LENDING POLICIES OF COMMERCIAL BANKS TO THE PRIVATE SECTOR

CHAPTER ONE
INTRODUCTION
1.0    BACKGROUND OF STUDY
Commercial banks are in the services industry, in safe keeping of money and valuables, remitting foreign and domestic exchanges, collecting cheques, draft, notes and other obligations and behalf of other customer. According to Christian Ammer, Deans Ammer in their books dictionary of business and economics, defined commercial bank as “bank whose principal functions are to accept demand deposit and to make short medium and long term loans chiefly to business firms.
Before going into the origin of credit disbursement by commercial bank in Nigeria, it is important to trace the historical development of commercial bank in Nigeria. Commercial banking started in 1892 with the establishment of Africa Banking Corporation in Lagos in 1894, that is two year later British bank for West African was established to take over the operation of the Africa Banking Corporation (ABC) which ceased to operates, this was followed by the established of several other banks.
The origin of credit creation by commercial bank can be traced back to surplus and deficit sector in Nigeria economy, the surplus sectors are those with excess money and have the need to deposit in the bank. While the deficit sector are those that do not have enough and looking for a place to borrow. The surplus is caused by income being greater than expenditure, while deficit is caused by expenditure being greater than the income. In this credit disbursement commercial bank act as financial intermediary between the economic agents that have surplus money to lend and those with shortage of funds and therefore need to borrow. When the bank reserve sector deposit there money with the bank, the bank reserve will increase. These reserves are earning interest to the bank. Bearing in mind that the bank need profit, what they do is to lend out the money after keeping certain amount required by the reserve requirement. In making credit available to the borrower, commercial banks are rendering a great social service’s which leads to increase production, expansion of capital investment and higher standard of living is obtained.
Credit disbursement by commercial bank is through creation, credit creation involves a situation where all commercial banks are expected to lend out some percentage of their daily deposit after returning their legal reserve requirement as prescribed by law. The proportion so lent out would go into a new bank which will in turn region the legal reserved and give out the rest as loans to customers who will utilized the money in away that is ultimate collector process it into other bank which takes it turn recirculation to sum collected.
The commercial banks have over the years proved be the most important financial intermediary. They have facilities for the rapid transformation of an economy for an away. They are the largest single group in financial sector. Out weighing by share volume of transaction all the non-bank financial institution put together.
In Nigeria, although the government has substantial share-holding in the equity capital of the banks, they are still regarded as part of the private sector. The commercial banks have contributed importantly to the economic development through their deposit holding and credit to the Nigeria economy.

1.1    STATEMENT OF THE PROBLEM
This study entitled “An Appraised of Commercial Bank Lending Policies to the Private Sector” attempts to appraised the various ways through which the commercial banks  disburse money in  form of loans and advances to the private sector’s, with a view to determining the extent of compliance with the Central Bank of Nigeria credit guidelines. The importance of being attentive to the commercial banks lending policies to the private sector cannot be over emphasized, some of the problems statement are:
1.    Commercial bank adopts unorthodox policy in lending consideration for example conservative lending policy.
2.    They experience repeated default arising from their lending policy.
3.    They are restrictive in their loan extension and accommodation.
That is to say the banks always grant credit facilities to the preferred sectors of the economy like agriculture and manufacturing at very high interest rates subsequently other problems as learnt by the researcher from some of the bank officials regarding lending to the private sectors as regards borrowing by customer are:
i.    Lack of acceptable securities for bank lending.
ii.    Mismanagement of facilities borrowed by some custom 1.2 or and diverting the borrowed funds to others ventures other than that for which they are intended.
iii.    Poor feasibility study to project by borrowers.
iv.    Illiteracy of certain borrowers making them faint hearted to seek financial accommodation from commercial banks.
v.    Deliberate refuse to pay borrowed funds by borrowers.     
    In an attempt to solve the above problem and more it becomes necessary to review among others.
i.    The sources of commercial banks funds and types of advances.
ii.    Credit policy guidelines as projected by the Central Bank of Nigeria with a view to determining the sectoral allocation to the private sector.
iii.    A typical commercial banks lending policies to determine the extent of its agreement with that of the Central Bank of Nigeria.
    And based on this review an analysis is made based on the requirement used to advance money to individual and companies. Hence, my decision to appraise the commercial banks lending policies to private sector.

