital due and the

                                          14
taking over of collateral securing such assets) in accordance with the
provisions of the Act.
   c. Paying coupons on, and redeeming at maturity, bonds and debt
securities issued by the Corporation as consideration for the acquisition
of Eligible Bank Assets in accordance with the provisions of the Act.
   d. Performing    such    other   functions,   directly   related   to   the
management or the realization of Eligible Bank Assets that the
corporation has acquired.
   e. Corporation has acquired, including managing and disposing
assets acquired with the proceeds derived by the Corporation from
managing or disposing of Eligible Bank Assets acquired by it.

2.12 PROBLEMS OF LIQUIDITY AND CREDIT MANAGEMENT

      Liquidity problem arises from situations in which a party interested
in trading an asset cannot do it because nobody in the market wants to
trade that asset. Liquidity risk becomes particularly important to parties
who are about to hold or currently hold an asset, since it affect their
ability to trade.

      Manifestation of liquidity risk is very different from a drop of price
to zero. In case of a drop of an asset’sprice to zero, the market is saying
that the asset is worthless. However, if one party cannot find another
party interested in trading the asset, this can potentially be only a
problem of the market participants with finding each other.




                                     15
                            CHAPTER THREE

                       RESEARCH METHODOLOGY

      These   areas   constitute   the    blue   print   for   the   collection
measurement and analysis of data. It’s also the plain structure and
strategy of investigation concerns to a plan, this is said to be the overall
scheme or program of research. It aids the researcher in the allocation of
his limited resources by praising crucial choice.

3.1   SOURCES OF DATA

      The method of data used for this study were collected both from
primary and secondary sources. The researcher administered the
questionnaires to the respondents in their place of work and collects
their responses immediately without delay.

3.1   RESEARCH DESIGN

      Research design is a blue print or manual at activities, which a
researcher intends to follow in fully carrying out investigation to his
studies. In other words it is a plan of events that guide this procedural
trend of a well-structured research work.

      There are five essential elements, which constitute a good research
design. The first of these elements has to do with sampling subject with
regards to this; the researcher has to indicate what is going to be the
population.

3.2   RESEARCH QUESTION/HYPOTHESIS

1.    Can liquidity of bank determine the efficiency of credit in its
      management?

                                     16
2.    Do you belief that liquidity has any impact on the credit
      management of your bank?

3.    Do liquidity of banks determine its lending and investing ability?

4.    How effective is credit management in your bank?

5.    Does liquidity has any implication on credit management of banks
      profitability?

      STATEMENT OF THE HYPOTHESIS

Hi:   the liquidity of banks could be determined efficiently from the
      effectiveness of its credit management.

Ho: the liquidity of banks could not be determined efficiently from the
      effectiveness of its credit management.

Hi:   lending and investment operations of banks depend widely and
      extensively on its liquidity.

Ho: lending and investment operations of banks do not depend widely
      and extensively on its liquidity.

3.3   RESEARCH DESIGN

      Research design is a blue print or manual at activities, which a
researcher intends to follow in fully carrying out investigation to his
studies. In other words it is a plan of events that guide this procedural
trend of a well-structured research work.

      There are five essential elements, which constitute a good research
design. The first of these elements has to do with sampling subject with
regards to this; the researcher has to indicate what is going to be the
population.

3.4   STUDY POPULATION

                                      17
      In a research work, the concept of population is of a fundamental
importance the major reason which can be given for this is that research
work is carried out to involve that element of animate and non-animate
objects if personal opinion cannot find a good reason rather not
convincing enough because of personal prejudices and boasts, the
aggregate of opinion makes conceptual issues.

           It is worth knowing at this juncture that some other staff of
the company like the accountant, secretary, etc. was also asked one or
two questions and they give answers similar to that of the manager.

3.5   SAMPLE DESIGN AND PROCEDURE

      Research sample can be defined as the part or section of a
population. (Obodoeze 1996). (Ezeja Ogiliph 2005), it is the actual
number or part of a study population that is objectively selected for such
study.

           The sample sizes of 10 were drawn from the population using
simple and systematic sampling method. This technique affords every
individual in the large population equal opportunity or chance to be
selected. Based on the technique, 10 persons were selected from different
departments of GTBank Plc of Nigeria Plc. The sample population now
represents the researchers’ respondents.

3.6   INSTRUMENT FOR DATA COLLECTION

      The study shall comprise a field and desk research oral interview of
some top management staff of GTBank Plc of Nigeria Plc. and some
customers of the bank shall feature in the field research.

