AN APPRAISAL OF COMMERCIAL BANKS LENDING ACTIVITIES IN ECONOMIC DEVELOPMENT OF NIGERIA

1.0 Introduction

1.1 General Overview of the Study

Banking all over the world has a fundamental nature which is risk taking and intermediation between the surplus and deficits unit of the economy. However, its main business is maturity transformation which is designed as borrowing long and lending short. This enable them meet her financial obligation as they manage their affairs prudently.

Management of their affairs is centrally based on management of their lending and investment activities to ensure adequate liquidity and maximize profit. Lending is the highest earning asset in banks balance sheet that contributes materially to the banks achievement and fulfillment of the objectives of profitability by providing a highest return than other financial assets.

It also helps management to satisfy the legal and other regulatory objectives of monetary authorities. It is vehicle through which bank management attempts to satisfy the credit needs of the community the bank serve or intend to serve.

Lending activities although being the highest earning asset to the bank is also the most illiquid and most risky of banks operation.

Apart from these, lending as an important aspect of banking and one of the cardinal principles of classical banking is to ensure effective lending, which is to maximize profitability and ensure adequate liquidity.

A policy according to Raden (1987) is a plan of action statement of ideals etc issued or adopted by government, political, party, business etc. These form the principles that govern the people in an organization.

The central bank of Nigeria exercise control over commercial bank by means of monetary policy instruments. Regulatory and credit control powers are conferred on the CBN y the act establishing it.

Monetary policy equally has to do with the manipulation of aggregate demand in the economy by regulating the money supply through the use of monetary policy instruments. Such monetary policy instruments which enable the CBN to control the lending activities of commercial banks include the following:

• Use of bank rate
• Use of selective credit control
• Moral suasion
• Loan ceilings
• Use of formal directives

However, such bank's view runs contrary to the demand of a developing environment which demands that banks lending objectives should incorporate contributions to the development of the environment in which they operate. Thus problem facing banking activities in developing economy like ours need to be resolved to ensure a conducive environment for the banks operation as well as to avoid crises. Kanu (2003:2).

In addition to other segment of bank activities, they invest in all form of government, private and corporate securities so as to increase the level of economic activities in a given economy as well as to increase profit.

Undoubtedly, banks have as their objectives the desire to survive, to make profit and grow. In attempt to achieve these objectives, a bank has to manage its lending and investment activities well to have adequate cash on hand to meet the withdrawal need of her depositors, contribute to the development of the environment in which they operate and as well make profit for their owners.

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1.2 Statement of Problem

Bank lending intend to enhance the development of the economy (especially in a developing nation like Nigeria) and also achieve a trade off between liquidity and profitability. These objectives can only be realized if the loan and investment portfolio are efficiently and effectively managed.

But the problem is this; can credit management in our commercial bank actually safeguard the banking system in Nigeria after against distressed and protect depositors interest?

• How best can they access their customers to guide against the result of default in repayment of loans and advances?
• Has banks been able to reconcile between liquidity and profitability objectives through their credit and investment management?

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1.3 Objective of the Study

Commercial banks promote economic growth and development through their lending activities.

1. This study therefore intends to review the extent to which the Nigeria Commercial bank has contributed to the economic growth through lending.
2. Ascertain how effective their lending activities have been in regards to reconciling the dual objective.
3. To investigate the lending procedure of its ACCESS BANK and identify the nature of investment they undertakes.
4. To review the extent to which deposits nature affects lending activities in ACCESS BANK
5. To ascertain the effect of monetary policies on banks lending ability.

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1.4 Research Questions

• Who are your major customers?
• Which sector of the economy is mostly favoured?
• What is the range of interest charged?
• What factors influence your mode of advancing loan to customers?
• in the case of default in repayment of loan, which measures do you take for recovery?

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1.5 Limitation of the Study

Some of the limitations or constraints faced while writing this project are:

Time:

The researcher being a student had time between the research work and other courses which demand her attention and this time factor affects me so much.

Finance:

I have insufficient finance and they affect me so much that I didn't cover the areas I suppose to cover in the course of this study in order to bring out more information.

Also some of the literature that would have been very useful in the work was not purchase because the researcher was financially incapacitated.

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1.6 Statement of Hypothesis

• H1: There is a significant relationship between level of deposit, lending and profitability.
• H2: Changes in monetary policies lead to changes in investment and lending activities of commercial banks.

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1.7 Significance of the Study

It is hoped that when this study is completed, the findings and results from it will add to the existing stock of knowledge on the subject. It will also help in understanding how bank can enhance their credit management in order to improve their performance in the area of creating confidence in the depositors and as well make profit for their share holders.

It will also help borrowers to understand the effect of overdraft and the interest charges, commitment fees, appraisal fees, prime rate etc on loan accounts.

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1.8 Scope of the Study

This study work will concern itself with the lending activities and policies of ACCESS BANK and effects of Central Bank of Nigeria monetary policies on their lending activities.

It will go further to ascertain the effect of nature of deposits and level of withdrawal on lending and policies of ACCESS BANK.

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1.9 Definition of Terms

Bonds:

It is a promise to pay, issued under seal by a firm, corporation or government bodies to borrow long term funds which pays interest semi-annually and matures on face value.

Credit:

This is a loan of money given to a borrower on an agreed credit term and its maturity period variances.

Credit Guidelines:

These are CBN guidelines that guide the operations of commercial banks in the economy.

Credit Management:

This is the maximization of the value of an organization by achieving a trade off between liquidity and profitability

Collateral:

It is a secondary source of repayment which only plays a role on the occurrence of unexpected to the condition of the loan

Deregulation:

This is the type of economy where the allocation of resources is determined by the market forces.

Dual Conflict Objective:

This refers to two objective of an organization that variance to each other except on a compromise ground and for this work, this word refers to profitability and liquidity objectives of the bank.

Factoring:

This is selling a company's debt to a factor company at a discount and the factor upon collection of the full amount takes the different as his profit.

Investment:

This is the commitment of finance resources in acquisition of asset with the expectation of future benefit.

Lending:

Bank lending is the transfer of resources of the bank to various economic units of the economy through loan, overdraft, discounting of bills.

Minimal Level:

This is the lending ceiling which commercial banks are restricted from exceeding by CBN credit guidelines.

Modus Operandi:

This is used in this work to mean the mode of operation.

Mortgage:

This is the conveyance of a legal or equitable interest in property to any person with the provision of redemption on the repayment of the loan or the performance of some other obligation.

Nature of Deposits:

This refers to the structure of deposit which includes demand deposits that is unstable, saving and time deposits that is none stable than demand deposits.

Security:

This is the right or interest in property which is given to a lender (creditor) by a borrower for the purpose of providing cushion on which the lender may fall back in case the borrower default in payment.

Prime Rate:

This is rate at which bank extend loan to their credit worthy customers.

Term Loan:

This is consumer or industrial loan with an original maturity of more than one year.

Receiver:

This is a person(s) who is chosen by a court of law to be in charge of a company or person that is bankrupt.

RECOVERY PROCEDURE:

This is the collective effort made to recover money customers owned to the bank