TABLE OF CONTENT CHAPTER ONE: INTRODUCTION 1.1 Background to the study 1 1.2 Statement of the problems 2 1.3 Objective of the study 4 1.4 Research question 4 1.5 Research hypothesis 4 1.6 Significance of the study 4 1.7 Scope and limitation of the study 5 1.8. Definition of Terms 5 1.9 Plan of the study 5 CHAPTER TWO: LITERATURE REVIEW 2.1 Conceptual framework 7 2.2 Theoretical framework 35 2.3 Empirical framework 36 2.4 Overview of Literature and Research Gap 39 CHAPTER THREE: RESEARCH METHODOLOGY 3.0 Introduction 40 3.1. Research Methodology 40 3.2 Population of the study 40 3.3 Sample size 41 3.4 Method of Data collection 41 3.5 Method of Data analysis 44 3.6 Limitation to study 44 CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF STATISTICAL DATA 4.1. Introduction 45 4.2. Presentation of Statistical Data 45 4.3. Interpretation of Findings 52 CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS 5.0 Introduction 53 5.1. Summary of Findings 53 5.2. Conclusion 53 5.3. Policy Recommendations 54 5.4. Area for Further Research 54 References 56 CHAPTER ONE INTRODUCTION 1.1. Background To The Study Credit management is one of the most important activities in any company and cannot be overlooked by any economic enterprise engaged in credit irrespective of its business nature. It is the process to ensure that customers will pay for the products delivered or the services rendered. Myers and Brealey (2021) describe credit management as methods and strategies adopted by a firm to ensure that they maintain an optimal level of credit and its effective management. It is an aspect of financial management involving credit analysis, credit rating, credit classification and credit reporting. Nelson (2020) views credit management as simply the means by which an entity manages its credit sales. It is a prerequisite for any entity dealing with credit transactions since it is impossible to have a zero credit or default risk. Thus, Credit risk is one of the most significant risks that banks face, considering that granting credit is one of the main sources of income in commercial banks. Therefore, the management of the risk related to that credit affects the profitability of the banks (Li and Zou, 2020). The importance of credit risk management in banks is due to its ability in affecting the banks’ financial performance, existence and growth. The higher the amount of accounts receivables and their age, the higher the finance costs incurred to maintain them. If these receivables are not collectible on time and urgent cash needs arise, a firm may result to borrowing and the opportunity cost is the interest expense paid. Nzotta (2019) opined that credit management greatly influences the success or failure of commercial banks and other financial institutions. This is because the failure of deposit banks is influenced to a large extent by the quality of credit decisions and thus the quality of the risky assets. He further notes that, credit management provides a leading indicator of the quality of deposit banks credit portfolio. A key requirement for effective credit management is the ability to intelligently and efficiently manage customer credit lines. In order to minimize exposure to bad debt, over-reserving and bankruptcies, companies must have greater insight into customer financial strength, credit score history and changing payment patterns. Credit management starts with the sale and does not stop until the full and final payment has been received. It is as important as part of the deal as closing the sale. In fact, a sale is technically not a sale until the money has been collected. It follows that principles of goods lending shall be concerned with ensuring, so far as possible that the borrower will be able to make scheduled payments with interest in full and within the required time period otherwise, the profit from an interest earned is reduced or even wiped out by the bad debt when the customer eventually defaults. Credit management is concerned primarily with managing debtors and financing debts. The objectives of credit management can be stated as safeguarding the companies? investments in debtors and optimizing operational cash flows. Policies and procedures must be applied for granting credit to customers, collecting payment and limiting the risk of non-payments. Credit provision requires due attention as credit risk management is one of the critical aspect and hot issue amongst the issues faced by banks. The risk management aspect is not only crucial for sustainability but growth of the banking sector as well. The sustainability and growth also brings stability to local currency as well as the economy as a whole (Greuning&Bratonovic, 2021). Poorly managed credit risk may cause liquidity risk resulted in insolvency of the commercial banks. Presence of risk in financial sector is also attached to products offered by them. Those include balance sheet products such as short term and long term loans, as well as off balance sheet such as letter of credits along with other guarantees. Inspite of all the risks, loans however, constitute greater proportion of credit risk as they generally, account for 10 15 times the bank’s equity (Kitua, 2020). Hence, banking business may likely to collapse if there is slight deterioration in loan quality. 