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THE IMPORTANCE OF BANK LENDING TO THE DEVELOPMENT OF THE NIGERIA ECONOMY
The word bank simply means a financial institution that deals with finance (monetary) by receiving from the members of the public who have surplus and giving or granting to those who have project in mind to finance. The bank surplus deposits are then lend out to the needy persons, corporate bodies and business customer in form of loans, advances and overdraft. This prove the statement that bank service as a major intermediary between the demand sector which need credit to finance their project and the supply sector(those who provide such fund which the bank lend to such investors).
According to Ogboghro (2006) one of the basic functions of a bank is the lending of surplus funds to those who want to borrow, for most customers, both personal and business, the bank represent one of the cheapest and most flexible sources of finance for small business in particular.
Credit facilities (lending) are usually in form of loans, advances, bills discounting, bonds and overdrafts. Lending is one of the most intricate services rendered by bank services.
The banking policies have to operate in accordance with the central bank of Nigeria (CBN) directories and other monetary controls, while at the same time, adequate reserves and cash must be maintained.
It is indisputable fact that important assets items in the balance sheet of the commercial and merchant banks now know as universal banks are loans and advances. These items are reported for some good reasons.
Onyia and Olute (2000) from the bank perspective, they are the largest source of income/loans and overdraft, the focus of prudential credit or lending guidelines used in Nigeria are directives released annually by the central bank of Nigeria on their lending activities in a given year.
There are some condition which must be fulfill by customers before such facilities are granted, these are popularly known as the CANONS OF GOOD LENDING, which include the safety of the loan, amount of loan, purpose of the loan, period of the loan, profitability of the loan repayment plan and security of the loan. Among the canons of good lending, the safety is mainly taken care of. In thinking of the safety of lending, is assessed by considering what is commonly known as 5c’s of lending which includes; the character of the borrower, the connection of the borrower, collateral security to cover the loan and capacity, condition of the sector of the company, the borrower belongs, who the customers (borrowers) is? (character, what is her/his previous relationship with bank?). These goes into the integrity of whomever the borrower may be. Some borrowers could pay with ease but fail to oblige due to lack of morality. Therefore, the lender should as a matter of fact make sure that the integrity of the borrower is not in doubt. Most bad debts arise as a result of insufficient information about the prospective borrower. In order to avoid this, banks are expected to carry out enough inquiries about the borrower so that adequate information would be obtained to enable them make better judgment.
1.1 BACKGROUND OF THE STUDY
Bank lending has immensely contributed to the development of theNigeriaeconomy. It is very relevant to all sector of the economy both private and public sector because it’s one of the major source of finance. Banks in this idea entails commercial banks, which mainly grant short term credit facilities and development bank which grant medium and long term credit facilities. They later include the federal mortgage bank (FMBN) Nigeria Agricultural Corporative And Rural Development Bank (UDB),NigeriaExport And Import Bank (NEXIM), as well as the merchant banks. According to Clement J.H and DYER ltd (1977) however of recent years, additional banking and finance has been required by large company customers and this has brought to the development of term loans with the economy of the country going through a difficult period and government pressure and directives on banks to reduce lending, and corporate bodies have not been able to plan ahead in the knowledge that the finance they required will be available at the right time. Some companies therefore have requested commitment from the bank for the term loans which will not be repayable on demand and banks have found a way of providing such loans.
In 1970s, Agriculture was termed the mainstay of our economy. The fact is that the federal government embarked on credit facilities otherwise known as agric credit guarantee scheme, every farmer both subsistence and commercial to put more effort in their field. At the present time there are lots of changes in both commercial and industrial sector that structures abound all over the country. Commercial activities have become the order of the day. Trader can easily secure loans and overdrafts in order to raise capital for their commercial activities. Therefore the problem of lack of fund for the execution of private and public projects has been meteorite through bank lending.
1.2 STATEMENT OF RESEARCH PROBLEM
Since the emergence of banks and banking operations, lending have been one of their most important primary objective. Certain Acts and ordinances have been made and amended to regulate bank lending’s.
But the issue is; have bank lending, being one of their objectives and means of generating revenue through charged interests, contributed to the development of theNigeriaeconomy?
Some says it has helped in the development of the economy, other reported it has not really contributed to the development of the country. One of the management staff of the bank of the case study (Unity Bank Ozoro) reported that bank lending has contributed to the development of the country, but in a very slow rate and at times dormant. But if this is really true, does this means that the customers are discouraged from obtaining loans? If they are discouraged, is it because of the interest rate (high interest rate) or what is responsible?
