THE CHALLENGES OF CREDIT MANAGEMENT IN THE BANKING INDUSTRY (A CASE STUDY OF UNION BANK PLC, IKOT EKPENE)

CHAPTER ONE

INTRODUCTION

• Background of the Study

Credit management in our banking industry today has taken a different dimension from what it used to be. The banking industry has been known for its intermediary role in providing financial assistance (credit) needed in the economy. This role of financial intermediation is carried out in so many ways, first to be mentioned is the granting of loans and advances to customers which constitutes the major part of banking leading. Apart from loans and advances, there are other forms of banks credits. In providing credits for business ventures, banks should take all necessary steps to ensure that advance are granted to those customers who can and will make judicious use of loans so that repayment  will not become a problem. Therefore, credit must be made to people who are capable for utilizing it well and repaying back the loan at its maturity date. Affairs at banks can be explained by reference to the fact that “loan” and advances are the large single item in the asset structure of Nigeria commercial banks. It also constitutes the major source at the operating income at banks and also the most profitable assess for the employment of banks frauds.

According to Oslashore (2007) credit (loan and advance) are important to the bank balance, they account for a large proportion at bank income, such operating income produced from sound investment and effective  management of such funds in credits enables the bank to; pay deposition interest, pay investors dividend, pay government tax, have further investment and maintain adequate reserves. The actual work in connection with the management and conversion of such funds into various types of credit facilitates in an operating function is performed by the credit department of commercial banks. The credit  department is usually headed by a loan officer who has acquired a high skill experience and personal judgement criteria in credit administration.

• Statement of the Problem

The only way to avoid bad debt is to refuse to lend money at all. But if banks should refuse to lend money at all, their profitability ratio will decrease, hence the main purpose of carrying on business which, is to maximize profit will be defeated. Credit must be adequately managed so that banks could remain in business and this could be done through prudent lending.

However, irrespective of how prudent a bank may be in its lending, the fact remain that every year, provision for bad doubtful debts should be provided for. Not all loans should be granted. A profitable loan which is not safe should not be granted. The attitude of most borrowers towards loans and advance granted to them should not be ignored. As they regard such credit facilities as their own share at the national cake.

Furthermore, failure at banks to make use of trained, qualified and experienced personnel in their credit management is a problem that should be addressed. Banks are merely customer of the money that depositors deposit with them, and hence interest must be paid to depositors and divided to the investors. Credit management can be seen as an integral part of lending and as such in its absence, good loans can turn into bad loans. It is expedient to note that the important of credit management cannot be over emphasized and good credit management required the establishment of adherence to and of sound and efficient credit policies of government.

For banks to be successful their corporate credit policies must be sound. Procedures for monitoring and repayment must be ensured adequately for credit appraisal disbursement. But experience over the year has shown that inadequate credit analysis and sound judgments of loans application has resulted to outperforming loans. Provision of credits which are in the form of loans and advances are the total amount of money a bank lends out to its customers at any given period of time. The bank usually charge the borrowers interest for using its money. These loans and advances usually have maturity period. Such credit facilities provided  by banks are usually in the form of short term facilities. It is to this effect, that this study seeks to figure out the challenges of credit management in the banking industry.

• Objectives of the Study

The objectives of this study are as follows;

• To examine the major challenges of credit management in the banking industries.
• To assess the criteria of granting credit facilities to customers in union bank, Ikot Ekpene.