1.2    PURPOSE OF THE STUDY
i.    To investigate into the volume of credit or loans or advance offered by commercial banks in Nigeria.
ii.    To know the problems being faced by United Bank for Africa Plc in exercising this function of lending to the private sector.
iii.    It is imperative to know these problems so that any bottle neck brought by them will be normally. The researcher has determined these problems in course of this research.
iv.    To evaluate the various lending policies adopted by commercial bank.
v.    To find out the relationship between the lending policies of the bank and the incidence of loan default.

1.3    SIGNIFICANCE OF THE STUDY
This study is important in the sense that it shows the ways loans and advances are made available to individual and companies by banks to enable them carry on their business with a view to repay back such loans at an agreed future previewed. The study is also significance because the findings will help the banks to identify that problems faced by their customers (the beneficiaries) and therefore help the policy makers to adjust the existing lending policy and or formulate new and appropriate lending policies or facilities in such a way as to reduce these problems.
It will also be immense benefit to future researchers on the same subject matter or in a similar circumstance.
This study will also provide data for planning purpose.

1.4    RESEARCH QUESTION
i.    Do commercial banks adopt unorthodox policies in lending consideration?
ii.    Do banks have repeated loan default?
iii.    Are the banks restrictive in their loan accommodation?

1.5    SCOPE AND LIMITATION OF THE STUDY
In a study of the types a lot of set backs are bound to come up.
The work will be constrained by many variables. The greatest identifiable ones are time factors, finance and respondents.
a.    Time Factor: This factor posed a serious problem in the course of this research work. Time allowed for this research was relatively small certain areas which would have been given extensive study were not exhaustively attended.
b.    Finance: The problem of finance was almost the greatest constraint that faced the researcher I the course of this study. Since the researcher is a student, her resources were small and other forms of researcher who would have otherwise helped her to carry out the research were not accessible.
c.    Respondents: The unwillingness of the bank officials to private adequate and relevant information required for thus research work was the most problematic of all constraints encountered by the researcher, some of the official interview, though technically skillful in to give all the information in of the confidentiality of such information to the bank.
SCOPE
    The researcher was only intended for the study of commercial banks lending policies to the private sector. This is meant to cover the period between 1998 to 2008. In order to carry out the research United Bank for Africa Plc, Warri Delta State was used by the researcher in determining the commercial bank lending policies to the private.

1.6    DEFINITION OF TERMS
1.    Loans: This is the transfer of funds from one economic entity or sector to another which must be repaid with interest over prescribed period of time in future..
2.    Credit: The word credit comes from a Latin word credo meaning I believe. It means ability to commend capital of another in return for a promise to repay of a specified time in the future (usually with cost, represented by the payment of interest).
3.    Illiquid: A state of affairs of balance sheet of a concern is said to be illiquid when its unlikely that advance can be repaid on demand.
4.    Pledge: Pledge is a delivery of goods or demands of titled to goods by a debtor to his creditor as a security for debt or for any other obligation.
5.    Mortgage: Is the conveyance of legal or an equitable interesting real or personal property as security for a debt or for the discharge of an obligation.
6.    Set-off: The combination of the debit and credit account so as to arrive of a partial or full payment of debt.
7.    Acceptance House: This is any financial organization that transacts banking business and endorses or guarantees bills on the basis of which the bills are negotiated.
8.    Assignment: This is a transfer by a creditor to an assignee of the right to a benefit firm a debtor.
9.    Profitability: This is a total net profit or gain made by a concern from it’s selling or business.