THE PROBLEMS OF LOAN RECOVERY IN COMMERCIAL BANKS IN NIGERIA
ABSTRACT
The project work was carried out to find the problems of loan recovery in commercial banks in Nigeria.
The information and data contained in this project work were collected by means of questionnaire and consultation from various journals, textbooks and various websites.
The key finding of this project work is that the problems of loan recovery in commercial banks in Nigeria cannot be over emphasized.  It is however, recommended that for the efficient and effective discharge of their duties, the Central Bank of Nigeria (CBN) should initiate their supervision of the banks on regular basis to be able to identify cases of non-recovery of loans before it is late.
TABLE OF CONTENTS
Chapter One - Introduction
Background of the study                    
Statement of the problem            
Objective/purpose of the study        
Significance of the study                
Research Questions                    
Delimitation of the study                
Assumption of the study                
Definition of terms                    
Organization of the study                
Chapter Two
The Historical Development of Commercial
Banking in Nigeria                    
Development of indigenous banks in Nigeria    
Legal regulations frame work            
Bad Debts in Banks                    
The Principles of Good Lending            
Loan Procurement Procedure and Consideration
Credit Administration and Loan Recovery
Procurement in First Bank of Nigeria Plc, Warri    
Some of the Problems encountered in Loan Recovery
Solution to some of the Problems of Loan Recovery
Chapter Three – Research Methodology
Research Design                
Area of study                            
Population of Study and sample size        
Instrument for Data Collection            
Sample Subjects                    
Validation of the Instrument            
Reliability                            
Method of Data Collection            
Method of Data Analysis            
Chapter Four
Introduction                            
Presentation and Analysis of Data            
Chapter Five
Summary                        
Conclusion                        
Recommendations                        
References                        
Appendix                            
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
In Nigeria, Commercial Banking system evolved to support the trading activities along the Nigeria coast in the late century.
When the Bank of British West Africa (BBWA) was established since then the general concept of Nigeria Commercial banking has changes and transformed in various degrees and dimension.  
Commercial banks are organized on a joint stock company system, primarily for the purpose of earning a profit.
There was a multiplier and down stream effect which crystallized in an explosion of funding requirement in all economic endeavours.  It was without doubt (clearly) that the injection of fresh credit and increase efficiency in the service delivery from the very financial sub-sectors are imperative for full realization of economic reforms being pursued under the Structural Adjustment Programme (SAP) during the administration of the former Head of State, General Ibrahim Badamosi Babangida liberalized banking business in Nigeria.  Another reason for the increase in number of banks in the widening of sphere which bank could operate.  The general deregulation gave banks free hand to carry out more business and particularly the distinction between commercial and merchant banking is now getting very thin,  therefore, the increase in the number of banks itself is a positive development because it helps in bringing banking services to the knowledge of the people.
Some of the functions and services rendered by Nigerian commercial banks include the following;
Mobilization of savings and other deposits:-  In its drive to mobilize funds, commercial banks open two major types of account, namely; current accounts and deposits accounts for its customers.
Granting of credit facilities to customers:-  The common credit facilities available to banks customers are loans and overdrafts, which are usually short term or medium term.
Transfer of funds:-  Banks perform this function through collection of cheques, standing order, direct debit, money transfer, telegraphic transfers and open credit or cashing credit.
Granting money of all the deposits for the basis for the creation
Safe keeping of Valuables:-  Considering the trust which the commercial banks have built up over the years in the eye of the community couple with the safety of the strong room, customers usually keep their values with the bank.  Examples of such valuables are; life assurance policies, certificate of occupancy, wills, jewelry etc.  Banks must keep to the laws, regulation and guidelines governing banks in the course of providing services etc.  let us not forget that the principal objective of credit management includes the assessment of credit standing of the new and already existing customers development terms having regard to the risk involves and the potential profit collection of amount in such a manner and may produce optimum cash flow while the business continues to be a going concern.  Moreover, it involves the protection of commercial banks investment in debtors.  It was therefore based on this background that the researcher wishes to ascertain and assess the problems of loan recovery by commercial bank in Nigeria using First Bank of Nigeria Plc, Warri Branch as a case study.
STATEMENT OF THE PROBLEMS
At the core of the financial system of any country are the commercial banks.  They have the potential to apply the pull weight of their credit facilities for the development and growth of the country’s economy.  Credit is been as the blood stream of the banking business.  It is the vital material that oils the wheel of development.  The situation of Nigeria today demands an injection of a healthy bank credit to effectively fasten the pace of growth.
According to the bank of Japan’s publication (1973:165) commercial banks have contributed significantly and immensely to the development of Japan’s economy and largely due to them that despise her measure accumulation of capital, Japan has been able to industrialize (develop) rapidly.  Even recently most of the funds being raised by business organization is being supplied by commercial banks.  This is done through loan to customer (borrowing from banks).  This is not so in Nigeria because, the shareholders of the commercial banks are afraid.  Ejiofor, P. N (1981:20).  The holders of the share of banks get much more worried about the rate of bad and doubtful debts in the books (statement).  This is because the increase in bad and doubtful debt reduced the rate of their dividends.
These are some of the causes of the problems of loan recovery by Nigerian commercial banks, they are:
Problems of unstable interest rate:  High interest rates cause default in loan recovery.
Poor securities offered:  This is one of the major problems in loan recovery by Nigerian commercial banks.  If the collateral required to guarantee the repayment of a loan is inadequate and the loan is granted and when the loan is due, the loan beneficiaries cannot pay back, the security offered to the bank is inadequate.  The new contributes to the problem of loan recovery.
