CHAPTER ONE

INTRODUCTION

1.1    Background of the Study

The impact of credit management and control on commercial banks stability play a crucial role in development of the economy. Commercial banks, now universal banks are the ordinary financial institutions which deal in credit partly by lending the bulk of the deposits accepted from members of the public but mainly by creating money. It is the ability to create credit through the giving of loans and overdrafts with distinguishes commercial banks from other financial institutions. The bank forms a source of mobilization of investible funds for the links, with its domestic and foreign countries; it is capable of mobilizing funds for industrial growth and development of the county.

Lending is an essential financial function of the commercial banks. Through lending, bank management strives to satisfy the legitimate credit intends to serve. It is also beyond doubt that bank loans considered as the heart of banking business contribute materially to banks profitability by providing a higher return than most other bank assets and being a key element in the creation and maintenance of depositor relationships. However, every commercial bank in this country holds the majority of its assets in the form of loans and advances. The banks major concern is the maintenance of adequate liquidity and reserve asset possession as required by the central bank. Commercial banks are equally multi-purpose. Lender satisfy the needs of entrepreneurs, commerce, industry, agriculture e.t.c. Lending practice of more a variant  rather than a replica of the other banks, for example, two lending officers sitting side by in the same bank react differently to the same loan request not to talk of two different banks.            
Since lending creates the greatest income yielding assets of a bank, precaution have to be taken to ensure that such an asset possesses and retains every essential quality that would minimize the incidence of risk normally inherent in lending and commercial bank generally can not administer or disburse loans on their accord without adhering strictly to the central banks monetary and credit policy guidelines for that particular fiscal year. In performing its statutory and regulatory functions, the CBN issue some credit guidelines usually in form of monetary policy circulars to commercial banks in respect of their general operations as they affect the economy in the country.
This study is based on bank and they are germane to economic development through the financial services they provide. Their intermediation role can be said to be a catalyst for economic growth. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. However, it exposes the banks to credit risk. The Basel committee on Banking Supervision (2001) defined credit risk as the possibility of losing the outstanding loan partially or totally, due to credit events (default risk). The higher the exposure of a bank to credit risk, the higher the tendency of the banks to experience financial crisis and vice-versa.  
1.2       Statement of the Problem            
The lending process by its nature is imperfect. Credit analysis may be incomplete or based on fault data, loan officers may ignore the true condition of a borrower with strong personalities with the bank and a borrowers ability to repay may simply changed after a loan is granted. Some of the managers give out credits indiscriminately they don’t  adhere strictly on trust, while some are given to friends, well-wishers and relations and some of the borrowers are still having under the illusion that the loans are part of the their national cake without making effort to repay the loan as they fall due. Not withstanding, some short-term projects lending to mismatch and resultant default.
Some bank customers are unable to adequately determine the amount of loan facility required to finance a project. This results in customers sometimes mismanage the funds disbursed to them. Some bank officials failed in their duty of supervision and control of the loans disbursed to their customers and sometimes no reference was obtained upon the guarantor who guarantees the applicant and borrowers. At times, the cost of obtaining the loans is always on the high side and the size of the loan affects repayment. Economic condition at times present a vital problem beyond the predictability of both the bank and the borrower as these are environment within which the business operates.
1.3       Research Questions
The following are the research questions:
1.   Does the bank perform proper analysis of financial data and are there instance of bad judgment in lending decision?
2.   Does the customer misrepresent information and accuracy of their financial statement?
3.   How adequate is the banks monitoring of the project ensure funds are not diverted to unprofitable ventures?
4.   Why is it that excessive lending on security values and bad management of account create problems in repaying the loan? 
1.4       Objectives of the Study            
The research work aims at finding:
1.   To give an insight into the administrative procedures of loans and advances of the Sky Bank Plc Osogbo, Osun State.
2.  To identify the causes of bad debts.
3.   To identify the problems associated with loans.
4.   To ascertain the impact of interest to different sectors of the economy. 
1.5       Scope of the Study            
This study is basically intended to cover Sky Bank Plc, Osogbo, Osun State, so as to find out the administrative procedures of lending, the problems and prospects associated with the management of their loans portfolio and the extent to which the credit management and control is being practiced by the institution (Sky Bank Plc, Osogbo).  Attempt would be made to obtain relevant information from the institution (Sky Bank Plc, Osogbo) staffs and their customers.    
1.6       Limitations of the Study
Studying the impact of credit management and control on commercial bank stability is not all easy. However, most respondents are resourceful to the questionnaire and even those who accepted to supply information are very reluctant to do so. The shortness of time given for the completion of this project is another constraint. There is also a financial constraint in carrying out this research work, especially in browsing on the internet.
1.7       Significance of the Study            
This research work will be of great benefit both to the lending institution (Sky Bank Plc, Osogbo) customers and students. This is because the lending institution will be able to know the information required for this research work and ascertain the credit need of the borrowers and the period of loans. Borrowers on the other hand will be in a position to know the adequacy of loans and the problems to encounter in sourcing funds both in Sky Bank Plc and somewhere. It will also help them to tackle the various credit problems facing them. This study will be of immense help to the development of the economy.  
1.8      Definitions of Terms
Credit: The term is used to refer to the faith place by a creditor (lender) in a debtor (borrower) by extending of a sum of money in an agreed rate of interest, usually for specified period of time by a bank.
Management: Management according to dictionary of business is the act of running an organization or part of it. It is also the act of getting things done by others efficiently and effectively.
Credit Management: Credit management is therefore the act of planning and controlling the sources application of fund from lending purpose. It is the duty of technical employees to make sure that money lend out does not go down the drain.
Commercial: This is used primarily for financial trading activities.
Consumer: The utilization or acquisition of consumers goods ranging from a loaf of bread to the building of a personalized dwelling home is financial by consumer credit repayment of this type of debt is not related to the use of the proceeds of the loan but depends on the borrower general income.
Control: The various measures put in place to make sure that credit are being put into proper control.      
CBN: Central bank of Nigeria: It is known as the apex financial institution of the country.
Portfolio: A list of securities held by investor (in this case, commercial bank) a good portfolio will show a wide spread of investment in order to reduce the risk of loss.
Loanable funds: The amount of bank funds which it can lend to its customers or the public at a particular time after making provisions for the legal resource requirement.