CHAPTER ONE
1.0 INTRODUCTION
Bed debts are usually
associated with the function of commercial banks and the incidence of bad debt
remain as told as the essential function itself. Commercial banks like other
business entities have one objective of being in business maximize their profit
since banking is service industry.
Commercial bank also strive to give
efficient service to their customer at all time to make profit and remain in
banking business.
Therefore, commercial banks most learn
in other to earn interest, which provides the revenue commercial bank can lend
on loan or over draft to their customers, the choice of facilities repayable
could be agreed installment over a good period of time while an over draft is
short time which could be involving and required to be made good after one
year. An over drat facility is the working capital of the business man.
The lending function of the commercial
bank can only be accomplished if such commercial, bank are in a position to
collect deposit from other lending and the size and mode of lending loan an
advice constitute a greater proportion of credit available in the economy,
lending therefore, helps to satisfied the legitimate credit needs of the
society. Credit like money finds its main function in the production and
service in facilitating the exchange of good credit has also help to make
possible modern like scale production and wide spread division of labour.
Because of the direct impact lending can
have any economy, government all over the world usually integrate the
activities of banks in to policy formulation. The commercial banks
intermediation ruled in the economy is highlighted in the deposit creation
lending of those banks. While the commercial banks collect deposit from those
who have surplus funds, the part give out part of this funds to those who
required more funds to expand an existing business or established in a new one.
The depositor’s relationship with their
banks is base mainly on their mutual trust while it is known from experience
that all depositors can not call for their deposit at the same time commercial
bank must always ensure that these are always a find to meet depositors
requirement.
In addition to the profitability and
efficiency objective of commercial bank therefore the needs for sounds
liquidity at all time is always emphasized.
The liquidity object of commercial banks
compelled most commercial to lend on short term
basis since most of their deposit is kept over a short period of time
the depositor’s fund, which form the lenders working capital required prudent
management if the working capital is to grow and not depleted. This position
explain the reason why commercial banks take time to study business requesting
for financial assistance.
The bank manger and other officers
appointed to give surplus of these credit appraise each proposes thoroughly
ensuring their can on of lending which improved purpose and the amount required
the sectorial classification of the loan required, the proprietors stake in the
business and the security offered.
Experience has shown however that money
business that were appraised and which appeared attractive in the past
continual of fall in recent years now funds herself.
Many business that appeared initially
attractive failed because they can no longer obtain raw materials with which to
produce some failed because they can not raise enough local currency to produce
spare parts for their grounded machine while some find the current cost of
capital too much to bear such business try to avoid the repayment of both
interest and principal debt against them by switching to other banks.
Business failures have for reaching
effect on the ability of borrowers of banks fund to repaid their debts. The
resultant effects if these failure is the ever growing incidence of bad debts
in Nigerian banks for example union bank which is the one of three leading
banks in the country has had an unpleasant share of the burden of those debts.
1.1 BACKGROUND OF THE STUDY
The project work is
made up of five chapters in which chapter one comprising introduction,
background of the study, statement of the problem the need for the problem, the
scope of the study, the significance of the study, objective of the study,
definition of terms.
The second chapter deals with review on
inflation and bad debts bank credit, causes of bad debt, debts recovery,
advantages and disadvantages of inflation causes, effects and control of
inflation.
The third chapters deal with research
methodology, historical back ground of the case study, method of data
collection the effect of inflation on bad debts in union bank growth and
development of bad debts.
Chapter four contains data presentation
analysis of data and interpretation of data.
Chapter five discusses summary
recommendation and conclusion.
1.2 STATEMENT OF THE PROBLEM
The impact of inflation
on bad debts, which cut across all share of business society in .
Recently, the incidence of inflation has been the focused of government
attention. In this project attempt will be made to analyse inflation causes and
effect of the growth of the backing system in particular and the overall
development and likely solution with a view to minimize it frequent occurrence
detail of this may be found in next chapter.
1.3 THE NEED FOR THE PROBLEM
The need for this
project study has been amplified by the economic depression in which Nigeria
has found here self in the past fourteen years the depression has brought with
its economic problems which include huge foreign and interest debts high
unemployment, severe raw materials and severe parts shortages, high rate of
inflation and rapidly declining per capital income.
The economics twist of fate of that
proper her departure from can era of economic boom in the mid seventies and
eighties to a period of prolonged depression is first and foremost to the sharp
decline in revenue derivable from crude oil.
The depression economy can also be
attributed to economic mismanagement by Nigeria leaders misplaced priorities,
neglect of agriculture which can another veritable source of foreign exchange
earnings, general depression in the world economy, high level of deficits
spending by government and excessive imports which are not at par with exports
consequent upon the dull economic climate therefore, may loans and overdrafts
facilities granted by commercial banks to individuals and corporate bodies the
past are no longer being regularly services may of the facilities which are
totally bad are now abandoned.
The growing brand of bad debt in the
book of commercial banks is now a cause for concern to leading banker’s
failures to pay an existing debt limits the credit creation capability of banks
and this limitation will affect economic production the volume of which is
always influence by the availability of credit.
When production capacity can not be
enlarged, new employment cannot be credited, when plant are under utilized
labour gets retivialized or totally discarded.
There is need therefore, to look at the
correction between the prevailing economical depression and the increasing
failure rate of banking lending which in affect can affects banks profitability
and jeopardize their shareholders return on investment.
1.4
SCOPE
AND LIMITATION OF THE STUDY
It would be very unrealistic have been gathered in
the process of this study this is so because the information gathered is
limited to those available by the respondent, financial experts analysts,
economist and accountant such information provided may not be tree bases, hence
a source of inadequacy of findings.
Information that relate to inflation on
bad debt is kept confidential, regardless of the purpose for which they are
intended. Hence, a general a pathy and reluctance to provide answer to the
question asked willingly and truth fully.
1.5 THE SIGNIFICANT OF THE STUDY
The significance of the
study stems from the assumption that the attack on the impact of inflation on
bad debt was originally incurred by business promoters to finance the
acquisition of one thing or the other. The purpose could be an item of fixed
asset, it could also be for the purpose of financial working capital what ever
the case may be, inflation as it is the case in the Nigeria economy has an
unfolding impact of the performance of fixed asset financed by back loan and
the adequacy or other wise of the firm’s working capital.
1.6 OBJECTIVE OF THE STUDY
One of the main
objectives of the study is to analyze the impact of the inflation on bad debts
in union Bank through effective debt management. It is also the objective of
this study to suggest ways and means by which loans liquencies can be
drastically reduced through effective lending controls.
To be able to achieve these objectives,
it will be necessary to ascertain the means of inflation and to show it affect
bad debts and their financial intermediation role to the economy.
Although, the study, as union bank of
Nigeria Plc in view the project work is to serve as a relevant working paper
and guide to other commercial bank in .
1.7 DEFINITION OF TERMS
Inflation: Inflation
is the persistent rise in general level of goods and services. It is also a
period in which there is a rise in the general level of price measured by price
indexes.
Moderate
inflation: Moderate
inflate occurs
When prices are rising slowly
Galloping
inflation: Galloping
inflation occurs when price start rising at double prices
Hyper
inflation: Hyper
in inflation is a period of extra-ordinary rises in price
Bad
debt: It
is the money that can no be recovered