The Problems Of Debt Management In Financial Institution (a Study Of Union Bank Plc Garden Avenue Enugu)

THE PROBLEMS OF DEBT MANAGEMENT IN FINANCIAL INSTITUTION

(A STUDY OF UNION BANK PLC GARDEN AVENUE ENUGU)

ABSTRACT

This work is to carryout research on debt recovery techniques in the banking sector issues, problems and prospects (A study of Union Bank of Nigeria plc). This research will expose how non-distressed banks bring effective resolution to a distressed bank because of the effective means of recovering the debts. And if there is any loss in one bank, it leads to a loss of confidence in the entire banking system. This research will state the aim at finding solution to the debt and general causes of financial distress in banking sector, and looking into finding last solution. This research work will find out whether banks  take loan policy into consideration when granting loans to customers. It will determine the causes of loan decinquency of banks and also analyze the effects of loan requirement and take recommendations for improvement of debt recovery in the banking sector. This research work will determine the problems associated with or difficulty in loan recovery.

 TABLE OF CONTENTS

Title page                                                                     i

Approval page                                                              ii

Dedication                                                                    iii

Acknowledgement                                                         iv

Abstract                                                                       v

CHAPTER ONE

INTRODUCTION

1.1      Background of the study                                         1

1.2      Statement of the Problems                                      3

1.3      Objectives of the study                                           3

1.4      Research Questions                                                4

1.5      Research hypothesis                                               4

1.6      Significance of the Study                                                5

1.7      Scope and Limitation of the Study                           7

1.8      Definition of operational Terms                                9

References                                                             12

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1      An overview                                                           13

2.2      Literature review                                                    13

2.3      Debt and Debt Management Defined                         14

2.4      Types of Debt                                                       14

2.5      How Banks Create Money                                               16

2.6      Common Causes and Problems of bad Debts              21

2.7      Fundamental of Credit Analysis                                 27

2.8      Prudential Guideline in Nigerian Banking                     31

2.9      Minimizing Risk Associates with Bank Lending                    34  

2.10  The Need for Frequent Government Regulation           38

2.11  Short Coming of the Traditional Method of                

Credit Analysis                                                       43

CHAPTER THREE

RESEARCH METHODOLOGY AND DESIGN

3.1      An overview                                                           46

3.2      Sources of data                                                      46

3.2.1        Primary data                                                       46

3.2.2        Secondary data                                                   47

3.3      Population of the study                                           47

3.4      Sample and Sampling Technique                              48

3.5      Instrument use in collecting sample size                           49

3.6      Validation and reliability of the Instrument used          49

3.7      Method of Data presentation and analysis                  49

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS

4.1      An overview                                                           52

4.2      Presentation of data                                                       52

4.3      Presentation of analysis of data                                61

4.4      Testing of hypothesis                                              62

4.5      Discussion of findings                                              64

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5.1      Summary of the Findings                                                65

5.2      Conclusions                                                           68

5.3      Recommendations                                                  68

5.4      Suggestions for further studies                                 69

Bibliography                                                           71

Appendix I                                                                                                          72

Appendix II                                                                                                        73

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

       Financial institution is that sector of the economy that providing the community with money balance and payment up of the banks 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 a Nation.  It happens that someone’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 has been described as an obligation to made future payment. 

It is against the borrower’s promise to make future payment.  As a result of this, the owners of these funds face the risk of not getting their money in good time or losses it entirely when the custodian of these funds cannot manage them well hence debt management becomes a singvenon 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 way, it is 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 research mentioned that this work is based on the constraints in relation to Debt tagged on the problems of management in Nigeria Financial Institutions (A study of Union Bank of Nigeria 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

1.    Failure to pay back loan granted by the creditors as and     when due.

2.    Inability to function well by the bank due to inability of the        creditors to pay back.

3.    Inadequate measures of working capital management in the      bank.

1.3  OBJECTIVES OF THE STUDY

1.  To find out if creditors do not pay back loans as and when due.

2.  To expose the reasons behind banks failure to function well.

3.  To discover how inadequate the measures of working capital management is.

1.4  RESEARCH QUESTION

1.   How can the debtor be considered responsible for their debts management?

2.  Will good analysis of trade debt management help to measure an effective working capital management in the financial institution?

