The main purpose of this study is to examine critically the problems of debt management in Nigerian financial institutions with particular references to First Bank Plc Garden Avenue Enugu. To achieve the objective of this research study, a questionnaire was designed and administered to the selected banks, using random sampling technique, supplemented by oral interviews, necessitated by the return of these questionnaires. The research revealed how debt management in financial institutions has impede the development of banks in Nigeria. The research also revealed the measures that will be adopted to check the problems of debt management in Nigerian financial institutions. It was concluded that efficient management of debts in our nation’s financial institution will help in both economic growth and economic development of a nation. The researcher also recommended that banks should eliminate credit-risk asset and there must be a governing policy by the banks whereby large loans made to an individual or corporate bodies are covered by a reputable insurance company.

TABLE OF CONTENTS

Title page. . . . . . . . . . i

Certification . . . . . . . . . ii

Approval page. . . . . . . . . iii

Dedication . . . . . . . . . iv

Acknowledgement . . . . . . . . v

Abstract . . . . . . . . . . vi

Table of contents . . . . . . . . vii

CHAPTER ONE

INTRODUCTION

1.1 Background of the study. . . . . . 1

1.2 Statement of the problem . . . . . 5

1.3 Objective of the study . . . . . . 6

1.4 Research question . . . . . . . 6

1.5 Hypotheses . . . . . . . . 7

1.6 Significance of the study. . . . . . 8

1.7 Scope and Limitation of the study. . . . 10

1.8 Definition of terms . . . . . . . 11

References . . . . . . . . 13

CHAPTER TWO

Review of Related Literature

2.1 Debt management defined . . . . . 14

2.2 Types of debt . . . . . . . . 16

2.3 How banks create money . . . . . . 18

2.4 Common causes and problem of bad debt . . 21

2.5 Fundamentals of credit analysis . . . . 26

2.6 Prudential guideline in Nigerian . . . . 30

2.7 Minimizing risk associated with bank lending. . 35

2.8 The need for frequent government regulation . . 39

2.9 Short comings of the traditional method of

credit analysis. . . . . . . . 44

References . . . . . . . . 46

CHAPTER THREE

Research Design & Methodology

3.1 Research design. . . . . . . . 47

3.2 Sources of data . . . . . . . 48

3.3 Population and determination of sample size. . 50

3.4 Method of investigation . . . . . . 51

References . . . . . . . . . 53

CHAPTER FOUR

Presentation and Analysis Of Data

4.1 Analysis of data . . . . . . . 54

4.2 Test of hypothesis . . . . . . . 63

CHAPTER FIVE

Summary of Findings, Conclusion and Recommendation

5.1 Summary of findings . . . . . . 68

5.2 Conclusions . . . . . . . . 71

5.3 Recommendations . . . . . . . 71

Bibliography . . . . . . . . 73

Appendix. . . . . . . . . . 76

Appendix. . . . . . . . . . 77

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND

Financial institutions is that sector of the economy providing the community with money balances and payment of bank and sector of the economy is made, up of banks and non-banks financial institutions like financial house, mortgage house and other institutions that provide financial services and intermediation to the various segment of the economy. In modern society, economic prosperity and progress depend largely on level of savings in the nation.

According to Azeredo (2002) in his journal said financial institutions those organization, that are involved in providing various types of financial services to their customers. The financial institutions are controlled and supervised by the rules and regulations delineated by government authorities. Some of the financial institutions also function as mediators in share market and debt security market. The principal function of the financial institutions is to collect funds from the investors and direct the funds to various financial services providers in search for the funds.

According to Thompson (2005. 12). in his book financial institution also impact a wide range of educational programmes to educate their investors on the funds amounts of investment also regarding the valuation of stock, bonds, assets, foreign exchanges and commodities. It happens that some on savings is made available to investors for productive venture like what happened in commercial banks, where this happens a debt is credited. A debt which has been described as an obligation to make future payment it is against the borrowing promises to made future payment. As a result of this the owners of these funds faces the risk of not getting their money in good time, or loosing it entirely the custodian the custodian of the fund managed then well hence debt management become a singanon to guarantee the confidence of the individual depositor the his money is safe. Debt management involves put in place for repayment of those credit fertilities. In the same vein it is fulfill a wider role in save guiding the stability of the individual banks and the banking system as a whole. At this, the researcher will mention that this work is based on the constraint in relation with debt tagged the problem of management in Nigeria. Financial institution (A case study of garden avenue Enugu) recently the bank sector undergo a thematic experience whereby some banks, were judged distressed, thus, however was a direct manifestation of improper debt management.

According to B.C. Onyiwa (2006) said that financial institution deals with various financial activities associated with bonds, debentures, stock, loans, risk diversification, insurance, hedging retirement planning, investment, portfolio management and other types of related functions.

With the help of their function, the financial institutions transfer money or funds to various tiers of economy and this play a significant role in acting upon the domestic and international economic scenario.

It happens that some one’s savings is made available to an investor for productive venture like what happens in commercial banks. When this happens a debt is created. A debt which has been described as an obligation to made future payment. It is against the borrowers promise to made future payment. As a result of this the owners of these funds faces the risk of not getting their money in good time or losses it entirely when the custodian of these funds cannot mange then well hence debt management becomes a sing anon to guarantee the confidence of the individual depositor that his money is safe-debt management involves arrangement put in place for repayment of these credit facilities.