      Data for the study shall obtain from the annual report and
statement of accounts of the bank.

                                     18
      We shall place most emphasis on the service of information
because of our belief in its authenticity especially since the introduction
of prudential guidelines. The third instrument of data collection shall be
the survey of the banking industry published by these sources and it
shall form the basis of comparing the GTBank Plc of Nigeria Plc with its
counterpart in the banking industry.

      The study examines the performance of the Banks in Nigeria from
2010-2011.

3.7   ADMINISTRATION OF INSTRUMENTS

      Questionnaires, interview and content analysis were the tools used
to elicit both primary and secondary data for the research. The
questionnaires were specifically administered on workers and customers
of the bank the completed question questionnaires were fully analyzed.

      Senior staff of GTBank Plc of Nigeria Plc and some other clients
were also interviewed to clarify certain issued relating to the topic under
focus.



3.8   PROCEDURE FOR DATA ANALYSIS

      The analyzing of the relevant indicator was done through normal
computations and presented for three years (2009-2011) were chosen
because it was the period that saw many banks tapping the benefits of
structural adjustment program and the decline in the period that saw
the assets quality of many it is the period that saw the glory and doom of
banking industry in the last decade. The analysis were computed and
presented in casual forms and with description analysis.




                                    19
                             CHAPTER FOUR

4.1   RESEARCH QUESTION

1.    Can liquidity of bank determine the efficiency of credit in its
      management?

2.    Do you belief that liquidity has any impact on the credit
      management of your bank?

3.    Do liquidity of banks determine its lending and investing ability?

4.    How effective is credit management in your bank?

5.    Does liquidity has any implication on credit management of banks
      profitability?

4.2   PRESENTATION AND TESTING OF HYPOTHESIS

      This chapter is designed to present the analysis and responses
collected from the respondents through the use of administered
questionnaire with a view of testing the hypothesis formulated from the
statement of the problems.

      The need to analyze the data cannot be overemphasized since all
the data collected is through the use of questionnaire.

      The analysis of these would give meaning to the data and hence, it
would be more useful to the users.

      DATA ANALYSIS USING RESEARCH HYPOTHESIS

Table 4.1.1       Sex distribution

CATEGORY               NUMBER              OF PERCENTAGE (%)
                       RESPONSE



                                     20
MALE                  6                       60

FEMALE                4                       40

Total                 10                      100

The table shows that the respondent,6 or 60% were male 4 or 40% were
female.

Table 4.1.2     Marital Status

CATEGORY              NUMBER               OF PERCENTAGE (%)
                      RESPONSE

SINGLE                3                       30

MARRIED               7                       70

DIVORCE               -                       -

Total                     10                      100

The table shows that 7 or 70% of the respondents were married while 3
or 30% were single.

Table 4.1.3     Age Distribution

CATEGORY              NUMBER               OF PERCENTAGE (%)
                      RESPONSE

Under 25years         5                                 50

25 – 30                           2                     20

31 – 35                           2                     20

36 – 40                           1                     10

41 – 45                           -                     -

46 and above                      -                     -

Total                            10                     100




                                      21
The table shows that 5 or 50% of the respondents are under 25 years of
ages 2 or 20% are within the age group of 25-30years, 2 or 20% were
within the age group of 31-35 and 1 or 10% is within the age group of
36-40years.

Table 4.1.4         Length of working experience

CATEGORY                  NUMBER OF             PERCENTAGE (%)
                          RESPONSE

Under 5years                             5                  50

5 - 10years                              3                  30

11 - 15years                             2                  20

16 - 20years                             -                  -

21years and above         -                                 -

Total                     10                    100

The above table shows that 5 or 50% of the respondent has below 5years
working experiences while 3 or 30% had between 5-10years working
experience and 2 or 20% had lecturer 11-15years working experience.

Table 4.1.5         Institution affiliation distribution.

CATEGORY                  NUMBER OF             PERCENTAGE (%)
                          RESPONSE

Financial Institution                3                      30

Industry                             2                      20

Commerce                             1                      10

Government                           4                      40

Total                                 10        100




                                         22
The result of this shows that 4 or 40% were government employed, 3 or
30% are employed by financial institutions, 2 or 20% are employed in the
industry while 1 or 10% is in commerce.