Because of these compounding problems, this is why the researcher has deemed it fit to carry out this study and to provide portable and suitable answer to these problems.
1.3 PURPOSE OF THE STUDY
The objective of this research includes;
- To examine how important bank lending is to Nigerian economy.
- To examine the basic principles of bank lending
- To educate students and other people about bank lending
- To eradicate the fear people do have in securing credit facilities
- To examine the various types of acceptable collateral securities.
- 6. To examine the responds of customers in repayment of loans.
1.4 RESEARCH QUESTION
- Has bank lending helped in the development of the economy?
- Are the banks leaving up to expectation in their lending services, for a meaningful economic development?
- Are economic conditions of the country affected by bank lending?
1.5 SIGNIIFICANCE OF THE STUDY
The researcher has understood that industrialists, commercialists, profit and non-profit organizations, individuals, students, scholars and society at large would benefit from the subject matter of this work. The importance of this study cannot be over emphasized because it determines whether or not the practice of lending conforms to the stated guidelines of the bank. It also tries to minimize the difficulty encountered by the bank in the area of lending. It will equally enable the public to understand how the government could reduce inflation among other things by the manipulation of liquidity and cash reserve ratio of various banks in order to ensure a more satisfactory level of financing for the development of economy. It also provide the individual, firms, industrialists, e.t.c with the knowledge on how to secure loans needed for effective performance in the line of business in which he is involved.
1.6 SCOPE OF THE STUDY
Development has made it possible for this country to have myriad of banks such as; commercial banks, development banks, merchant banks, and community banks. They are engage in deposit taking, real estate and other form of lending, foreign exchange trading, securities, underwritings and portfolio management (Amuya D.E, 2005) assumed that bank lending is a peculiar service of all the above mentioned banks and it will also cover a period of year (1996-2005)
1.7 LIMITATION OF THE STUDY
It has been a tradition that researcher do confront some problems anytime research work is been carried out. Since the researcher is still a student, some common difficulties were encountered such as; finance, transportation, time, distance and many others.
- Finance: This has been one of the major problems that face researcher. Due to the level of the researcher’s financial status, the cost of acquiring necessary information and material such as textbooks etc to write the project work.
- Time: Because of the short time available or given to this work and also because the project is written alongside other academic work, the researcher could not meet up with the requirement of the work.
- Distance: Not all the necessary information was obtained due to the long distance from the researcher’s residence to the area where the materials are available. This led to not meeting up with the demands of the project.
- Level of Literacy: The fact that the researcher is still a student with little or no knowledge about the project work. The researcher is not as perfect as the supervisor or other expert in academic level. Therefore the little they have done could not be compared to that of the lecturer.
- Transportation: Due to the nature of our economy, vehicles and other means of transport, which apply to some areas where information can be gathered, are scanty and this affect the researcher’s adequate movement.
1.8 DEFINITION OF TERMS
The related terms below are the defined to the understanding of a layman or ordinary person.
- Banking Lending: This is granting of credit or advances of money by a bank to a customer, for a specific purpose tenor and at agreed rate interest, with a repayment to be made install- mentally over a specified period or once after a specified period.
- Economy Development: As overall trends or process in which socio-economic and socio-political transformation is achieved with little or no differences to other significant degree of technological, economic growth plus changes.
- Credit Facilities: This includes loans, overdraft, discounting and advances. They are granted by banks to various customers of the banks.
- Credit Guidelines: This is the CBN’s annual guideline to commercial and merchant banks now known as deposit money banks in respect of the credit that may be extended to the various sector and sub-sector of the economy.
- Collateral Securities: Collateral serves as securities of fall bank to the banker for the loan offered to the borrower should the latter become delinquent in repayment.
- Capital: This is the amount being sought for by potential borrowers, which must be seriously assessed with respect to its adequacy or otherwise for the execution of the project in question.
- Mortgage: This is the conveyance or transfer of an interest in land or asset as securities for a debt.
- Deposit Account: This is the amount operated by those who really have surplus fund but does not have the need to spend them now on which interest is paid. Vincent I .Ogboghoro (2006).
- Advances: These are granted in form of overdraft upon current account or by loans upon a separate account loan. UGOVANY .W. (2002:86).
- Capital Investment: Under this cost involved are the cost of land and its development, building and site facilities as well as the cost of machinery and equipment including installation charges.
- Account: Statements of dealings expressed in word are figures according to book keeping form (Etuk-D.O, 1975). It consist of funds invested that changes from during the cost of business operation