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CHAPTER ONE

1.0     INTRODUCTION

Banks generally have credit of being an important resource of capital for development. This recognition accorded banks arises largely from the role most banking institutions in mobilizing feasible and viable ventures.

As a result of the provision of loans and advances which gives strength and vitality to the business community, banks occupy a very important position in the economy, the size, type and level of such profitable outlets along with other complementary factors contributing to the improvement in the economic well being of the country where these banks are situated. As a result of the above, banking institutions have been seen as agents of economic growth and development.

1.1 BACKGROUND OF THE STUDY

It is vital to point out that deposits by customers serve as a loan able funds for banks. These loan able funds can be available if customers make considerable deposits to make loans and advances available to borrowers so as to generate interest. These return that comes in the form of interest gives banks the chance to run their day to day administrative costs, remain in business and pay satisfactory dividends to shareholders. Banks therefore have lending policies, which establish the direction and use of funds from shareholders, depositors and creditors. In addition, these policies help to control the composition and size of the loan portfolio and determine the general circumstances under which its appropriate to make an advance.

        These were and advances raised by borrowers from banks when put into productive uses can lead to increase production and profit. When increased profits results, these borrowers can then pay bank interest and principal on such loans and advances, which are lent out again to potential borrowers, the deduction from its operations of loans and advances by banks. It is important to note that any default in loan repayment brings a cog in the circle and subsequently reduces the lendable funds, which eventually affect economic growth.

Uzoigwe (1982;17). Banks therefore play an important role in the economic well being of any nation through the extension of loans and advances. In spite of this, full utilization of such loans and advances are prevented by the huge bad debts, resulting from bank lending.

These increasing bad debts have been an obstacle in the bank profitability and also a preventing factor for lending to certain sectors of the economy despite the central bank of Nigeria guidelines on sectorial allocation. This is a problem facing the bank today.

1.2 STATEMENT OF THE PROBLEM

Lending is the central point on which banking activities rotate and that provides the larger part of banks profit. The banking industry has to be efficient in its loan administration in order to ensure efficient and affective allocation and utilization of the lendable funds. With efficient and effective loan administration, economic development is encouraged. During this period of scarce financial resources, if the lendable funds are properly recycled, the economy will be o the growth path. However, the banking industry in Nigeria is scattered with the problems of bad debts. These bad debts are caused when borrowers are unable to amortize their loans. This forms of high and rising incidence of bad debts in commercial banks lending is a dangerous trend which must be curtailed if the economy is to make adequate use of these banks, and enhanced to prevent the collapse of the banking system (Adebayo 1990;1)

1.3 RESEARCH QUESTION

The following research questions are addressed in the study;

1. Why is the incident of debts recovery and strategies prevalent in the operations of commercial banks?
2. What are the main actors or culprits in the game?
3. What are the bank lending criteria or credit policy?
4. What are the most effective ways of recovering borrowed funds or preventing some from being debtors?

1.4 OBJECTIVE OF THE STUDY

The objectives of this study are aimed at debt recovery and strategies in commercial banks in Nigeria

The objectives are specifically;

1. Identification of the causes of debts in bank lending.
2. Examination of the effect of debts on the banks in particularly and the economy at large.
3. Identify the procedures and strategies to recover debts
4. Recommendation of possible and functional solutions.

1.5 RESEARCH HYPOTHESIS

Test one

Debts do not arise as a result of poor bank lending policies.

Test two

Effective management of loans and advances does not remove the incidence of debts in the banking industry.

Test three

Debts losses do not constitute a major source of bank liquidity problem.

1.6 SIGNIFICANCE OF THE STUDY

The study will be meaningful to the following dimensions.

1. The banking industry; the incidence of bad debts threatens the corporate existence of the banks. This also reduces their net profit and militates against the performance of the obligatory social function and support for government’s economic development policies. This study is targeted at reduction of losses and loan defaults in order to bring. The objectives specifically.
2. Identification of the causes of debts and observe procedures and strategies to recover debt in commercial bank lending.
3. The effect of debts on the banks in particular, and the economy at large.
4. Recommendations of possible and functional solutions offers the bank requisite intellectual identification of their wrong lending practices and ensure the enthronement of any adequate procedure.
5. Economy; the occurrence of debts has constituted a big leakage in the economy. The result is that lendable funds are tied up at the detriment of prospective investors who are invariably derived the opportunity of borrowing such fund for investment purposes.

In macro economic analysis, investment as a variable has invaluable role in the determination of level of the national income or otherwise the wealth of a nation. Therefore, if the borrowed funds are not repaid for recycling, the country would certainly experience macro-economic changes like stagflation co-existing with inflation and unemployment. This causes huge drains on the banks deposits, and at the same time make capitalization very hard.

1.7 LIMITATIONS OF THE STUDY

Certain constraints were experienced in course of my study. These constraints which are examined below resulted in the delay in producing this work.

1. a)     A sizable number of interviews appeared too busy to attend to me during my first two visits.
2. b)    They appeared a noticeable conservatism with divulging of information on some policy matters relating to borrowing of funds.
3. c)     Time was another major constraint as the bank focus is usually close at 1:30pm as against 4:30pm owing to the ethnic arises in warri amidst the curfew. In the same manner I had limited time to meet with my supervisor.
4. d)    The cost of gathering the materials, administration of questionnaires and other incidentals became high at a point.

HOWEVER, THESE CONSTRAINTS DID NOT DETERMINE TO ACHIEVE A THOROUGH WORK AS THERE WAS NO HITCH TILL THE CONCLUSION OF THE STUDY.