FACTORS THAT LIMIT CREDIT CREATION IN UNION BANK PLC A CASE STUDY OF OHAOZARA BRANCH AND FIND A LASTING SOLUTION TO THEM
1.1 BACKGROUND OF THE STUDY
The history of commercial banks can be backdated as far as 1890s.The then African Banking Corporation was the first Commercial Bank that opened its first branch in Lagos in 1892, whose founder was Messers Elder Dempster and Co, a shipping firm based in Liverpool. This bank encountered different initial difficulties and eventually decided to transfer its interest to Elder Dempster and Co. in 1893. This led to the Formation of a new bank known as British Bank of West Africa (BBWA) in 1893, with an initial capital of $10,000 which later increase to $100,000 the same years. The British Bank of West Africa (BBWA) was the first surviving bank in Nigeria and registered in London as a limited liability company in March 1894 and the first Lagos branch was opened in the same year. Other branches were opened in major West Africa cities like Accra in Ghana, Freetown and bath rust. The bank opened its second Nigeria branch in old calabar in 1900 (Nwankwo 1980: 45) Anglo-African bank was another established bank in 1899 in old Calabar by Royal Niger company now (UAC), this was to compete with BBWA. Although it later changed its name to the bank of Nigeria whose branches were in Burutu, Lokoja and Jebba. Due to fierce competition and the monopoly for the importation of silver from the Royal mint enjoyed by BBWA, they sold out to BBWA in 1912.
The Barclays bank DOC (Dominion Colonial and Overseas) was another bank established in Lagos 1917 (Now Union Bank Nig Plc). Also this followed the opening of nine (9) other branches, therefore these two British banks –BBWA and Barclays bank DOC dominated the Nigerian banking scene between 1894 and 1933
Another bank called the British and French Bank, now called United Bank for Africa Plc was established in 1949 making it the third expatriate bank to dominate early Nigeria commercial banking .The foreign banks came principally to render services in connection with international trade .So, their relations as at that time were chiefly with expatriate trading companies and the government they largely ignored the development of local African entrepreneurship. Together these 3 banks controlled close to 90% of aggregate bank deposit. From 1914 to the early 1930’s several abortive attempts were made to establish locally owned and managed banks to break the foreign monopoly. In Paton (1945:5
1.2 STATEMENT OF THE PROBLEM
With regard to topic under study which states the role of commercial banks in export and import promotion, one could deduce that a problem in this research is the inability of banks to create credit or provide funds for exporters and importers owing to their low capital base which was a stimulant to the C.B.N directive of N25 billion banks re-capitalisation announced by C.B.N governor on 6th July 2004. If banks especially commercial banks are able to meet up with this requirement, it will go a long way in promoting export and import which will help in the development of the economy at large. That is, to say that the effectiveness of commercial banks in funding export and import activities is dependent on the volume of their capitalisation which will determine how liquid they will be to perform their foreign transactional services efficiently.
1.3 OBJECTIVE OF THE STUDY
Having the definition of the problem above in mind, the objective of this study is to discover those factors that limit credit creation in union bank Plc a case study of Ohaozara branch and find a lasting solution to them.
In other to achieve this objective, the following should be considered.
- The C.B.N monetary policy
- Bank lending policy
- The lending or interest rate of bank
- The volume of bank deposit
- Credit worthiness of customers
- Collateral for securing loan
- The purpose of securing loan.
- Infidelity among the customers.
1.4 STATEMENT OF HYPOTHESIS
The following hypothesis will be tested in the study:
Ho: high lending rate does not cause low credit creation in banks
Hi: high lending rate causes low credit creation in banks.
Ho: credit unworthiness of borrowers does not limit bank credit creation.
Hi: create unworthiness of borrowers limit bank credit creation.
Ho: C.B.N monetary policy does not cause low credit creation.
Hi: C.B.N monetary policy causes low credit creation.
1.5 SIGNIFICANT OF THE STUDY
Credit creation is one of the most important functions of commercial bank. So, the research on the roles of commercial banks in export and import promotion will contribute a lot in economic growth of the country.
The operations and expansion of the nations productive facilities is impossible without bank credits. There is delay in the facilities, awaiting the accumulation of funds from profits or other outside sources.
So based on this, the researchers have the confidence that the research on the above topic will contribute a lot in the progress of Nigeria economy since the power of the commercial banking system to create credit is of great economic significant.
So, I believe that this research work will contribute to make the economy of the country to grow without waiting for the accumulation of funds from profits or other outsides sources.
1.6 SCOPE OF THE STUDY
This research work is restricted to Ohaozara Local Government Area and the Union Bank of Nigeria PLC Uuburu Ohaozara Branch.
But for the fact that this branch does not perform international banking services very well, references will be made outside this bank and outside the local government for clarification purposes.
1.7 THE LIMITATION OF THE STUDY
Research work include the following:
Some of the factors that militate against this
Time: – there was not much time for the researchers to visit libraries in search of materials for the research work since they combined other Academic work with the research work.
Finance: – finance is another factor. The researcher being student could not afford much money for the research work. Some experts in the field showed no interest in giving information to the researchers.
1.8 DEFINITION OF TERMS
- Credit limit –The maximum amount of credit that a bank or other lenders can extend to a customer.
- Lend– To grants the use of money or something of value with understanding.
- Loan– An arrangement in which a lender gives money to a borrower on the understanding that he will return the money in a full date with interest.
- Export – It is the action of selling and transporting goods to a foreign country.
- Dumping – Is selling goods to foreigners at less than cost price.
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