TABLE OF CONTENT

Title

Approval

Certification

Dedication

Acknowledgment

Table of contents

Abstract

ABSTRACT

This research work was undertaken to assess the Loan granting and its recovery problems on
Commercial Banks. The research was intended to achieve the following objectives: To find out the
several problems facing loan recovery, the effects of loan default on commercial banks and the
measures that will be used in reducing the incidence of loan default. Relevant data were collected from
both primary and secondary sources. Questionnaires were the main primary data collection instrument
employed while data from various relevant publication constituted the sources of secondary data. Upon
the analysis of data, the following conclusions were drawn: That problem of loan default stemmed from
the fact that there is unavailability of security to be disposed by banks to realize funds. And also
customer’s attitude towards loan payment. On the basis of the above findings, it was recommended that
commercial banks should use some risk control measures to guide against loan default. Also, before
granting loan, they should examine critically the project statement submitted by the customer or
borrower which will help them to find out the realistic repayment pattern and also help them in knowing
if the projects are realistic based on the customer’s past performance. Also, the Central Bank of Nigeria
should create a conducive environment for the successfully operation of commercial banks in Nigeria.

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the study

1.2 Statement of problems

1.3 Objectives of the study

1.4 Research question

1.5 Research hypothesis

1.7 Significance of the Study

1.8 Definition of terms

1.9 Limitations of the study

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Brief introduction

2.2 The nature of loan and advances granted by banks

2.3 Problems of loan default

2.4 Causes of loan default

2.5 Effects of loan default

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Research design

3.2 Definition Population

3.3 Sample size

3.4 Sources and method of data collection

3.5 Method of data presentation and analysis

CHAPTER FOUR

4.0 DATA PRESENTATION AND ANALYSIS

4.1 Presentation and interpretation of data

4.2 Data analysis and findings

4.4 Recovery measures

CHAPTER FIVE

5.0 SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION

5.1 Summary of findings

5.2 Recommendation

5.3 Conclusion

5.4 Suggestion for further research

Bibliography

Appendix A

Appendix B
LOAN GRANTING AND ITS RECOVERY PROBLEMS ON
COMMERCIAL BANKS (A CASE STUDY OF FIRST BANK, ABAKALIKI
EBONYI STATE)

CHAPTER ONE
1.1 BACKGROUND OF THE STUDY:

Virtually, every business has a credit relationship with a financial institution, especially banks. Some rely
on periodic short term loans to finance temporary working capital needs. Others primarily use long-term
loans to finance capital expenditure, new acquisitions or permanent increases in capital. Regardless of
the type of loan, all credit request mandate a systematic analysis of the borrower‟s ability to repay as at
when due.

Commercial banks carry on ordinary banking business with the general public, changing cash for bank
deposits and bank deposits for cash,

transferring bank deposit from one corporation to another, giving bank deposit in exchange of bills of
exchange, providing of trustees and executor‟s services, providing safe custody of funds and valuables
as well as foreign exchange remittance. Though commercial banks differs from country to country, their
profit and banking motives are the same. Their activities are of interest to their customers, workers
(staff), and above all, shareholders. The commercial objective of the bank is to maximize profit, though
other social and economic functions tends to deflect banks from profit maximization. The aims and
objectives of commercial banks have therefore paved way for their customers to make and obtain
credits, in form of loan of which the researcher is interested in. Lending has become a vital function on
operation because of its direct effect and impact on economic growth and business development.

In a market oriented economy, there are two main participants that move the economic growth; these
are the suppliers of invisible funds and the users of the funds for productive purposes. These two
participants are spread widely in the economy and may not have direct relationship with each other. For
this, there is the need to have an intermediary to link them up. The banking sector mobilize surplus
funds from small and big savers who have no immediate need for such funds. The users of these funds
are

the business entrepreneurs and investors who have brilliant ideas on how to create additional wealth in
the economy but lack the necessary capital to execute their ideas. These groups of people approach
banks to obtain loan. Subsequently, lending is a risky venture which banks only engage on after a
rigorous and satisfactory analysis of the project for which lending is being made. The main
preoccupation of banks is extending loans to their customers. Thus, the formulation and
implementation of such lending policies are some of the important responsibilities of the management
of the bank. The lending policy of a bank must be specific on how much loan will be made available to
whom, what period and for what reason. For this reason, lending policies should be well documented so
that lending officers will be able to know the areas of prohibition and the area of where they can
operate. Also, such policies should be subjected to periodic review to make the banks keep abreast with
the dynamic and innovation nature of the economy as well as competing with other changing economic
sector.

