THE IMPACT OF EFFECTIVE CREDIT DOCUMENTATION ON COMMERCIAL BANKS IN NIGERIA ( A CASE STUDY OF FIRST BANK PLC)
Credit generally denotes loans and advances made either directly or indirectly by a creditor (lender) to a debtor (borrower) on the principles of different payment. The banks as a lender, provides credit facilities by making funds available to customers in agreed terms and condition of payment. The gain of this credit to the bank is supposed to be huge profit instead of this over the year, modern banks (particularly commercial banks) have been recording huge amount of bad debt provision which increase with each consecutive.
The term credit is the granting of money (loans) and advances to borrowers with the general expectation that they would honour their obligation to repay the fund with or without interest when due.
Credit is the means by which we are able to obtain immediate benefit of goods and services upon the promise of payment at a future date.
One of the main reasons for obtaining credit is that money which is our recognized unit of exchange is kept in relative short supply and although we may have enough credit for those items which we require but can not immediately afford and as these problems is not confined to individuals. A banks objective is to make money and one of the methods used to achieve this is by loans.
However, loans are only granted to those whom they have every confidences in and then as often as not, demand some form of security. The motive for leaning money is therefore to acquire profit for themselves and not out of favour to the customer. Although, we are not able to adopt such stringent attitudes, our motives for granting credit must be the same.
It is however, dishearten to note that not withstanding the level and magnitude of impact that the banks have on economy in terms of importance which is unarguably immense. Whenever money is always certainly a risk of not getting it back from such customers. It is this (non-payment of loan) that has made it necessary for this research to go into the area of credit management.
The impact of effective credit management as a process is very essential for banks because poor credit revaluation leads to poorly unstructured loans facilities that reduce the profitability and liquidity of the bank.