Table 4.1.6         Educational qualification distribution

CATEGORY                     NUMBER OF           PERCENTAGE (%)
                             RESPONSE

Primary six                             0                0

WASC / SSCE                             1                10

“A” level / HSC                         0                0

OND / NCE                               1                10

Professional qualification              2                20

Higher Degree                           0                0

HND / BSC                               6                60

Total                        10                  100

The table shows that 6 or 60% of the respondents had first degree while
2 or 20% had professional qualification in addition. However, 1 or 10%
each had the West African Certificate and the National Diploma
Certificate respectively.

Table 4.1.7         Official status distribution

CATEGORY                     NUMBER OF           PERCENTAGE (%)
                             RESPONSE

Top Management                          1                    10

Middle Management                       6                    60



                                            23
Supervisor                            1                     10

Clerical / Junior        2                        20

Total                                 10          100

The result shows that 6 or 60% of the respondents are in the middle
management position, 2 or 20% are clerical junior staff, while 1 or 10%
each are the top management and supervising position respectively.

Table 4.1.8         Training accounting or finance

OPTION                   NUMBER                OF PERCENTAGE (%)
                         RESPONSE

Yes                               3                       30

No                                7                       70

Total                               10                     100

The table shows that out of 10 or 100% respondents, 7 or 70% had
training and knowledge of account and finance while 3 or 30% of the
respondents had no such training or knowledge.



Table 4.1.9         Table implication of insolvency on the economy

OPTION                   NUMBER                OF PERCENTAGE (%)
                         RESPONSE

Yes                               6                       60

No                                4                       40

Total                               10                     100

The table shows that 6 or 60% of the option are the insolvency of banks
has added to the continuous fall in the option once insolvency of banks
has not added to the continuous fall of the economy.


                                          24
Table 4.1.10    Option on the Introduction of the N25 Billion
Capital Base

OPTION                  NUMBER                OF PERCENTAGE (%)
                        RESPONSE

Yes                              5                            50

No                               5                            50

Total                              10                         100

The table shows that 5 or 5% are of the opinion that the introduction of
the N25 Billion Capital base will make all banks liquidated while 5 or
50% of the otherwise.

Table 4.1.11    The     Implication          of   Liquidity        and   Credit
Management of the banks profitability

OPTION                  NUMBER                OF PERCENTAGE (%)
                        RESPONSE

Yes                              7                            70

No                               3                            30

Total                              10                         100

This table shows for 70% support while 3 or 30% disagreed.

Table 4.1.12    Importance of Credit

OPTION                  NUMBER                OF PERCENTAGE (%)
                        RESPONSE

Yes                              6                            60

No                               4                            40

Total                              10                         100



                                        25
The table above shows that 6 or 60% agreed that credits provide a
convenient medium of exchange and 4 or 40% disagreed that if it is not a
convenient medium of exchange.

Table 4.1.13     Effects of the loan able found on the lending of
banks

OPTION                 NUMBER               OF PERCENTAGE (%)
                       RESPONSE

Yes                             8                       80

No                              2                       20

Total                             10                     100

The table above shows that 8 or 80% believe that structure of loan able
fund has effect on the lending of banks while 2 or 20% believe otherwise.




Table 4.1.14     Response to the required Capital

OPTION                 NUMBER               OF PERCENTAGE (%)
                       RESPONSE

Yes                             9                       90

No                              1                       10

Total                             10                     100

The table above reflects that 9 or 90% responded that the institutions
have the required capital, while 1 or 10% disagree.

Table 4.1.15

OPTION                 NUMBER               OF PERCENTAGE (%)
                       RESPONSE



                                       26
Yes                               10                     100

No                                  -                     -

Total                               10                    100




Table 4.1.16      Liquidity of Banks Determines its Lending and
Investing Ability

OPTION                   NUMBER               OF PERCENTAGE (%)
                         RESPONSE

Yes                      8                       80

No                       2                       20

Total                               10                    100

The above table reveal that 8 or 80% disagree that the lending and
investment ability of banks does depends on the liquidity of the bank
while 2 or 20% agrees that the lending and investing operation of banks
not depends on the liquidity.

4.3     FINDINGS AND INTERPRETATION

This project work stated two hypotheses on this hypothesis are
questions.

Hi: lending and investing operations of banks depends wisely and
extensively on its liquidity.

HO: lending and investing operations of banks do not depend wisely and
extensively on its liquidity.

In testing this hypothesis, a contingency table of hypothesis is used and
chi-square distribution is also used to test whether an observed set of
frequencies differ from what was expected.


