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PROJECT TOPIC- AN ANALYSIS OF BANK LENDING POLICIES IN NIGERIA

PROJECT TOPIC- AN ANALYSIS OF BANK LENDING POLICIES IN NIGERIA

Abstract

The research work examines bank lending policy in Nigeria using Zenith Bank (Nig) Plc as a case study. The objective of this study is to determine the extent to which the cash reserve requirement and liquidity ratio of Nigeria bank affects its lending policies with particular references to Zenith Bank of Nigeria Plc. The data for this research were collected through the administration of questionnaire. The findings of this study reveal that banks do not rely on the securities supplied by customers to grant loans, but banks have policies that are strictly followed before giving out loans. Based on the findings, it was recommended that banks should establish a business advisory’ services department that will render business advice to their customers, as it will be of great benefit to both the bank and customers, as it will reduce the rate of default by the customers.

CHAPTER ONE

INTRODUCTION

  • Background to the Study

It is generally accepted or acknowledged that the availability of loans and advance is a pre-requisite for the rapid growth or development of an economy. This limited resource is best facilitated by the existence of appropriate and functional financial institution in the economy and these follow that banks have a vital role to play making their financial resources available to promote development. Most developing nations like Nigeria are characterized by low level of income and difference in the distribution if income as well as variations in the servings propensity at the different levels of income. The high level of poverty, which in turn reduced the rate of investment and capital formation, further compounds this. The only relief from its handicap is best provided by the activities of banks in mobilizing financial resources from the surplus sectors of the economy and channeling the funds so mobilized to the deficit sectors of the economy through lending process.

Lending is one of the most important services provided by banks. Due to financial constraints, a number of business established have frustrated as a result of inadequate capital. One avenue opens to them to source for capital is the bank, especially commercial banks. The bank does not give loans to people based on just asking for the loan but in concrete and reasonable grounds which are acceptable to the banks coupled with the fact that there is adequate security in case of unforeseen circumstances or contingencies which enable the banks regain their loans if there is any possible loss from security accepted.

Lending by banks is said to be effective if it reconcile the banks obligation for maximum profitability to their shareholders and of maximum liquidity to their depositor.

An effective lending policy is that which maximizes profitability and liquidity needs of the banks. Typically, commercial banks have portfolio of loans ranging from those that are highly liquid with low risk and low interest rate as returns to those with high interest rate as return but are less liquid.

The conflicting objective of solvency, profitability and liquidity arises because highly liquid loans have a low risk, low interest and low profit where as those of lower liquidity yield or implies high risk, high interest rate and hence high profit. Banks will therefore make loans, which have varying degree of liquidity and profitability in order to achieve an efficient mix of profitability, and liquidity, which result in the stability, dependability and profitability of banks.

PROJECT TOPIC- AN ANALYSIS OF BANK LENDING POLICIES IN NIGERIA

Another factor that influences lending by banks is government control through the central bank in form of monetary policy circular and credit guide lines which are issued annually and they form the thrust of banks for that given year. In recent times, we have commercial banks lending being classified into two major sectors, which are the preferred and non-preferred sectors. Consequently, banks charge high interest rates, demand high levels of collateral and make few loans of more than a year in term (World Bank, 2002).

  • Statement of Problem

This study will attempt to address some specific issues that serve as barriers to the application of bank lending policies with respect to it.

The study presents the following questions among others:

  1. Does the level of loans granted to customers dependent on the degree of reliance banks have no the security of customers?
  2. Does the high rate of interest on lending scare investors from obtaining loan and advances from the banks?
  • What constitutes government (CBN) regulations on cash reserve requirement and liquidity ratio on loans and advances?
  1. Which particular area of the policy of “maturity pattern” of loan and advances should banks lay emphases on?
  2. Which sector do you consider most profitable for your banks to invest in?
    • Research Questions

The study provides the following as the research questions:

  1. Do surplus sectors of the economy help to channel the abundant fund to the deficit unit?
  2. Do the lending policies help to minimize the rate of bad and doubtful debts in the banking sector?
  • Does the bank lending policy aids easy repayment of loan i.e., the security deposited with the bank motivates the borrower for easy repayment?

