Credit Management and Bank Performance of Listed Banks in Nigeria (original) (raw)

The study critically assessed the effects of credit management on banks's performance in Nigeria. In achieving the objectives identified in this study, the audited corporate annual financial statement of listed banks covering the period 2007-2011 were analyzed. More so, a sum total of ten (10) listed banks were selected and analyzed for the study using the purposive sampling method. However, in an assessing the research postulations, the study adopted the use of both descriptive statistics and econometric analysis using the panel linear regression methodology consisting of periodic and cross sectional data in the estimation of the regression equation. Findings from the study revealed that while ratio of non-performing loans and bad debt do have a significant negative effect on the performance of banks in Nigeria, on the other hand, the relationship between secured and unsecured loan ratio and bank's performance was not significant. Hence, the study recommends that banks management should put in place or institute sound lending framework, adequate credit administration procedure and an effective and efficient machinery to monitor lending function with established rules. 1.0 Introduction Banks are profit-making organizations performing as intermediaries connecting borrowers and lenders in bringing temporarily available resources from business and individual customers as well as providing loans for those in need of financial support (Uwuigbe, 2013; Drigă, 2012). Commercial Banks play a vital role in developing economies like Nigeria, Ghana, Egypt and Algeria. Bank lending is very crucial for it make possible the financing of agricultural, industrial and commercial activities of the country. Commercial Banks are entrusted with the funds of depositors. These funds are generally used by banks for their business. The fund belongs to the customers so a programme must exist for management of these funds. The programme must constantly address three basic objectives: liquidity, safety and income. Successful management calls for proper balancing of all these three. Liquidity enables the banks to meet loan demands of their valuable and long established customers who enjoy good credit standing. The second objective being safety is to avoid undue risk since banks meet responsibility of protecting the deposit entrusted to them. Proper and prudent management of banks create and hence customer confidence. The third being income/profitability which is aimed at growth and expansion to meet repayment of interest charges on debt, to achieve the objective of maximizing wealth of shareholders and to survive competition in the banking industry (Okwoli, 1996; Uwuigbe, 2011). As a matter of fact a bank cannot remain in business if it neglects the credit function (Osayeme 2000). Of interest to this paper is the credit component of the banks' portfolio that contributes to the profit of the banks and which has lead to the problem of bad debts in Nigerian banks as a result of poor management. Credit as the name implies is described as the right to receive payments or the obligation to make payments on demand or at some future date on account of the immediate transfer of goods or money another (Uwuigbe, Uwalomwa and Ben-Caleb, 2012). It is based on the faith and confidence, which the creditor reposes in the ability and willingness of the debtor to fulfill his promise to pay. In a credit transaction the right to receive payment and the obligation to make payments originate at the same time.