CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Essentially, banks originally emerged as deposit takers. They eventually metamorphosed into intermediates of funds and thereby started assuming credit risk. Credit, thus, became the business of banking, and the primary basis on which a bank’s quality and performance are judged. Empirical studies of banking crises all over the world have shown that poor assets quality (predominantly loan) has been the most frequent factor in bank failures.
Stuart (2005) emphasized that the spate of non-performing loans, is as high as 35%. Table 1 shows the ratio of non-performing credits (NPC), to total loans and advances (L and A) in Nigerian Commercial Banks between 1999 and 2009. Umoh (1994) traced the rising non-performing loans’ ratio in banks’ books to poor loan processing, undue interference in the loan granting process, inadequate or absence of loan collaterals, among other things, which are all linked with poor and ineffective credit administration. In essence this paper focuses on the concept of credit, evaluation of credit and recovery processes. The paper is divided into five sections, comprising the introduction, review of literature, evaluation and rating of credits, liquidity and credit management and finally, conclusion and recommendations.
1.2 Statement of the Problem
Liquidity and credit management have implication on bank profitability and the authorities’ depositors and shareholders. It could trigger off mass cash withdrawal thus plunging the bank into deeper crisis. In analyzing the credit and liquidity management of First Bank of Nigeria Plc, I shall examine its assets quality, which includes its performing and non – performing loans. In addition efforts would be made to look into the bank’s capital adequacy ratio and its shocks of risk assets different measures of liquidity and solvency.