CHAPTER ONE

INTRODUCTION

1.1 Background of study

Commercial banks and other financial organizations in Nigeria engage in lending as one of their primary activities. The size of the loans that make up banks' assets, as well as the annual significant increase in the amount of credit issued to borrowers in the country, demonstrate this. Naturally, a bank's loan portfolio is its most valuable asset and source of revenue (Babalola, 2012 and Jahn, 2012). Commercial banks typically offer credit on a short-term basis, with a few exceptions where they will lend on a medium- or long-term basis if it does not jeopardize the bank's liquidity. Loans from commercial banks must be backed up by collateral or securities in the event of default. Commercial bank lending is frequently governed by policies that must be followed before loans are authorized. In commercial bank lending procedures, the interest rate level has a significant effect (Adekanyi, 1983; Aburine, 2008). Banking activities, according to Ugoani (2013), have continued to be a huge help to the economy's growth, particularly through the credit facilities they provide to various industries. These credits are projected to boost investment and, as a result, boost economic growth. According to the Central Bank of Nigeria (2013), the various areas of bank lending to the Nigerian economy include the production sector, general commerce sector, services sector, and others. Banks provide a variety of services to the economy, the most important of which is the provision of finance, which has been referred to as a "lubricant for economic growth" (Greuning and Brajovic, 2004). A sufficient supply of credit to the various sectors of the economy to carry on their activities is a vital aspect of this growth process. Financial intermediation is the role of the banking system in this regard, which comprises shifting cash from the surplus to deficit units of the economy to enable trade and capital accumulation. One of the services that commercial banks typically provide to their customers is lending, which can be short-term, medium-term, or long-term. In other words, banks provide loans, overdrafts, and advances to individuals, businesses, and governments in order to enable them to engage in developmental activities, either to promote their own growth or to contribute to the overall economic development of a country. The consumer may require funds for a variety of reasons, including fresh capital, ventures, bridging loans, farming, contract jobs, and business expansion, to name a few (Nwanyanwu, 2010). Credit management can be defined as a set of written instructions that define the terms and circumstances for supplying items on credit, customer qualification criteria, collection procedures, and what to do if a customer defaults. Credit, according to Ugoani (2013), is a marketing technique for increasing sales. Credit sales to consumers, on the other hand, must be closely controlled since, regardless of an organization's market share or demand for its products, if no controls are in place to restrict credit sales to customers, difficulties, particularly those connected to profitability, may arise. Even if a corporation has a lot of fixed assets, it may nevertheless be cash-strapped and have trouble meeting present obligations. Because the firm's liquidity assesses its ability to pay those creditors, the profitability of a business firm is usually of special interest to its short-term creditors (Felix and Claudine, 2008).

1.2 Statement of problem

Since commercial banks provide the majority of the capital needed for most development initiatives, it is widely agreed that lending as a service to commercial banks is critical to economic growth and development. Credit management is vital in many people's lives and in practically every industry that involves monetary investment in some way. Banks are the primary providers of credit, as well as various other services such as deposit mobilization, local and international transfers, and currency exchange. As a result, credit management has far-reaching implications at both the micro and macro levels. When credit is allocated inefficiently, it raises costs for successful borrowers, erodes the fund, and limits the ability of banks to transfer funds to alternate uses. Furthermore, the bigger the loan limit, the greater the danger. Loan defaults, which occur as a result of poor credit management, diminish a bank's lending capability. It also rejects loans to new applicants as the bank's cash flow management issues worsen in direct proportion to the rising default rate. The issue of insufficient attention paid to loan distribution also has an impact on the bank's performance. The majority of consumers took out bank loans and invested the money in unsuccessful ventures. Some bankers do not take the essential criteria into account while disbursing loans to customers. In other words, it may disrupt a bank's routine input and outflow of funds, preventing it from remaining in a viable credit market. Therefore, the principal concern of this study is to assess credit management and bank lending practices in commercial banks in Nigeria.

1.3 Objective of study

The following are primary objectives of this study

1. To investigate the impact of credit management on Access bank profitability.

2. To examine the impact of lending practices on Access bank profitability.

3. Determine the impact of lending practices and credit management on Access Banks' loans and advances in Nigeria.

1.4 Research question

1. What effect does credit management have on access bank profitability?

2. What impact do lending practices have on Access bank profitability?

3. What effect do lending practices and credit management have on Access bank loans and advances in Nigeria?

1.5 Significance of study

This study will be significant for Access Bank's management, other banks, share-holders, potential investors, and depositors, as well as for the economy as a whole. For bank management and managers, the study emphasizes the importance of this asset (loans and advances) to their organizations' overall success and growth. As the greatest component of a bank's overall assets, it must be managed effectively and efficiently. Furthermore, loans and advances are the most profitable and dangerous assets, necessitating good administration to maximize profits while limiting risk.

1.6 Scope of study

The purpose of this study is to evaluate credit management and bank lending procedures in Nigerian commercial banks, using Access Bank as a case study. The purpose of this research is to look into the credit facilities available in the banking business. It also goes through the various principles and procedures for efficient and successful credit management and lending practices. It assesses success and failure (if any), as well as makes recommendations for improvement.

1.7 Limitation of study

Finance,inadequate materials and time constraint were the challenges the researchers encountered during the course of the study

1.7 Definition of terms

Credit management: This is the process of controlling and collecting payments from customers. This is the function within a bank or company to control credit policies that will improve revenues and reduce financial risks.

Lending practices: These are laid down principles which guide the lending practice of banks. These principles could be due to external or internal factors. These principles act as a blue print to measure the effectiveness of commercial banks lending activities.

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