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CREDIT MANAGEMENT IN THE BANKING SECTOR AND ECONOMIC GROWTH OF NIGERIA

ABSTRACT
In Nigeria, the banking sector is an important part of the financial system, the banking sector dominate the Nigeria financial system as it accounts for about 90% of the total assets in the system. This study is carried out to examine credit management in the banking industry and economic growth in Nigeria. Statistical Package for Social Science (SPSS) and Analysis of Variance (ANOVA) were applied to validate the result spanning across 2000-2013. The study relies on purely secondary data. Lending is one of the major functions of bank though most risky any bank that wants to remain in business must lend. The study finds that bank loan and advances accounts for about 98.2% contribution on economic growth for the period under study. The study concludes that there exists a relationship between loan and advances and economic growth and a negative relationship between interest rate, non performing loan and economic growth. The study recommends that CBN should strengthen the banking sector to ensure improved credit flow, also character and financial statement of the borrower should be assessed properly to reduce non performing loan and CBN should lower its maximum rediscount rate to enable bank fix low interest rate thereby enhancing the growth of the economy.

CHAPTER 1: INTRODUCTION

Bank credit has been the responsibility of Central Bank of Nigeria, in order to manage our monetary system; it is also one of the instruments of monetary policy that can be used for economic system. Various sectors of the economy require finance for different purposes; one main purpose is to promote economic activities, the issue of credit becomes necessary as these economic agents do not have the ability to raise the required capital for the execution of their plans. The availability of bank credit allows firms to increase production, output and efficiency and in turn increase the profitability of banks (Agbada, 2010).
Banks major objective is to facilitate technological innovation through their intermediary roles; they provide means by which funds can be transferred from surplus units in the economy to the deficit units and this role is performed primarily through the acceptance of deposits of different categories and characteristics for onward lending by way of Loan, Advances and Overdraft. With the giant strides made by mankind in science and technology, banks as forefront institutions in satisfying human needs have undergone dramatic changes in their function ranging from settlement of debt, enhancement of international trade through the provision of letter of credit services, traveler’s cheque services, purchase and sale of foreign currencies, provision of business and advisory services, acting as agents of customers at Central Bank of Nigeria, trustees and executor of estate e.t.c.
Financial intermediation can be a casual factor for economic growth. According to Nwaru and Okorontah(2014), a 92.5% reduction in overall credit causes a reduction in the level of GDP by around 1.5%. Similarly, economic growth can be a casual factor for financial development. The economy within the present dispensation can stand the test of time without banks and other financial institutions. The bank industry is known for the provision of a basket full of inter-related services to individuals, business units, non-profit oriented organization as well as government.
In the history of development of the Nigerian banking industry, it can be seen that most of the failure experienced in the industry prior to consolidation era were result of imprudent lending that finally led to bad loans and some other unethical factors (Abdulraheem and Fatima, 2010). It is more important to note that the consolidation process in the banking sector or has however assisted in augmenting the capital base of Nigerian banks and as such increasing their ability to administer more loans for the growth and development of the economy. The sectors ability to fulfil this function is an identified impetus for the Nigerian government in achieving its dream of being among the most developed economies of the world in the year 2010. It is an open secret now that banks advance a major of their deposits to borrowers and keep smaller parts of deposits to customers on demand, even then the customers of the banks have full confidence that the deposits lying in the banks are quite safe and can be withdrawn on demand which is in line with Bank and Other Financial Act (BOFIA) 1991.
Lending and credit management is very vital to banks which if not properly carried out can hinder the effective operations of  the banks, improper lending decision which leads to accumulation of huge debts that adversely affect banks effectiveness. It is therefore expedient that bank managers should be equipped with better information, principles, techniques required for effective lending rather than regarding them as a mere guideline which have limitation, lending is highly subjective in nature, the final analysis depends on the judgement of the lender hence in making final judgement, the lender must review all techniques, principles and knowledge acquired through environment and project analysis. The credit character and prospects of the borrower must also be scrutinized.
However it is sad to note  that the Nigerian banking industry has not lived up to expectation, in this regard the industry has been bedeviled by mass failure and distress between 1990 and now, most industry have attributed this experience to a number of decisions chief of which will form the focus of this study, insider abuse and credit management.

Today, the increasing financial improprieties, insolvency, nonperforming loan, distress in banks and near collapse of  the financial system accounted for the company and quest by business community for total economic recovery. This study identifies the problem of bank loan and advances on economic growth and development.
Secondly, the unbearable financial burdens that bank customers bear in the course of repaying these loans as a result of high interest charges, penalties etc. This study also identifies the problem of nonperforming loan on economic growth of Nigeria
The foregoing problem needs to be assessed in order to advance a more realistic measure which if properly implemented will bring about dramatic changes in the banking industry.

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