MANAGEMENT OF LOANS AND ADVANCES IN NIGERIAN COMMERCIAL BANKS. (A STUDY OF FOUR COMMERCIAL BANKS IN ENUGU)

CHAPTER ONE:
                     1.0 Introduction
1.1     Background of the Study
Commercial banks are “retail banking institutions” that accept deposits and make short-term, medium-term, and long-term credits available to government, public/private business enterprises, and individuals. Some of their functions include accepting deposit through current and savings accounts; fixed deposit and others, granting of loans and advances, equipment leasing, loan syndication; financing advisory services; trade and export finance; other investments and foreign remittances. The relationship between Commercial bank and others financial institutions in terms of functions, limits, and modus operandi are spelt out in the Bank and other financial institutions Decree 25 Banking and other financial matters decree (BOFID)of 1991. The Banking and other financial matters decree (BOFID) Decree 25 of 1991 in particular permits some other financial institutions like Merchant Bank, Development Bank and Insurance companies to engage in granting loans through mostly medium and long- term in nature.
This research work is mainly done on the management of loans and advance (short, medium-term, and long-term) granted by the Commercial bank in Nigeria. Granting of loans and advances is an integral part of the functions of the Commercial Bank but one of the most risky one. It is based on its risky nature that made it an interest of study focus in terms of its management by the commercial banks.
Filder (1982:249), states that it is a known fact that loans and advances are granted at a profit. Most loans and advances are granted out of the deposits accepted by the commercial banks or funds borrowed at a lower interest rate. The difference between the interest paid out plus share of management cost and the loan interest received makes up the profit to the commercial bank.
The success or failure of the Commercial Banks in achieving their profit objective very much depends on how well the loans and advances are managed.
An efficient lending policy will in every ramification reduce the incidence of bank distress and generally increase the wealth of the owners of the bank as a business. It will equally help in revitalizing and boosting the economic activities in the country.
According to Teriba (1990:21), a situation where the bank lending policy is weak and inadequate makes loan and advances management difficult and this result to shoot-outs of several problems in the development of the economy. Any economy with inadequate level of loan and advances, stringent lending policy and obvious huge bank bad-debts and provisions has a dull future in terms of its overall development. It is this incidence of poor management of commercial bank loan and advances in the Nigerian economy that has promoted my idea of instituting this scholarly investigation as a way to findings lasting solution to the problems.
1.2     Statement of the Problem
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