Problems Associated With Loan Recovery In Commercial Banks
Loan recovery in commercial banks presents a complex challenge marked by intricate dynamics and multifarious obstacles. The retrieval of loans is a critical facet of financial institutions’ operations, crucial for sustaining liquidity and ensuring the stability of the banking sector. The intricacies involved in loan recovery stem from a myriad of factors, including economic downturns, changing market conditions, and the diverse financial portfolios of borrowers. Additionally, the efficacy of loan recovery efforts is heavily influenced by the adaptability of banks to evolving regulatory frameworks and their ability to implement robust risk management strategies. The persistent issue of non-performing loans further exacerbates the predicament, necessitating innovative approaches to mitigate default risks. Striking a balance between stringent recovery measures and maintaining customer relations becomes a delicate task, highlighting the need for banks to deploy nuanced strategies. Successful loan recovery hinges on the continuous refinement of collection methodologies, leveraging technological advancements, and fostering a proactive approach to risk identification and mitigation. Addressing these multifaceted challenges is imperative for commercial banks to fortify their financial position and uphold the integrity of the lending process.
Chapter one portals the problems associated with the Nigeria commercial banks why serves as the introduction of the problems associated with loan recovery and it also gives the historical development of commercial banks in Nigeria.
Chapter two, lays emphasis on the loan, origin and deification and how loan playa vital role in loan lending for the economic development and money creation in our society, both the lender and borrower have a duty to per form, for an efficient and effective lending to be carried out.
The conditions which the commercial banks must undergo before granting out loans to customers was emphasized in chapter. Three of these work. Despite the precautions taken by the commercial banks they still encounter series of problems in loan recovery from their customers. Among them are non-repayment of loan, unwillingness to repay etc.
Loan, recovery problems have an adverse effect on availability of funds, due to the customers unwillingness to repay the being borrowed by them when due (i.e at maturity). These problems have great effects on the commercial banks since one of their functions is granting loan to customers. The effects of the non-repayment of loan by customers will not be emphasized. Though there are some remedies/solution to all these.
Title Page:
Approval Page:
Dedication:
Acknowledgment:
Abstract:
Table Of Contents:
Chapter One
1.0 Introduction
Chapter Two
2.0 Loan, Origin And Definition
Chapter Three
3.0 Problem Associated By Nigerian
3.1 Commercial Banks In Loan Recovery
Chapter Four
4.0 How Recovery Of Loan Problems
4.1 Affect Credit Availability
Chapter Five
5.0 Summary/Recommendation
Reference
Bibliography
1.1 INTRODUCTION
In recent years, loan recovery problems have been of the main problems that the Nigerian commercial banks has had to face. Those problems have been main target of policy measures all these years, though at a time it become main focus of policy on which was retarded as more pressing and serious each time. Today the situation in Nigerian have become very serious and seemingly intractable.
The problems of loan recovery in the pigovain sense refers to a situation in which there is a major break down in the repayment agreement resulting in an on due delay in recovery or collection and in which it appears that legal action may be required to effect recovery for in which there appears to be a potential loss. Such a loan there fore requires special attention on the part of the lender if it is to be collected in full within a reasonable period of time after maturity.
A truism in a commercial bank lending situation is that unless the commercial bank accesses lending risk and devices and effective way of lending against risk related to the borrowers, industry, management or operation in the qualify of the loan portfolio might survive from an increase in past due debt, non accruals and charged off loans. Thus, even if the borrowers have not met the initial criteria for a desirable borrowing customers through interview and credit investigations, the rest point of emphasis in credit risk analysis is in the borrowers financial statement (specially incase of business firm). The later assists the lender to determine whether the firms operations will be able to generate sufficient cash flow to repay debt and whether its asset will be available as collaterals of course the degree of reliance on financial statement analysis is directly related to how they are prepared. Therefore deductions about credit risk levels from the analysis should necessarily be tempered with additional information from the borrower.
Commercial Banks lending objectives is to make loans that can be repaid. While minimizing her exposure to loans with poor credit quality. However every lending institution finds itself from time to time with loan for which the risk of loss is greater than anticipated, when the loan was made or in which the risk is greater than a lender would ordinarily willingly assume. This is because in the lending environment, there are basically two types of borrowers, the good and bad. It is the category of borrowers that carries a risk of default on loan repayment.
HISTORICAL DEVELOPMENT OF COMMERCIAL BANKS IN NIGERIA
Commercial bank is defined as an institution that carries out the business of recoving money and collecting drafts from customers subject to the obligation of honouring cheques drawn upon them from time to time by the customers to the extent of the amount available on their current account. Based on this definition, the commercial bank carries out such functions as:
• Acceptance of deposit
• Providing loans and overdrafts
• Drawing of cheques
• Transferring of money
Commercial banking in Nigeria started in the 1892 with the establishment of the African Banking corporation (ABC) through the instrumentality of Elder Dempster and co a shipping company based on rive pool. Due to initial difficulties, the bank did not exist beyond 1893. in 1894 (BBNA) was incorporated in London and opened a branch in Lagos the same year C.N. Asuzu, Elements of banks with the establishment of industrial an commercial bank. The establishment of this bank was promoted by the nationalist dissatisfaction with the existing foreign banks who discrimed against Nigerian in granting of loans. How ever, indigenous banking era had some failures in the sense that most commercial banks established in that ere collapsed due to the granted loan to Nigerian indiscriminately. The first surviving indigenous bank survived because of the support they get form the regional government (western government) another successful indigenous bank was Agbomagbe established in 1945.