3.   How does debt  exposes banks to credit   risks?

4.  How will bank managers know the capable borrowers in order  not to expose the capital structure of the  banks to debt?

5.  Can financial institutions apply some measures to recover their money from their borrowers?

1.5     RESEARCH HYPOTHESIS

HYPOTHESIS ONE

H_1­:

The debtors exposes banks to credit risk

H_0­:

The debtors do not exposes banks to credit risk

HYPOTHESIS TWO

H₁:

The analysis of trade debt management help to measure an effective working capital management in the financial institution

H₀:

The analysis of trade debt management do not help to measure an effective working capital management in the financial institution

HYPOTHESIS THREE

H₁:

The debtors are considered responsible for there debts management

H₀:

The debtors are not considered responsible for there debts management

1.6     SIGNIFICANCE OF THE STUDY

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

1.          Students

2.          Stake holders

3.          The insurance company (financial institution)

4.          The country at large

This work will serve as a source of data or form of basis for other students or researchers who intend to carryout a further research on the topic and also in literature review.

It will also help the stakeholders to determine the favourable method in investing their loans wisely.

Through this project work, the financial institution will know more on how to handle their creditors in recovering their money.

To the country of large, this project work will go along way to educate them  on debt management, most especially the beneficiaries of credit facilities, the borrowers of funds in these financial institutions will appreciate the need to repay these loans as when due.

1.7     SCOPE AND LIMITATION OF THE STUDY

Scope: The purpose of this research is to evaluate the problem of debt management in financial institution

 Nigeria.  In doing this, particular references were made to the Union Bank of Nigeria Plc, Garden Avenue Enugu, the period examined is from 1992 to date.  Some references are made to other banks just for the purpose of clarity and vivid understand of the topic.

Informations where sourced from different places like Union Bank plc, Garden Avenue Enugu, State Library, ESUT Library, I.M.T Library and also Oral Interviews from the staffs of Union Bank.

LIMITATIONS: The researcher considered precedent to limit the researcher to Eastern Zonal offices of Union Bank Plc garden Avenue Enugu.  This was done for the fact that the Bank branches within the Eastern region and time would not  permit coverage beyond this limit.

Apart from the sources made in carryout this study, it must not fail to disclose the descending attitude of the top management of Union Bank Plc. The public relation officer and the operation manager who though welcomed me but could not go further in giving any useful information as regard the problems of debt management in the financial institutions, because of what they call official top secrecy.

Likewise, respondent from Diamond Bank Nigeria Limited.  First Bank Plc also felt that supplying certain information competitors, rather refer you to their co-operated headquarters at Lagos or Abuja.

1.8     DEFINITION OF OPERATIONAL TERMS

1.         An Investor: Person who invest money in a business,       Customers of the banks who deposit money or buy shares from the Bank.

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

3.         Economy:      Avoidance of waste of money or funds.

4.         Financial Institution:These are the custodians of funds and those raises funds for other investment, Like banks and insurance companies.

5.         Loan: This is a certain amount of money lent out to customers with the aim of receiving it back with some interest.

6.         Insurance Company: Can be defined as a financial institutions which promises to indentify a policyholder in the event of any loss, and the insured that pays a token amount called premium to the insurance company.

7.         Bankruptcy: A legal process in which some of all the property and wealth or person declared incapable of carrying out any more test in distributed among his or her creditors (unable to settle it’s debts).

8.Stakeholders: A person or company that is involved in a particular organizations projects system etc.

9.Banking: It is an international monetary system in which individual nations agree to buy and sell unlimited amount of gold at specified prices to bank each nations currency.

10.     Management: Management is the process of organizing, directing, coordinating and controlling of activities so as to achieve a desired goal.

11.     Universal banking: Is a system which incorporates all aspect of banking operations.

12.     Mortgage house: This is the financial institution that provides financial services and intermediation to the various segment of the economy.

13.     Dept management: It involves the arrangement put in place for repayment and recovery of such facilities when the need arises.

14.     Good debts: It is classified as those debts which payment are certain, they are recoverable.

15.     Bad debts: These are debts that are not recoverable within the time span set for their normal recovery

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