In the same vain it also fulfill a wider role in safe guiding the stability of the individual bank and thus the banking system as a whole. At this juncture ,the researcher will mention that this work is based on the constrains in relation with debt tagged the problems of management in Nigeria financial institution (A case study of first bank Plc Garden Avenue Enugu).

Recently, the banking sector undergo a traumatic experience whereby some banks were judged distressed, this however was a direct manifestation of improper debt management.

1.2 STATEMENT OF THE PROBLEMS

The fundamental role banks and non-banks financial institutions is to intermediate between the surplus deficits sector of the economy.

Ensuring that inventible that will generate new valves at make the economy grows.

In performing this role, banks are exposed to credits risks, for instance, the possibility that the borrower will not repay the credit granted, when it falls due, or even fail out right to repay, paragraph when this possibility because a reality a bank is said to be set with problems of debt management are:

1. Recession and low investment, because a lot of Nigerians do not keep their money in the bank for a very long time.

2. Funds raised in respect of loan or guarantee financed from the resources any special funds.

3. Retaining customer with new services

4. Eases of fraud, theft in financial institutions.

1.3 OBJECTVES OF THE STUDY

The major aim of this research work is to determine the problem the problem of debt management in Nigerian financial institutions and also to:

1. Determine the commonest causes of failure of financial institutions in Nigeria.

2. Examine measures that will be adopted to check the problems of debt management in Nigerian financial institutions.

3. Determine how debt management in financial institutions has impede the development of banks in Nigeria.

4. Determine why most financial institutions fail as a result of debt management.

1.4 RESEARCH QUESTIONS

1. What are the commonest cause of financial institution failures

2. What measure do the bank adopt to check problems of debt management in financial institutions.

3. To what extent can the customers wait before granting he or her loan in the financial institutions.

4. To what extent has the problem of debt management contributed to the failure of financial in Nigeria?

1.5 HYPOTHESIS

To fulfill the above out lined purpose, the research declares the following preposition

Hypothesis one

Ho: Debt management has no relationship with profitability of the bank.

H1: Debt management has significant with profitability of the bank.

Hypothesis two

Ho: Debt management in the bank do not affect the preparation of financial statement.

H1: Debt management in the bank affect the preparation of financial statement.

Hypothesis three

Ho: Most financial institutions have not succeed because of the complexity of banking activities

H1: Most financial institutions have succeed because of the complexity of banking activities

Hypothesis four

Ho: The problem of debt management in financial institution is not limited to first bank garden avenue Enugu nor to banking system as a whole but to the society

H1: The problem of debt management in financial institution is limited to first bank garden avenue Enugu nor to banking system as a whole but to the society

1.6 SIGNIFICANCE OF THE STUDY

The research paper on completion will be of immense importance to the following sectors.

1. The Federal Government

2. Banks and the other Federal institutions

3. General public

4. Other researchers

1. By this project work, the federal Government will appreciate the more how threatening bad debts problems loans are to the banks and other financial institutions. The banking sector is not a mean sector especially when it is remembered that anything that affects it will conch revering other sector. The knowledge of how much financial institution had been suffered under the weight of heavy loan default will make the federal Government to join hand to make suggestions in how to deal with the chronic defaulters especially in the state government who engage in the practice of borrowing from the bank with reckless spending.

2. General public: this work will go a long way to adult the general public attention, most especially the beneficiaries of credit facilities. The borrowers of funds in these financial institutions to appreciate the need to repay these loans as at when due, bearing in mind that these money borrowed is some one’s savings. And also the need to involved these loans in a productive and revenue yielding ventures that will boost growth of the economy.

3. This work will also serve as a source of data or from the basis for other researchers who intend to carryout a further research on the topic. It will help them in the literature review.

1.7 SCOPE AND LIMITATIONS OF THE STUDY

The subject matter of this research is to evaluate the problems of debt management in Nigeria financial institutions. In doing this particular reference were made to the first bank PLc Garden Avenue Enugu. The period examined is from 1992 to 2012. Nevertheless, references could be made to other banks just for the purpose of clarity and vivid understanding of the subject matters. The researcher considered precedent to limit the researcher to Eastern zonal offices of first bank Plc Garden Avenue Enugu. This was done for the fact that the bank co-ordinates the activities of all the other banks branches within the Eastern region and time would not permit coverage beyond these limit.

Apart from the success made in carryout this study it must not fail to disclose the descending attitude of the top management of first bank Plc.

The public relation officer and the operation manager who though welcomed me will expose the bank activity and could not go further in giving me any useful information as regard my project topic because of what they call official top secrecy. Likewise, respondents from Diamond bank Nigeria Limited, Zenith bank Plc also felt that supplying certain information and competition, rather they will refer you to their co-operated headquarters at Lagos or Abuja.

1.8 DEFINITION OF TERMS

An Investor: person who invest money in a business, Customers of the bank who deposits money or bought share from the bank.

Debt: Payment which must be made but has not yet been paid to some body or institution.

Economy: Avoidance of waste of money or fund in the country.

Financial institutions: These are the custodies of funds and those raises funds for other investment, Like banks and insurance company’s.

Loan: Certain amount of money lent out to customers can be called a loan.