The third expartriate bank British and French bank (currently) (UBA) was established in 1949, this joined the two other expartriate banks to dominate the banking business in Nigeria, the expartriate bank still neglect the indigenous entrepreneurs and concentrated in international trade and dealing with government.
Since the inception of the first banking legislation there had been other banking legislating, for instance the banking legislation o 1952 that vested the power of control of banking on the financial secretary. Others are the 1958 banking ordinance and subsequence amendment 1961, 1962,1964 and the banking act of 1990.
According to Mr. C.N Asuzu in his book element of banking in Nigeria, the first bank emerged in Nigeria was British bank of west African 1894 now first bank of Nigeria followed by Bardays bank Dco 1917 now known as union of Nigeria etc.
1.2 STATEMENT OF THE PROBLEMS
The problems of loan recovering not only in commercial bank but all the banks as a whole is unable to pay back loan as at when due.
It is true that before a loan is been given to a customer especially customer of a bank collateral is suppose to be present but some time the collateral presented may or may not be able to pay back the loan that is been collected from the banks
Again is over trusted some managers, due to because the customer always due to because the customer always put or deposit a very amount of money in their bank amy ro may not came to ask them for collateral and at last the whole money will be lost.
1.3 OBJECTIVES OF THE STUDY
The objectives is to find out the remote cause of the problem which is given out loan and feeling less concern that is not be kan about collateral
1.4 SIGNIFICANCE
The significance is that before any customer should be given loan he or she should be ask to present collateral and the collateral is not suppose to be cumbersome. Whether person is your child, wife or mother collateral should be presented.
1.5 SCOPE AND LIMITATIONS OF THE STUDY
With the review form what that have been noted far, it is clearly explain that this study will focus on the problems of loan recovering in commercial banks and how they are going to be solved.
1.6 DEFINITION OF TERMS
BANKS: These means an institution where people or business can keep their money. Banks also offers services such as lending exchanging or transferring money, they also grant overdraft to their customers
CUSTOMERS: An individual or household that purchases a particular produces for personal or household or industrial use.
COLLATERAL: These refers to money or property which is used a guarantee that some will repay a loan.
SHARE PROJECT MATERIALS ON:
Problems Associated With Loan Recovery In Commercial Banks:
Loan recovery in commercial banks can be a challenging process, often fraught with various problems and obstacles. Some of the key issues associated with loan recovery include:
- Default Risk: The primary concern for banks is the risk of borrowers defaulting on their loans, leading to financial losses for the bank. Economic downturns, industry-specific challenges, or poor creditworthiness of borrowers can significantly increase default risk.
- Legal and Regulatory Challenges: Loan recovery processes are often subject to stringent legal and regulatory frameworks, which can vary across jurisdictions. Banks must adhere to these regulations while pursuing recovery, which can sometimes slow down the process or limit the bank’s options.
- Collateral Valuation: If the loan is secured by collateral, accurately valuing and liquidating the collateral can be challenging. Market fluctuations, illiquid collateral, or disputes over valuation can hinder the recovery process.
- Debtor Insolvency: If the borrower becomes insolvent, recovering the outstanding debt becomes even more complicated. Banks may need to navigate bankruptcy proceedings and compete with other creditors to recover funds, often resulting in partial or delayed repayment.
- Reputation Risk: Aggressive loan recovery tactics can damage the bank’s reputation and customer relationships. Balancing the need for recovery with maintaining a positive reputation is essential for long-term success.
- Operational Efficiency: Inefficient loan recovery processes can increase costs and prolong the time it takes to recover funds. Banks must invest in effective systems and personnel to streamline the recovery process and minimize losses.
- Fraudulent Activities: In some cases, borrowers may engage in fraudulent activities to avoid repayment. Banks need robust fraud detection mechanisms to identify such instances and take appropriate legal action.
- Lack of Documentation: Inadequate documentation of loan agreements or collateral can weaken the bank’s position during the recovery process. Proper documentation is essential to enforce loan terms and secure repayment.
- Economic Factors: Economic conditions, such as interest rate fluctuations, inflation, or currency devaluation, can impact borrowers’ ability to repay loans. Banks must assess macroeconomic factors when formulating loan recovery strategies.
- Cultural and Social Factors: Cultural attitudes towards debt repayment and societal norms can influence borrowers’ willingness to repay loans. In some cultures, there may be stigma associated with defaulting on debt, while in others, it may be more socially acceptable.
Addressing these challenges requires a combination of proactive risk management, robust legal frameworks, efficient operational processes, and a deep understanding of the local market dynamics. Additionally, banks may need to invest in technology and analytics to enhance their loan recovery capabilities and minimize losses.