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Full Project – The impact of debt management on the profitability of the banking industry

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CHAPTER ONE

1.1 INTRODUCTION

It is said that banks never make bad loans, at least they are not bad when they are made. However, banks find out that invariably, a small portion of their loans become delinquent and eventually must be written off. This basic risk of the lending function is not entirely bad, banks would be remiss in not bearing such risk in the course of underwriting a variety of very strange!! enterprises and consumer needs. When a bank does not experience at least a few loan losses, this is likely to be a sign that the bank is passing up profitability opportunities. Nevertheless, well managed banks should do all they can to minimize loan losses which will reduce their profitability.

Banks conducted loan reviews to reduce losses and monitor loan quality loan review consist of a periodic audit of the on going performance of some or all of the active in the bank’s profile.

The safety of any loan or advance is of importance and paramount of the bank, hence banks lay emphasis on the character (honest), integrity and reliability of borrowers. There must be a reasonable certainty that the amount granted should be repaid from the profits and cash flow generated from the operation the company (borrower). As a profit oriented outfits, banks expect their facilities to yield level of profits with which to declare dividend to the shareholders who owns the bank. Therefore, the quality of debt management should be improved upon.In view of the above research in term do to examine the impact of debt management on the profitability of Bank industry a case study of First Bank Nigeria Plc. Katsina.

1.2 STATEMENT OF THE PROBLEM

Despite the relevance of debt management toward the profitability of an organization it is saddled with some problems. This is how the problems that lead to credit default includes:

Inadequate loan monitoring system.
Non adherence to criteria for loan/advance.

Higherinterest rate.

Connivance with the personnel management.
Non presentation of good business plan/non-compliance able.

1.3 PURPOSE OF THE STUDY

Specially, the general purpose of this research work aimed at the following:

To appraise the impact of debt management on profitability
To x-ray process of interviewing prospective lender
To advice lending institution [banks] to adhere to legal provision
To encourage the credit manager to study the business of the borrowers structurally and its nature.
To emphassise the need for credit managers to be well trained

1.4 RESEARCH QUESTIONS

These are question which the researchers intend to find answer to.

The question emanated from the topic of the problem which is to be investigated by the researchers.

Does debit management gain the amount of money that is lend To organization?
How long will loan last in the hand of borrowers?

Does proper interview of customer protect the image of the banking industry?

What is course of bad debt?
Does bad debt affect the profitability of a banking industry?

1.5 RESEARH HYPOTHESIS

Hi: Debt management has significant impact on the profitability of cooperative finance banking industry.

H0: Debt management has no significant impact on the profitability of cooperative finance banking industry

1.6 SIGNIFICANCE OF THE STUDY

This research work will be of benefit to all financial institutions that offer credit facilities to its customers particularly First Bank of Nigeria Plc Katsina branch, by highlighting various forms of collateralsecurities and other method of recovering back the principal as well as the interest.

It will also serve as reference to fellow students who are planning to study on relevant topic in future time.

1.7 SCOPE OF THE STUDY

This research work is designed to cover the credit aspect of banking industry, various credit facilities offered by banks, method of recovering debts and the measures to employ as curative and preventive to credit default in First Bank of Nigeria Plc Katsina branch.

1.8 LIMITATION OF THE STUDY

Despite the assurance given to the researcher by the debt recovery department of the First Bank of Nigeria Plc. Katsina Branch on information of bad debt the researcher was unable to lay hands on some vital or useful documents and information which are often labeled “secret” and “confidential”, however, the researcher had make effort to ensure to that relevant information were obtained for the successful completion of this research work.

More so, respondents were not very cooperative as none of them willingly accepted the questionnaire, in fact most of them spent between two and three days to complete it and each time the researcher appealed their cooperation there was always complain or other, such as “I am preparing my branch accounts for inclusion in the annual reports”. “I have a lot of files to clear”, “I am too busy”, “I have a meeting to attend”.

DEFINITIONS OF KEY TERMS

By key terms the researcher means technical language used or employed in the conduct of writing of the project, which may be misconstrued or misinterpreted, thus giving another meaning to the original intention of the researcher. Such key terms used in the research proposal can be defined as follows:-

Banking: This can be defined as the business activity of banks.
Debt: This can be defined as a situation of owing money, especially when you cannot pay.
Industry: Means the people and activities involved in producing a particular thing or in providing a particular service.
Management: Means the act or skill of dealing with people or situation in a successful way.

Profitability: This is the ability of an organization to make profit in nits respective transaction.

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