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This research was undertaken to asses credit management and the effect of poor credit and bad debt on banks profitability. This was intended to achieve the following objectives: to appraise and determine the lending procedure of banks, to highlight the extent to which improper project evaluation influences bad debt and bank’s profitability. Relevant data were collected from both primary and secondary sources. Questionnaire was the main primary data  collection instrument employed while data from various relevant publications constituted the sources of secondary data. Upon the analysis of data, the following conclusion were drawn.  Sound lending requires a clear-well articulated and easy accessible policy document which spells out the philosophy of lending. On the basis of the above findings, it was recommended that banks should ensure that loan given out to customers should be backed by adequate collateral security. Finally, it is the opinion of the researcher that the management of the Banks should prevent the effect of bad debts in Nigeria Banks.   



  • Background to the Study

Lending remains one of the major functions of bank in all economies. In fact interest charged on loans and advance today constitute a sizeable part of banks’ earnings. This has been the focus on banker/customer relationship. A customer can play the role of a depositor and the bank becomes a custodian of the fund. Therefore, he has the right to keep it in the safe or lend it to prospective investor (business man) or an individual who will turn it as profit yielding fund. Bank is the most important sources of short-term funds and the largest of the specialist units, which try all, or part of their business to match the requirements of short term borrowers. Furthermore, the banks depend heavily on historical information as a basis for decision making.

Apparently aware of the inadequate of this decision basic, the lending banker has often sought solace in tangible and marketable assists as security giving the impression that lending against such securities is an insurance against bad debts. This make the banker complacent with his loan portfolio. The increasing  trend of provision for bad and doubtful debts in most money-deposit bank is a major source of concern not only to management but also to the shareholders who are becoming more aware of the dangers posed by these debts. Bad debts destroy part of the earning assets of bank such as loans and advances which have been described as the main sources of earning and loans determines the liquidity and solvency which generate two major problems, that is profitability and liquidity, has to earn sufficient income to meet its operating cost and to have adequate return on its investments.

  • Statement Of The Problems

The problem for this study is to appraise the lending and credit management policies of a typical money-deposit bank with a view of findings the causes, consequences of bad debts in banks. Year after year, banks suffer much from the part of full loan extended which has for one reason or the other provided unrecoverable. Banks lose millions of naira in various bad debts yearly and deposited efforts by bank management, committee of chief inspectors and the bankers committee on the other hand, the wave a bad debts in bank is still on alarming proportion.

One of the major components of banks assets is loan and advances, and the effective management of such loan portfolio has been a problem. The failure of many bank is not because of their inability to mobilize adequate deposit form the surplus sector to deficit sector of the economy, but mainly because their lending portfolios has been managed. In acknowledging the problems associated in credit management in banking industry it will pertinent to ask “how effective can credit be managed”? what are the basic procedures of credit approval/ disbursement.


  • Research Questions

In view of the consequences of bad debt in Nigeria money deposit banks, it is necessary to formulate some research question which will enable the researcher formulate statistical table for testing hypothesis.

  • Does inadequate collateral security provision by borrower caused bad debt?
  • Does fund diversion have any effect on bad debt of union bank?
  • To what extent has government intervention in lending policies influenced bad debt in bank?
  • To what extent does improper project evaluation influence bad debt?
    • Objective Of The Study
  • To determine and appraise the lending procedure of bank using union bank of Nigeria plc as a case study. With a view to highlighting the effectiveness and adequacy or otherwise the credit management policy of Nigeria banks in reducing the occurrence and consequences of bad debts.
  • To highlight the rate at which inadequate collateral security provision by borrowers increase the incidences of bad debt in Nigerian.
  • To determine whether fund diversion has any effect on bad debt of money deposit banks in Nigeria.
  • To ascertain the extent to which government intervention in lending policies of money deposit bank has influenced bad debts in Nigerian money deposit banks.


  • To highlight the extent to which improper project evaluation influence bad debt of money deposit bank in Nigeria.
    • Statement Of Hypotheses
  1. Inadequate collateral provisions by borrowers does not increase the incidence of bad debt in union bank of Nigeria Plc.
  2. Fund diversion does not affect bad debt in union bank of Nigeria Plc.
  3. Government intervention in lending policies of money deposit banks has no influence on union bank of Nigeria Plc. bad debt.
    • Scope Of The Study

In the study of poor credit management in Nigeria, union bank of Nigeria plc was used for my analysis. All references therefore, relate to union bank of Nigeria Plc.

  • Significance of the Study

This study will be useful to banks, investors (borrowers), government and its agencies and to the general public. It will enable banks identity the causes of bad debts and its effect on their activities so that they can take the necessary steps to check the ugly trend. In addition to this, investors (borrowers) will find out from this study that by defaulting in loan repayment they make it impossible for commercial banks to keep up their role of credit provision.

Also, government and its agencies (the central bank and the ministry in finance) will know from this work that every economic policy both monetary and fiscal have impact on the activities of commercial banks.

Finally, this study will be of more important to the general public by assisting them on the need to be prudent in giving out loans as well as ensuring prompt payment of loans already disbursed. This is necessary to avoid distress in the banks.

  • Limitation Of The Study

In the course of carry out this study, the researcher encountered some difficulties, which affected the quality of work done. This include:

  1. Finance: The problem of finance was not left out in the course of research to this study. This types of study required adequate money and time to enable the researcher visit the necessary place for collection of data. Insufficient fund hindered an in depth study of this research since it was financial form meager portal money the researcher.
  2. Non-Chalet Attitude of Bank Official: The reluctance of bank officials to reread information on the need for this study, for fear of breach of duty of secrecy to customers exposure of banks administrative short-coming.
  • Non-Availability of Records: This is one of the most important limiting factors in the course of the study. This includes the problems of easily getting the appropriate data due to bureaucracy which hinders the information flow in the country.
  1. Ignorance of Respondent/ Borrowers: Most bank customers were semi-illiterates and most often it was very difficult to collect adequate data required from them.
  2. Times: Since this study is one of the money courses offered by the researcher, the researcher was constrained by time to carry out an indent research on study.


  • Operational Definition of Terms

Banks: Banks are institution, which perform the following functions: providing deposit for the general public, permitting money to be withdrawn or transfer from ore account to another and lending money to customers who wishes to borrow.

Bad and Doubtful Debts: Bad debt can be defined as debts, which cannot be recovered due to inability of the debtor to repay.  Doubtful debts on the other hand are debt, which possesses the  likelihood of being irrecoverable.

Loan Portfolio: This is the size or amount of loan that commercial banks budget for in period as the total amount this will be given out as loan during that period.


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