A bank could be described as a major financial institution which include finance houses, insurance companies mortgage companies etc. the main function of these financial institution are to provide financial support to those who are in need. Apart from this function, banks perform other function like rendering advice and counseling, acceptance of deposits, provision of loans and advances and also providing a safe  keeping place for peoples variables.

Many banks play intermediary roles in the financial sector.


v Moderation of the rate of inflation

v Reduction of pressures on the eternal sector so as to achieve a sustainable balance of payment position

v Establishing the naira exchange rate in Nigeria


Banks could be classified into the following categories

v Central bank

v Commercial bank

v Merchant bank

v Development bank

v Community bank


Obviously with an observer first contract with a developing economy, all these categories of bank play important role in stimulating the economy, they deal with members of the public, first they all provide first information and investment advice to willing customers. Community banks for instance were established primarily to spread banking service to the grass roots; considering the act that greater percentage of the countries population reside in the rural area.

          Development bank by implication tend to carryout their function effectively because they diversity into specialized areas, such as agriculture and industry, an example is the Nigeria agricultural and commercial bank (NACB) and Nigerian industrial development bank (NIDB0 hence the development of the economy is stimulated through these agency function.

          In order to achieve their set out objective all these banks rely on certain instrument and policies which include reserve requirements, stabilization of securities, interest rate policy (lending policy) exchange rate and foreign exchange management. Discount rate policy among other which Nigeria developing country are put in place and over seen by the government owned central bank.

          Lending has over the years become one of the most important function in baking operation. It provide money for investment which in turn  yield turnover and increase the liquidity in circulation. Due to this direct effect it has no the economy and business development, it is being pursed in many developing countries where bank and their lending activities have been usefully integrated into government policy formulation in the national economy development process.

          In Nigeria for example where majority of the population are in object poverty, fund are very difficult to come by for investment purposes.

Lending is giving something to someone else for use over  a short period of time (in this case money with interest when being paid back) . in the objectives of lending activity the banks in the country have come up with policy guidelines which basically provides the framework for dealing with loans and advances.

Some of these policies are designed to have relevance to the internal constraints of each bank for instance sector performance, deposit base risk existing exposure while the other are derived mainly from the guidelines issued.

          A lending policy if properly articulated could provide a guide for safe, sound and profitable banking activities, if on the other hand the lending policy is not properly formulated it could lead to the banks liquidation.

          Irrespective of the amount of liquidity available in a bank it may find it practically impossible to satisfy all the requests it gets for loans since the requests may outstrip available resource. The bank thus has to decimate in the decision to lend. Funds available for loans must be judiciously applied strictly along the bank policy.

          Lending procedures which act as checks toward making sure that the objective of policy guidelines are achieved include


v How loans are to be processed

v What document are required

v Necessary securities

v Where various document should be send

v Recommendation to be forwarded etc


          Due to improper lending, most bank make provision for bad debts but on the other hand what is known as recovery procedures in savoring doubtful debts. They include the step by step action by its specialized units either legal or other wise to this effect.

          In summary this intend to take a critical appraisal at these lending policies and procedures for loan recovery these policies and procedure play important roles in achieving a good and effective banking system.



The purpose of having guidelines and policies on lending and recovery procedure in bank is to achieve a certain objective of economic growth and development. Normally, if these policies are not strictly followed, is expected that some effects will be felt on the economy.

Bad debt and its management is among the major problem encountered by banks in their lending and recovery operations.

Non – adhence to the  established guidelines and policies on lending and recovery procedures on lending and recovery procedures in banks makes it more difficulties for the banks to overcome the problem of bad debts.


1.3            OBJECTIVE OF STUDY

This study aims at evaluating the effectiveness of commercial banks credit policies and guidelines as directed by the central bank of Nigeria. This study also determines the extent to which these policies and guidelines help commercial banks in stimulating economy growth and development



The study will be of help to loan administration and those who work in areas of credit assessment and control in various commercial bank – also it is hoped that this study will be of immense help to the banking institution particularly the school library and future product researcher

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