1.4   Objectives of the Study

The following are some of the objectives of this study:

  1. It helps the surplus sectors of the economy to channel the abundant fund to the deficit unit.
  2. Lending policies help to minimize the rate of bad and doubtful debts in the banking sector.
  • The bank lending policy aids easy repayment of loan i.e., the security deposited with the bank motivates the borrower for easy repayment.

1.5   Statement of Hypothesis

Ho:  The level of loans granted to customers is not dependent on the degree of reliance banks have on collateral security supplied by customers.

H1:  The level of loans granted to customers is dependent on the degree of reliance banks have on collateral security supplied by customers.

Ho: The interest rate demanded by banks does not restrict the number of customers intending to borrow from the bank.

H1:  The interest rate demanded by banks does restrict the number of customers intending to borrow from the bank.

Ho: Cash reserve requirement and liquidity ratio of Nigerian banks does not affect its lending policies.

H1: Cash reserve requirement and liquidity ratio of Nigerian banks affect its lending policies.

1.6   Significance of the Study

This research work will attempt to investigate the contributions of bank lending policies in Nigeria and Zenith Bank of Nigeria Plc was used in this study. The significance of this study is to examine the extent to which bank lending has geared up the growth of the Nigeria economy through loan and advances for investment.

 1.7 Scope of the Study

The area of importance as far as this research work is concerned is that this research work will cover bank lending policies generally against the background of the Central Banks of Nigeria’s monetary policy circulars, and guidelines issued periodically to ascertain the effectiveness of banks lending policies with particular references to Zenith Bank of Nigeria Plc. It shall also cover the extent to which banks have invested their deposits on loans and advances over a period carefully chosen to reflect the lending pattern, challenges and implications within the period. For example, to check the efficiency of banking operations, the maturity pattern of loans and advances, method of payment and the percentage of bad and doubtful debts by the debtors as recorded in the schedule of returns to the Central Bank of Nigeria.

1.8   Limitations of the Study

This project work is centered on the banking industry in Nigeria. It is concentrated on bank lending policy as it aids in the advancement of development of a country. However, some of the limitations identified in carrying out this research are as follows:

  1. Insufficient books in the library limited the effort of the researcher in carrying out an in-depth research on the project work.
  2. The rules and regulations guiding the case study of the researcher that is, Zenith Bank Plc did not allow the researcher to carry out personal observation and probably interview bank lending officers.

iii.    Another limitation is that some of the information or answers given in the questionnaire are incomplete.

1.9   Definition of terms

  • Analysis: This is the detailed study or examination of something in order to understand more about
  • Bank: This is an organization that provides various financial services for example keeping or lending money.
  • Loans: This is the money that an organization such as a bank lends and somebody borrows.
  • Lending: This means to give money to somebody on the condition that they pay it back over a period of time and pay interest on it.
  • Cash Reserve Requirement: This is the minimum cash deposit expressed as a ratio, which each commercial banks is required to deposit with the central bank. ADE, TO. & WOLE, A. (1998).
  • Liquidity Ratio: This is also known as quick or acid test ratio. It is the time it will take for assess to turn into money with little or no loss in value. LAWRENCE, SR. & WILLIAM, L.S. (1997).
  • Maturity Pattern: This is the time it will take for the loan and advances given by the bank to mature. ADE, T.O & WOLE, A. (1998).

    PROJECT TOPIC- AN ANALYSIS OF BANK LENDING POLICIES IN NIGERIA

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BANKACCOUNT NAME
ACCOUNT NUMBER
DIAMOND BANK
FREEMANBIZ COMMUNICATION
007 031 2905
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FREEMANBIZ COMMUNICATION
560 028 4107
GTBFREEMANBIZ COMMUNICATION013 772 5121
ZENITH BANK
FREEMANBIZ COMMUNICATION
101 326 3297
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