Our Blog

Recently published project topics and materials

PROJECT TOPIC ON AN EXAMINATION OF THE LEGAL IMPLICATIONS OF MORTGAGES AS COLLATERAL IN NIGERIA

Spread the love

AN EXAMINATION OF THE LEGAL IMPLICATIONS OF MORTGAGES AS COLLATERAL IN NIGERIA

ABSTRACT

The challenge identified by this research was the manner of collaterisation of credits by financial institutions. It was discovered that due to the volume of funds available at the disposal of financial institutions as a result of the consolidation exercise and stiff competition towards making substantial margin of profits, some financial institutions often comprise or even ignore standard in giving out credit to their customers because of a combination of factors viz: Insider credits Desire to make huge profits Political reasons Ethnic considerations,Thus, as a result of the above factors, financial institutions often get saddled with lots of bad debts which usually militate against the growth of an organization with the likelihood of distress and corporate failure since the credits were not given based on business considerations. To arrest this situation, regulatory authorities like the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation should commence the enforcement of the provisions of the Banks and Other Financial Institutions Act which provides for various categories of offences and penalties relating to Bank officers who give credit facilities that were supposed to be backed by security, without such securities.

CHAPTER ONE

1.0       GENERAL INTRODUCTION

The 2005 consolidation exercise otherwise known as the recapitalization exercise embarked upon by the Central Bank of Nigeria (CBN), was meant to address the issue of inadequate share capital of banks in Nigeria by the introduction of N25Billion minimum share capital for all Banks in the country in order to make the banks stronger to be able to finance more businesses. The concept of recapitalization refers to the policy that compelled all commercial banks to raise their capital base from N2billion to N25billion by the Central Bank of Nigeria on or before 31st December, 20051. The exercise brought about huge resources at the disposal of financial institutions which in turn enabled them to make credit available to a large number of individuals and corporate entities with the intention of making huge profits.

The desire to make huge profits consequently pushed the financial institutions into fierce competition as a result of which some of them started giving out loans without collaterals in a bid to lure customers with the ultimate aim of making huge profits. This culminated in billions of naira loans to the capital market which at the end of the day, got caught up in the financial meltdown (a situation were some financial institutions or assets suddenly lose a large part of their value especially in the stock market crashes). The melt down led to the near collapse of many banks/other financial Institutions as a result of bad debts which arose from credit facilities granted by financial institutions without adequate collateral.

Consequently, some few Nigerian banks mainly due to the general weakness in their Risk Management and Corporate Governance framework, started displaying signs of failure as far as October 2008 due to huge concentrations of their exposure to certain sectors of the economy like the Capital Market and the Oil and Gas Industry. These banks started showing serious liquidity strain and had to be given financial support by the CBN in the form of an “Expanded Discount Window” (EDW)2 when the CBN extended credit facilities to these banks on the basis of collateral in the form of Commercial Paper and Bankers Acceptance. This clearly indicated that recapitalization alone, was not the panacea to the problem of the banking industry in Nigeria as all the banks frequenting the EDW, had recapitalized and even raised additional capital thereafter.

AN EXAMINATION OF THE LEGAL IMPLICATIONS OF MORTGAGES AS COLLATERAL IN NIGERIA

1.1       STATEMENT OF RESEARCH PROBLEM:

The research identified a legal problem that arose after the 2005 Consolidation exercise of the Central Bank of Nigeria when some financial institutions started giving out loans without collaterals or adequate collaterals due to the volume of funds available at their disposal and stiff competition towards making substantial margin of profits as well as a combination of the following factors:

  • Political reasons
  • Ethnic considerations Insider related credits.

Thus, they capitalize on the silence of the Banks and Other Financial Institutions Act, 1990 as amended, because it did not state the sort of collateral that should back up each sort of credit being given by financial institution, rather it left the decision to the financial institutions with the consequence of lots of bad debts that militated against their growth and the likelihood of distress/corporate failure since the credits were not fully or adequately collaterised.

1.2       AIMS AND OBJECTIVES

The aims and objectives of the research is to establish that the problem of the Nigerian Banking system is not that of inadequate capital as portrayed by the consolidation policy of the Central Bank of Nigeria but that of bad loans occasioned by lax collateral. The research would also examine the implication of collaterals in financial transactions and elucidate the point that there is no alternative to taking collateral/security as well as adherence to Risk Management principles when extending credit facilities/loans in view of the recent near collapse of the financial industry as a result of the financial meltdown, when banks/financial institutions extended credit facilities/loans without adequate collaterals and adherence to Risk Management principles and ended up being caught in the financial meltdown web.

