DEBT RECOVERY PROCEDURES AND STRATEGIES OF MONEY-DEPOSIT BANKS IN NIGERIA ( A CASES STUDY OF 3 BANKS IN NIGERIA)

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    1. Introduction

The role of credit facilities in any modern economy can not be over emphasized. This could be best appreciated when it is realized that the rate of development of the economy would be showed down without credit, lack of credit is often the greatest single impediment to the growth and diversification of most industries (bolt small and large) in Nigeria first bank 1997. Further more, the availability of credit facilities influence what is produced and how much of each product is produced
Bank-lending serves as a major avenue for resources allocation. This is by mobilizing credit from surplus economic unit (Orji, 1997) it allows for the survival of the debtor of maintaining resources. This helps the two parties to optimize their position, because creditor obtains returns for parting with their resources, while debtor makes profit on the resources borrowed. The function of credit derived from the fact that individual and firm on their own have very limited resources to carry on the activities of production, commerce and development of nation economy lending discourages accumulation of sterile money as available capital is full utilized (Nwanchukwu, 2008).
This is especially important in a developing economy like Nigeria and particularly in this period of economic recession and political long Jam where foreign investors are scared to invest in crises prove environment.
The increase in the involvement of banks in the domestic economy as a result of the Nigeria enterprise promotion degree of 1973 (popularly known as the indigenization degree) and the amendment made in 1975 have result in the emergence of various sector looking into the commercial bank and other financial intermediaries as the sources of find to finance their project (Owosho, 2002). A total of N4268.1million credit was granted by commercial bank at the end of June 1977 as compares to the N242.7million granted in December 1968 more importantly increasing shares of these loans and advances have been persistently channel away from less preferred factor (General commercial and consumption loans) to the preferred sector of the economy manufacturing, mining, construction and agriculture (CBN Bullion, 2003). According to credit guidelines a minimum of 50% of loans and advances of commercial banks should be made available to the preferred sector (Business time 1988).
Lending aids the credit of money that is in the process of lending commercial banks credit money; they create a liability in form of demand deposit against themselves in favour of the debtors (first bank 1997). This money created by commercial bank to the money supply which help in stimulating the level of economic activities in various sector of the economy lending bellows flexibility on payment structure and consequently on the economy.
The lending through bank and other financial institution involves the collection of liquid funds not currently in use and placing them through its ending activities at the disposal of persons, institutions and government in need of liquid funds to elect payment of different kind (Drucker, 1964). This way, those with enterprise kill and know-how without personal wealth who find it extremely difficult to acquire control of production assets will find a saving grace in the use of credit facilities or lending, therefore, their rave and invaluable human ability will not waste (Funess, 2005).
Agene (2004) notes  that lending can be used as a powerful instrument by monetary authorities to turn the economy abound depending on what they want or intend to achieve most fluctuation in the flow of credit can have large consequences on the price level employment and the rate of economic growth for instance. In order to reduce the rate at which commercial bank grant loans and advances to their respective customer, Agene (2004) says that the central bank have a crucial role to play in achieving macro-economic objective of full employment potential growth and output and price stability. On the other hand, this can also be raised to curb excessive borrowing and hence reduced inflation.
From this fore-going, it is obvious that layman’s view of bank lending is only in term of cash loans and overdraft granted to a customer is too narrow in view of the phenomenal develop0ments which as been taken place in the field of finance, banking, commerce, industry and general economic activities of modern society.

    1. Major causes of bank failure

According to Dare (2003), the problem in many banks arises from the inefficiency, of the board and management or wrong choice of personnel who rather than being committed to the progress of these institution where careless, self centered and greedy.
In view of the committee on banking and regulation and supervision practices report of 2004, the head of the committee chaired by Umoh P.H. reported that decline in assets quantity where often associated with the depressed condition in the general economy, external consideration of these were the sole clause of failure in the small minority of causes. Also, the Nigeria Deposit Insurance Corporation (NDIC) in its 2001 annual report viewed that the important subject, particularly the role of the board and management of some insured banks have played in their depositors bank failure and what they and their depositor can do to assist the banks to come out of the failure, for many banks the processes of deterioration in their financial condition, (especially those already liquidated) began with poor lending practices. For example, management lack of attention to the details of the loan function concentration of credited extended to director, shareholders and related companies opened the door to credit weaknesses and left many banks venerable to economic changes, some of these issues which are common to both commercial and merchant bank are discussed below.