                                         27
The chi-square formula is stated as follows:-

X2 = E (oi - ei)   2


Where oi = observation frequency of occurrence

        Ei = expected frequency of occurrence

        Degree of freedom (u) - (v-1) (c-1)

        Where r = number of rows

              c = number of columns

Rules:-

        If the calculated chi-square (X2 ) is greater than the tabulated chi-
square the null hypothesis (HO) is rejected and the alternative
hypothesis (HI) is accepted but if it is less than the null hypothesis (HO)
should be accepted while the alternative hypothesis (HI) should be
rejected. For the started hypothesis, these are the relevant questions.

Table                         Responses                Aggregate
                              Yes
                              No
4.11                          7                3              10

4.13                          8                2              10

Total                         15                   5   20

Frequency expected under Ho (Ei)

For Yes = (15 x 10) / 20 = 7.5 = 8

For No = (5 x 10) / 20 = 2.5 = 3

Degree of freedom (u) (v-1)(c-1)

                         (2-1)(2-1)

                       = 1.
                                          28
Calculating of chi-square (x2)

Oi             Ei                (oi - ei)        (oi - ei) 2   (oi - ei) 2

7              8                 -1               1             0.125

3              2                 1                1             0.5

8              8                 0                0             0.0

2              2                 0                0             0.0

                                                                X2=0.625

The tabulated chi=square is lesser than the calculated chi-square. This
means that the alternative hypothesis (Hi) should be alternative
hypothesis (Hi) should be accepted and will hypothesis (Ho) is rejected.




                                             29
                              CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1   SUMMARY

      This study is intended to evaluate the performance of GTBank Plc
of Nigeria Plc with a view of ascertaining the extent to which it is being
gilded by the four theories on banks lending / liquidity and their effect
on bank profitability.

      Efforts were made at reviewing the banks lending procedure and
the control measure put in place. Series of interview were carried out in
order to achieve the forgoing objectives.

      Management staff, lending officer was international and the data
needed more obtained.

The study revered that:

1.    The banks realize a lot of collateral resulting in its lending activity.
      2.    Loans and advances are considered one of the most important
assets of the banks, yet the most liquidated. A sustain amount of deposit
liability is tied up in loans and advances. It is however obvious from the
analysis that the liability management theory bears significantly in the
bank lending.
      3.    The bank has a way goods good control measure in its
lending handbook, the measure are in many easier not fully only
exercise, for example debtors out only visited when perceived to the
turning doubtful.
      Debtors may not even be visited to physically verify the existence
or reliability of items claimed in the bank.



                                      30
       4.     The debt recovery procedure is not being fully. The debt
collectors have difficulties in moving around due to lack of willingness to
pay on the part of the debtor.



5.2    CONCLUSION

            For the banks to be able to pay a meaning role of credit
extension in our environment, it needs to minimize the risk to the level
profit can tolerate. Some management science techniques need to be
adopted.

            There is need for self-reliance on traditional principal on
improves performance and profitability. Request for facilities should be
critically reified and indeed information provided should be physically
confirmed firmed the customers.

            Although, enough work has been carried out on this study, it
should be taken as being enough to have the desired bearing on banks
lending. It is believed however that its contacts will help to improve
system.



5.3    RECOMMENDATIONS

1. Banks must put place effective and practicable internal control system
     capable of preventing the manipulation of banks policies.
2. All concern parties should continue to lend support for the
     implementation of the provision of the failed Banks (recovery of debts
     degree and tribunals).
3.            The provision of the degree should be amended to include the
     healthy bank with credit management problems. The failed Banks


                                     31
     degree has played the role of moral check customers whom borrowed
     with a view of not paying back.
4.            Loan is the single most important source of gross earnings of
     the banks strives to be aggressive in their lending.
5.             Lending officer must have good knowledge of the business
     affair of their customers and be up to date with the economics and
     political development of the environment.
6.            Lending officer must be upright, dynamic and have a sound
     knowledge of the job.
7.            The credit scoring system is recommended for the appraisal
     of applications. It is efficient impartially and benefit to the borrowed
     on previous experience such as marital status, type of employment
     salary, age, type of residence are qualitatively assessed and given
     individual ratings.
The result will assist in taking decision. Users of the credit scoring
system have described it as fast and reliable. It is considered effective
and that decisions can be taken at a high level, thus cutting
administrative bottlenecks and costs.
       However, the system is expensive to be set up, having to be based
on wide sample to be accurate and only firms with large numbers of
transactions are expected to find credit scoring a cost effective
proposition.
       Finally, I recommend that the bank should improve technological,
by operations with a view to improving its service and intimately
increasing its profitability, acquiring enough computers.
5.4    SUGGESTION FOR FURTHER STUDIES
       Based on the research carried out, it is evident that there is still
more problem area that are militating “the use of computer as an


                                       32
effective tools for enhancing business performance in the banking
sector”. I am suggesting that a further study should be embark upon to
discover these problems and benefit also ways of using them for the
betterment of the management of GTBank Plc of Nigeria Plc.