1.3       SCOPE OF THE RESEARCH

The scope of this research is limited by its objectives. In the light of the above, the work will mainly dwell on solutions and/or steps to be taken by financial institutions to avoid the problems of bad debts which usually arose as a result of bad credits, inadequate or zero collaterisation which would have served as a fall back to ensure recovery of funds in the event of default by ensuring that collaterals obtained for credit transactions are properly documented and perfected. So as to ensure that Financial Institutions would be able to have a fall back on collaterals obtained so as not to militate against the growth of financial institutions and bring about the likelihood of distress and corporate failure. Specific Statutes that makes explicit provisions on credit transactions such as the Banks and other Financial Institutions Act (BOFIA) would be considered.

Recommened: PROTECTION OF WOMEN AGAINST DISCRIMINATORY LAWS, POLICIES AND PRACTICES IN NIGERIA: AN APPRAISAL

1.4       RESEARCH METHODOLOGY

The doctrinal research method (i.e the library-oriented research) shall be adopted in the conduct of this research. Accordingly, Primary research materials will be analyzed from the Bank and Other Financial Institutions Act, 1990 (as amended), the Companies and Allied Matters Act, 1990 and Libraries in prosecution of the research. Secondary research materials such as textbooks and law journals containing articles by academic writers, Seminar/Workshop papers and Newspaper/Magazines will also be considered. Other sources of materials will include current practice and trends arising out of requisite credit transactions taking place in Nigeria, especially in the banking industry as well as the views of industry operators will be considered and examined to adumbrate the business trend.

1.5       LITERATURE REVIEW

In order to achieve the objective of this research, numerous literature were accessed, notable amongst them were standard textbooks on the law of credit transaction, Law reports, newspapers, magazines, seminar/workshop papers and policy statements made by constituted authorities. One of the leading works on the law of credit transactions in Nigeria is Smith, Imran Oluwole’s Nigerian Law of Secured Credit3, the work is actually more of practice and procedure without delving into academic exercise, as such, has little to offer the academic community. The Bank’s and Other Financial Institutions Act, 1990 as amended, did not envisage the recent meltdown that affected the financial industry, thereby creating a gap as to its remedy. Therefore, this research will seek to fill the gap. Adeniji, A. Omolaji’s Law and Practice of Banking in Nigeria, focused on general banking practice and highlighted governmental regulation/internal organization of commercial banks, organization, management and control of banking profession in Nigeria as well as the duties and responsibilities of banker and customer. The book did not address the issue of bad debts and how it contributes to corporate failure which this work intents to look at. Moses, Uzegwu’s Credit Risk & Lender`s Desk Mate, would have been the near perfect book that would have done justice to the subject matter of this research except for the fact that it done did not envisage situations like the financial meltdown which this research will look into. Orojo, J. Olakunle’s Company Law and Practice in Nigeria dwelt more on company law and procedure without touching the implication of collaterals in credit transactions vis-à-vis the capital market meltdown. Hence, this modest bid to fill the gap left by existing literatures.

AN EXAMINATION OF THE LEGAL IMPLICATIONS OF MORTGAGES AS COLLATERAL IN NIGERIA

1.6       JUSTIFICATION

In view of the successful consolidation exercise embarked upon by the Central Bank of Nigeria, which ultimately made credit available to a large number of individuals and corporate entities because of the resources at the disposal of macro and micro finance institutions, a research on the subject will definitely be a worthwhile endeavour. Beside the research would be an important and interesting reading material for Bankers, Consultants and Law Students as well as practitioners and the general public.

1.7       ORGANISATION LAYOUT

The research work is divided into six chapters. Chapter one deals with the General Introduction, it lays the foundation on which the work stands. The Chapter sets out the objectives, scope and methodology of the research. Other segments of the chapter are the statement of the problem, literature review and organizational layout, which brings out the focus of the research.

Chapter Two dwells on the nature of lending relationships. A thorough examination of loans, debts and credits, their characteristics and types and why it is important to be able to distinguish loans and other forms of credit.

Chapter Three deals mainly with collaterals, their meaning, form, definition and purpose, how and which collateral takes priority over another.

Chapter Four centers on the nature of collateral interest, it also examines the interest of the lender as well as the customer arising as it relates to collaterals in credit transactions. The chapter also looked at Agreements and/or conditions for repayment and set off, and the stages at which collaterals becomes enforceable .

Chapter Five would examine the various forms of collateral with particular reference to consensus securities, fixed and floating collaterals, as well as pledge, mortgage and negative collaterals.

Chapter Six is the concluding chapter, which contains the summary, findings/ recommendations and conclusion that are aimed at enhancing and promoting effective credit transactions in Nigeria.

See also: EXAMINATION OF EMERGING LEGAL CHALLENGES IN NIGERIAN TELECOMMUNICATIONS LAW

Was the material helpful? Comment below. Need the material? Call 08060755653.

This site uses Akismet to reduce spam. Learn how your comment data is processed.