      1. Capital Inadequacy

Capital inadequacy according to Ebhodaghe (2004), put many financial institutions in a questionable state. according to him, the principle function of capital in any bank is to service as this remains a means by which losses may be absorbed. Capital provides a cushion to withstand abnormal losses not covered by current earning, this enables the bank to regain equilibrium and to re-establish a normal pattern, and unfortunately a good number of the country’s banks are still gross under capitalized. Adekanye (2006) notes that this situation could partly be attributed to the fact that many of the banks of the state government owned banks operate with little capital. This problem of inadequate capital has been worsened by the huge amount of non-performing loans which have eroded the banks capital base.
Available statistic on banks capitalization reveal that as at the end of 1992, the 120 banks operating in the country required an additional capital of N56billion to support their volume of business as prudential minimum capitals funds required by banks supervisors. By the end of 1993, the bank required additional capital fund of about N9.1billion? (Adesuwa, 2001).

      1. In-depth Management

The quality of management can no doubt make an important difference between sound and unsound banks. Poor ban management his in the past resulted in excessive risk taking by some banks.
According to Ebhodaghe (2004), “banks were often at fault through excessive operating expenses, inadequate administration of loan port/folio an over laying aggressive growth policy attact deposit, interest rate speculation coupled with other instances of poor judgment that resulted in stress for the banks.
According to Furness  (2006), in-depth management was evident in credit administration, many of the bank has poor credit policies and in case where good polices are in place, such policies were never implemented faithfully. Also, many of the banks management environment were often characterized by instability of tenure of directors and key management staff, bound room quarrel, insider abuse, weak internal control system as well as control venations of well intended statuary regulations. All these had contributed in no small way to the bank financial failure (Furness, 2006).

      1. Frauds and Forgeries

Fraud is one of the causes of losses of many Nigeria banks. According to Nwachukwu (2008), it is not uncommon to find bank staff concluding with outsiders to defraud a bark and director concluding with management. For example, which the management acquires to lend to unviable companies related to the bank director even when they are aware that such companies are being used as vehicles to siphon the banks funds to the private pockets of such director. Oluyemi and Mamman posted the management mobility to put in place, adequate control has resulted in series of fraudulent activities by staff and huge loses the wipe out large part of some bank income (Nwachukwu, 2008).
Aggregate terms for example, the sum of N1, 3777.15 million was involved in commercial bank fraud and forgeries in 1993 compared with N351.9million in 1992 (N.D.I.C) 1993 this is an increase of about 291%. According to the NDIC 1993 report that aggregate actual expected loss was N241.0million in 1993 compared with N64.8million in 1999, showing an increase of about 272% (percent).

      1. Lack of adequate supervision and the inexperience syndrome

It has been argued that the management of banks in over regulated credit environment, like Nigeria encourages arm chain banking according to Agene (2004) “the failure of the management to determine whether or not sound policies laid down by management are been carried out” such lapse can seriously undermine a bank security arrangement as well as international control systems.
According to Adesuwa (2001), bank boards are supposed to be composed of people with a wide range of experience in business management, particularly financial matters, similarly the executive management are supposed to comprise practice men and women of proven track record in banking, who have distinguished themselves as managers of human and material resources in banks. Unfortunately, we observe that those standard are hardly met these days. Adesuwa states  further that these banks directors have tended to be nominee’s of major shareholders (usually the chairman) and some of these directors are unable and even unavailing to lean about financial matters. Their roles are to rubber-stamp what the chairman and management present to the board. Their major interest lies in what financial and material benefits the board membership can bestow.

      1. Credit information and policy

Credit information according to Van Homes (2000) is “the decision variables that influences the amount of trade credit that is the investment in debtors” it provides guidelines for the determination of the need to extend credit to customer or note the amount of credit to extend the period of the credit term and procedure for the collection of cash from debtors (Van Homes, 2000).

      1. Ownership structure/political interference in the bank management

Bank owners and directors (especially in government owned banks) in the internal management of banks have contributed to the financial failure in most banks. Akomaye (2006) notes that some shareholders borrow from their band and this is usually done through direct related companies for example, in a recently liquidated bank, it was found that the bank even borrowed from the central bank of Nigeria to fund its director loans (Akomaye, 2000).
Most of the government owned banks were often treated as political banks. Some of these banks were characterized by inept management whose tenures of office were often very unstable. Appointment to the board and key management position were usually based on criteria other than merit (Adekanye, 2006). In most cases, as the other state government charged frequently, so also did the board and key management staffs of the banks one result was inconsistent, policies due to the fact that what one board did is the succeeding (for political reason) ever turned with reckless abandon loans and advances to owner, government and their agencies were often not repaired either were the loans collaterised (Adekanye, 2006).

      1. Loan Policy
When lending is based on guess work, credit may be extended to now and old businesses that are inadequately capitalized, for example speculative purpose, base on securities that can be easily realized. According to Agene

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