                                  33
                               REFFERENCES

AJAYI, O. A. & ODETAYO T.A. (2001) Financial Management 1

BROCKINGTON R.B; Financial Management (Britain D.P Publication Ltd)
DIXON R (2006): Practical Approach to Financial Management (London
Financial) Training Publication. MATHEW T.S (1997) Financial of Non-financial
      Management New York.
PANDEYI M (2009): Financial Management (India Hika Publishing House,
      PAL)
Adekanye F (2007): The Elements of Banking in Nigeria.3rd Edition. Lagos:
      Institute of Bankers.
Ademu W.A (2005): Curbing Bad Debts in the Banking Industry in Nigeria in
      the 21st Century. GTBank Plc Biannual Review, December, 1998.
      Central Bank of Nigeria 2005.
Guidelines for Developing Risk Management Framework for Individual Risk
      Elements in Banks. Part of General Guidelines for the Development of
      Risk Management Processes issued in September 2005.
Loretta M (1997): What’s the Point of Credit Scoring.Business Review.
      Federal Reserve Bank of Philadelphia, September/October, 1997.
Majekodunmi (2003): Performance of Banks’ Credit Departments.The
      Nigerian Banker, April to June, 2003.
Mather L.C (2008): The Lending Banker. London: Waterlow and Sons
      Limited.
Myra R. (2000): Development in the Banking Industry. Implications for the
      future of bank lending to small businesses. Undergraduate Journal of
      Economics.
Obalemo F (2007): Credit Risk Assessment: Environment business and
      financial risk analysis. Paper presented at the course on credit




                                       34
      analysis organized by Chartered Institute of Bankers of Nigeria
      September 2007.
Odufuye B.M (2007): Imperatives for Effective and Efficient Credit
      Administration in the Banking Sector, Nigerian Banker, July to
      September, 2007.




                                      35
                    APPENDIX II (QUESTIONNAIRE)

1. SEX DISTRIBUTION
  (a) Male     ( )
  (b) Female ( )
2. MARITAL STATUS
  (a) Single   ( )
  (b) Married ( )
  (c) Divorce ( )
3. AGE DISTRIBUTION
  (a) 25 - 30 ( )
  (b) 31 - 35 ( )
  (c) 36 - 40 ( )
  (d) 41 - 45 ( )
  (e) 46 above        ( )
4. LENGTH OF WORK EXPERIENCE
  (a) Under 5years          ( )
  (b) 5 - 10years           ( )
  (c) 11 - 15years          ( )
  (d) 16 - 20years          ( )
  (e) 21years and above ( )
5. INSTITUTION AFFILIATION DISTRIBUTION
  (a) Financial Institution           (    )
  (b) Industry                        (    )
  (c) Commerce              (     )
6. EDUCATION QUALIFICATION DISTRIBUTION
  (a) Primary Six                     (    )
  (b) WASCE/ SSCE                     (    )

                                          36
  (c) “A” Level/ HSC                    (   )
  (d) OND/ NCE                 (    )
  (e) Professional Qualification        (   )
  (f) Higher Degree            (    )
  (g) HND/ BSC                 (    )
7. OFFICIAL STATUS DISTRIBUTION
  (a) Top Management           (    )
  (b) Middle Management                 (   )
  (c) Supervisor               (    )
  (d) Clerical/ Junior                  (   )
8. TRAINING ACCOUNTING OR FINANCE
  (a) Yes             (   )
  (b) No              (   )
9. TABLE IMPLICATION OF INSOLVENCY ON THE ECONOMY
  (a) Yes             (   )
  (b) No              (   )
10.        OPTION ON THE INTRODUCTION OF THE N25 BILLION
  CAPITAL BASE
  (a) Yes             (   )
  (b) No              (   )




                                   37

				
DOCUMENT INFO
Shared By:
Stats:
views:14
posted:2/21/2013
language:English
pages:37
OPEYEMI BELLO OPEYEMI BELLO MULTIPURPOSE http://
About AM COOL AND FREE.