1.2. Statement Of The Problem In the recent years, credit risk gained focal importance because of huge financial losses faced by big international financial organizations (Nikolaidou & Vogiazas, 2020). Since the financial crisis, financial organizations particularly money deposit banking sector have taken special measures to mitigate any forthcoming financial losses caused by mismanagement in loan allocations and credit recoveries. Credit risk management offers a viable solution to such challenges. Today, credit risk management constitutes a critical component of a comprehensive approach to risk management in banking sector (Arora& Kumar, 2020). A key necessity for viable credit risk management is the capacity to sagaciously and productively oversee client credit lines. Credit risk has remained one of the topical issues of current financial studies that had enjoyed special attention from both scholars and professionals. In fact, this debate was more pronounced immediately after the recent global economic crisis. A number of scholars concede that one of the key causes of severe banking trouble is motionless credit risk control, and since supply of credit is still the primary business of every bank, credit quality is regarded as a major sign of financial dependability and healthiness of banks. The interests that are charged on loans and advances form substantial component of banks’ assets, as such, non-repayment of loans and advances, created serious hindrance not only for borrowers and lenders but also for the whole financial system of a country. Studies of banking tragedies all over the world have exposed that poor loans (asset quality) is the key cause of bank distresses (Boahene, Dasah, &Agyei, 2019). Also, included is the diversion of senior managements attention away from solving other operational problems. Faced with an exogenous increase in non-performing loans, even the most cost efficient banks have to purchase the additional inputs necessary to administer these problem credits, by estimating the relationship between non-performing loans and bank efficiency. Just in recent time, the central bank of Nigeria sacked the board of directors of Skye Bank Plc.simply because the bank have been reeling from burden of non-performing loans, liquidity, capital adequacy ratios and weakening in the macroeconomic environment (This day Newspaper, July 13, 2016). In line with the position above, this research work tends to assess credit management efficiency in Money Deposit Banks in Nigeria. 1.3. Research Questions This research work tends to answer the following research questions: i. To what extent does efficient credit management enhances firms’ ability to create liquidity in money deposit banks? ii. Does inability of firms’ to maintain certain degree credit management worthiness reduces firms’ profitability enhancement? iii. Does poor loans asset quality contribute to bank distress? 1.4. Research Objectives The general objectives is to assess credit management efficiency in money deposit banks in Nigeria The specific objectives include: i. To examine the extent of effective credit management in enhancing firms ability to create liquidity in money deposit banks in Nigeria ii. To investigate the degree of effective credit management on firms profitability. iii. To evaluate if poor loans asset quality contribute to bank distress 1.5. Research Hypothesis Ho1: efficient credit management does not enhance firms’ ability to create liquidity in money deposit banks Ho2: inability of firms’ to maintain certain degree of credit management worthiness does not reduce firms’ profitability enhancement Ho3: poor loans asset quality does not contribute to bank distress 1.6. Significance Of The Study The results of this study will be valuable to researchers and scholars, as it would form a basis for further research. Scholars would use this study as a basis for discussions on credit management and financial performance. It will provide the scholars with empirical studies that they will use in their studies. The study will also add to the body of knowledge in the finance discipline by bridging gaps in credit management research in general. This study will make several contributions to both knowledge building and practice improvement in credit management and financial performance. From a theoretical standpoint, the study proposes a comprehensive framework of studying changes in credit management and financial performance. It also expected that it will aid policy makers in their effort to revamp the sector. It shall be of great relevance to the organizations under study as well as other financial institutions. The non-financial business firms, whether manufacturing or service oriented shall also benefit from the research findings. This is because the result of the study shall enable the users especially MFIs to appraise its credit policies and to review its operations critically for more result oriented approach in the dealing with its credit facilities. 1.7. Scope Of The Study As the study is centered on assessment of credit management efficiency in commercial banks in Nigeria using Union Bank as the case Study, the research covers all departments under the banks within Ilorin branch in other to ascertain whether there is effective proper credit management control. 1.8 Limitation of the Study The researcher in the course of carrying out the research was faced with the following problems and constraints. a. Time factor: Time shortage posed serious challenges, since it was indeed very short considering the enormity of the research work. b. Lack of information and data due to unavailability of materials and other vital information. Libraries are either out of stock or scanty in their content of relevant materials. c. Financial problem was also a deterrent in carrying out the research since the available fund was not enough to sustain the vast research proposals, it was also a challenge in that regard. The world private firm or sector and audit had undergone frequent usage in the country that for this research by deserve special mention and explanation.
DOWNLOAD COMPLETE PROJECT ₦5,000