Therefore, the basic objectives of credit analysis t=is to assess the risks involved in extending loans to
bank customers. In financial circle, risk typically refers to the volatility in earnings. Lenders are
particularly concerned with adverse fluctuation in net income or cash flows, which hinder the
borrower‟s ability to service a loan. Some risks can be measured with historical and projected financial
data, while others such as those

associated with borrower‟s character and willingness to repay a loan are not directly measurable.

1.2 STATEMENT OF PROBLEMS:

Banks in recent times has failed as a result of loan recovery problems. Loan is the major source of bank
profitability. However, in going about their lending activities, banks have their own objectives among
which are profitability, growth, safety, suitability and liquidity. Loan, when not recovered could
adversely affect banks. It is easily granted than recovered. It usually needs proficiency i.e. competency
and expertise in the recovery process. It sometimes become an uphill task to recover. When they are
not recovered, the impact is often disastrous to the bank. It can lead to illiquidity, insolvency and even
distress as the case may be. There is therefore a need for arriving at strategies for efficient loan
recovery. That is the peak of the problem.

1.3 OBJECTIVES OF THE STUDY

Having known that lending objectives of a commercial bank is to provide growth, profitability and
liquidity, and its representing chunk of deposit as a source of income to the bank, the cumulative effect
of loan default will be a loss of confidence in the banking system.

The researcher therefore aimed at:

1. Finding out the several problems facing loan recovery

2. The effects of loan default on commercial banks

3. The measures that will help to reduce the incidence of loan default.

1.4 RESEARCH QUESTION

1. What are the several problems faced during loan recovery?

2. What type of loan do commercial banks grant?

4. Are there measures to reduce the limit of loan default?

5. What are the effects of loan defaults on commercial banks?

6. What are the sectorial allocation of commercial bank‟s loan?

7. What are measures that will help to reduce the incidence of loan default?

1.5 RESEARCH HYPOTHESIS

Ho – the measures taken by banks do not reduce the incidence of loan default.

H1 The measures taken by banks to reduce the incidence of loan default

1.6 SCOPE OF THE STUDY

The research work is to analyze the problems of loan recovery on commercial banks (First Bank Plc) in
Ebonyi State, Abakaliki

Due to limited time and the level of this project work, the researcher decided to systematically and
meticulously narrow it down to a study that will cover two distinct areas namely: The problem of loan
recovery and how to control loan default. The researcher wants to avoid unnecessary details that are
not concerned with the problem of loan recovery in commercial banks. The study is limited to first bank
branch in Ebonyi State, Abakaliki

1.7 SIGNIFICANCE OF THE STUDY

This study is intended to analyze the problems of loan recovery in commercial banks in Nigeria and their
poor system of management of loan. The result of this study will be immense important to some of us
and even the bankers in particular. Banks will become conscious in their loan disbursement. They have
to determine the kind o people that will benefit from the loan disbursement, the type of loan to give the
criteria to use in granting loan and the procedures to be used for loan recovery.

1.8 DEFINITION OF TERMS

In the course of the study, the researcher makes use of some words that needs to be defined so as to
carry the reader along.
LOAN: This is the act of allowing a borrower to make a temporal use of

funds at its disposal. It is also a more formal arrangement by which a bank agree to lend an agreed
amount to a customer usually for a given period. RISK: It is the measure of uncertainly inherent in any
decision making process. PROFITABILITY: It is used as index for measuring managerial performance. It
means yielding or bringing profit or gain. LIQUIDITY: This is the word that banks used to describe their
ability to satisfy demands for cash in exchange for deposits. BANKING: It is an agency through which
debts and credits are converted and exchanged between owners. BAD AND DOUBTFUL DEBT: Bad debts
are those which are not recoverable, though they are written off as loss. Doubtful debts are those of
which the recovery in full or part is uncertain. CAPITAL: It is the equity value of the bank educated to the
present value of its future earnings.

1.9 LIMITATIONS OF THE STUDY:

In the course of the study, the researcher was faced with several constraints. One of the constraints was
the short time period within which

the research was to be completed. Another factor was shortage of cash which prevented the researcher
from traveling to source the data. Also, most of the credit analysis criteria in commercial banks were not
disclosed to offer the necessary data required. Their frequent postponement of appointment coupled
with the fact that commercial banks in Nigeria are vast in population i.e. First Bank Branches. The
researcher could not get to all of them, therefore a sample was taken to represent all.