CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Credit
management in our banking sector today has taken a different dimension from
what it used to be. The banking industry has adopted a lot of strategies in
checking credit management in order to stay in business. Thu the banking
industry in Nigeria has lost large amount of money as a result of the turning
source of credit exposure and taken interest rate position. Nigerian banks are
being required in the market because of their competence to provide transaction
efficiency, market knowledge and funding capability. To perform these roles,
the banks act as the most important participants in their transaction process
of which they use their own balance sheet to make it easier and making sure
that their associated risk is absorbed.
Credit
extension is essential function of banks and the bank management strive to
satisfy the legitimate credit needs of the community it tends to serve. This
credit advances by banks as a debtor to the depositor requires exercising
prudence in handling the funds of depositors. The Central Bank of Nigeria
established a credit act in 1990 which empowered banks to render returns to the
credit risk management system in respect to its entire customers with aggregate
outstanding debit balance of one million naira and above (Ijaiya G.T and
Abdulraheem A (2000). This made Nigerian banks to universally embark on
upgrading their control system and risk management because this coincidental
activity is recognized as the industry physiological weakness to financial
risk.
The
researcher, a New yolk-based, said that 40% of Nigerian banks that made up
exchange rate value in west Africa, has reduced the operating lending as a
result of bad debts which hit more than $10 billion in 2009 and this has led to
a tied-up questioning asset that is holding almost half of Nigerian banks. The
central bank of Nigeria fired eight
chief executive officers and set aside $ 4.1 billion in order to bail out almost
10 of the country‟s lenders. The reform which was introduced by Central Bank of
Nigeria (CBN) in 2010 has made Nigerian banks resume lending supporting assets
management companies and set up the requirement which will allow Nigerian banks
make full provision for bad debts that will boost the market.
The
banks identify the existence of destructive debtors in the banking system whose
method involved responding to their debt obligations in some banks and tried to
have contract of new debts in other banks. Banks are trying to make the
database of credit risk management system more open for them to be more
functional and recognized as to enable banks to enquire or render statutory
returns on borrowers. There are some banking practices which increase the risks
in the bank and cannot be easily changed. This result still leads to the
question: what are the possible ways that will help make Nigerian banks manage
their credit risks?
Credit
risk management helps credit expert to know when to accept a credit applicant
as to avoid destroying the banks reputation and making decision in order to
explore unavoidable credit risk which gives more profit. Controlling a risk
results in encouraging rewards that give internal audit more technical support
service and customized training in banks or financial institutions. This
research is presented to outline, find, investigate and report different state
of techniques in risk management in the banking industry.
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