Bank Credit Management and Its Effects on Profitability Profile in the Nigerian Banking Industry

Bank Credit Management and Its Effects on Profitability Profile in the Nigerian Banking Industry

Author by Dr. Folajimi Festus Adegbie

Language: English


The Nigerian Banker, CIBN, Lagos, Nigeria 2011 January-March pp.45-51 The paper observed that the major problem of the banking industry is poor credit management/administration, which has created financial distress in the industry. This problem has led to the liquidation of 69 banking institutions from pre-independence to date. Overhang of non-performing loans and advances is a principal factor due to poor planning and control, lack of financial transparency, poor asset and liability and poor corporate governance. Further analysis of this problem shows that poor credit management and loopholes in the lending security documentation have contributed in no small measure to the problem of financial distress in the industry. This problem is militating against the profitability profile in the banking industry and the key objective of shareholders for good return on investment. In the identified situation, shareholders lost their investments, depositors lost their deposits while other stakeholders lost their holdings. The critical analysis shows that the profitability of the banking industry were negated because of non-compliance with CBN 1990 prudential guidelines; Non-credit security documentation, incomplete documentation, and failure to perfect documentation have caused many banks to write off bad debts against their profits; Fraudulent release of security documents to borrowers by the credit manager who is suppose to uphold his/her allegiance to the employer; Lending to a customer more than the value of the security in place because of wrong valuation of property pledged; Accepting securities that are valueless, in wrong location and cannot be realized or under litigation have negative impact on the profit after all. The paper concludes among others that the management of the banking institutions in the industry should create awareness to their managers that poor credit administration/management is a key contributory factor to financial distress and bank liquidation in Nigeria, documentation and perfection of security documents must be in place before the bank allows drawdown on the facility., proper training of analysts should be given premium by the bank management in order to arrest the dearth of credit analysts in the system, the banking institutions should operate credit policies that would ensure liquidity flow at all times, and CBN & NDIC should instill professionalism in the Nigerian banking industry.

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