Instability of project Upon which the Facilities was granted  
Political Instability: Government policies and directive with the general economy are not stable, this factor is outside the context of banks management and staff which effort loan beneficiaries and course a loan to go bad.
 OBJECTIVE/PURPOSE OF THE STUDY
The objective/purpose of this research study are summarized as follows;
To ascertain the institutional arrangement used (utilized) by First Bank of Nigeria Plc, Warri Branch in the process of its loan recovery activities.
To discover or identify the problems encountered with its customers.
To recommend some methods that could be followed by the bank so as to enhance efficient loan recovery system.
SIGNIFICANCE OF THE STUDY
There is a great gap between management theory and management practice in Nigeria.  Ejiofor P. (1982:266), identified the theory gap as being brought about by the separation of the theorist from the practitioners, fortunately, this study draw from the experience of practicing bankers.  It is hoped that the research findings would be communicated in anyway meaningful to the policy makers of banks as well as future researchers.  Therefore, if the results do not explicitly solve the problems, it would have created a starting point for policy debate and future research in the field of loan recovery.  Conclusively, it is envisaged that the research findings would;
Serve as a guide to the present and  future investors in commercial banks, not only first Bank of Nigeria Plc.
Provide bank management as well as policy maker with starting point in appraising some of their loan polices.
Provide curious researchers and bank analysis with some index of bank analysis.
Draw the attention of regulatory authorities to the need of standardized policy of accounting with regard to loan recovery and bad debt provision.
However, the research work would be of great importance to the researcher since, it is a partial fulfillment for the award of national Diploma in Delta State Polytechnic, Ozoro
RESEARCH QUESTIONS
Research Questions are being asked so that if properly answered, the end result will yield solution to the problems at hand, in the aspect of this present loan recovery problems and hard economic realities facing the bank as well as its customers today. How can banks scale? What measure should be adopted by banks to facilitate an effective and efficient loan recovery?
Are the problems encountered by the bank in the loan recovery system caused by the management and staff?
Are customers of first bank satisfied with the interest rate provided by the government?
Is there a higher growth of risk in lending?
Has our present economic conditions constituted a problem?
Providing the answer to the above questions are some of the main reasons for carrying out this study.
DELIMITATION OF THE STUDY
This research work is concerned with the problems of loan recovery by Nigerian Commercial Banks, a case study of study of First Bank of Nigeria Plc, Warri Branch, it included the Central Bank of Nigeria, Merchant and Development banks.
This study however, focused on the historical development of commercial banking in Nigeria.  From various schools viewpoint, bad debts in banks are also discussed in details.
The study goes further to highlight the principle of good lending involve in commercial banks lending one of the areas studied.  Lending policy of banks bring to right direction and use of funds of shareholders, depositors and creditor.
ASSUMPTION OF THE STUDY
The assumption of the study are summarized as followed:
The researcher assumed that there had been the problem of loan recovery in substantial number of Nigerian banks, I.C Global Bank etc.
The researcher also assumed that the problem of loan recovery have existed for quite some time.
That appropriate procedures, law or guidelines for loan extension has been promoted by the apex bank known as Central Bank of Nigerian (CBN).
Loan are being extended by Nigerian Commercial Banks, both the banks and non-banking public.
That the law provided that the defaulter of the loan being granted by banks shall be dealt with decisively.
DEFINITION OF TERMS
Bad Debts: A debt is said to be bad when there is no hope of receiving it.  
Bad debt recovered:  It is a debt recovered which has been declared bad already.
Lending: It means giving money to reliable customers which must be repaid with interest.
Loan Beneficiaries:  It simply means those who had borrowed money from the bank.
Capitalized Expenditure: They are expenses which the bank incurred during the construction of office and in purchasing equipment.
Good Debt:  A debt is said to be good when there is every hope of recovery it.
Poor Security: If the collateral required guaranteeing the payment of a loan is inadequate.
Apex Bank:  This is the highest and most important bank in the country, which is know as the Central Bank of Nigerian (CBN).
Reliability:  This deals with how accurate a person’s character is or accurate the research instrument is measuring what is supposed to measure no matter the number of time such measurement is taken.
Assets:  It is anything owned by a business or by an individuals, which commercial value, it may consist of specific property or of claim against other in contrast to obligation due to other liabilities.
ORGANIZATION OF THE STUDY
First Bank of Nigeria Plc, for a century has distinguished itself as a lending banking institution and a major contributor to economic advancement and development of Nigeria.  It was founded in 1894 by a shipping magnate from Liverpool, Sir Alfred Jones, and commenced operation as Elder Dempster.  First Bank was incorporated as a limited liability company on March 31, 1894 with head office in Liverpool, it started business under corporate name of the Bank for British West Africa with a paid up capital of 12,000 ponds sterling, after absorbing its predecessor, the Africa Banking Corporation which was established earlier in 1892.
Over the years, the paid up capital was 36.2b in 2004, and in 2005, the paid capital was 42.3billion.  The assets of the year are 37.15 billion in 2004, and in 2005 the assets is 312.5billion vantage of opportunities in the changing environment, the bank embarked on several initiative.  Besides its track record f profitability after the tax and minority interest in 13,050billion, 11.6bn for the group in 2004 and 2005 for the bank, the profitability is 12.184bn, 11,090bn with increase development and population growth, there are about 250 branches as at 31st December, 2007 spread throughout the federation, the bank maintains the largest network in the industry in Nigeria.  The present subsidiaries/affiliates are the FBN Insurance Brokers Limited, FBN Trustees Limited, First Nominees Limited, First Dependents Nigeria Automated Clearing System Plc, Smartcard Nigeria Limited, Bangure Inc IOU Benin Cotonou.
The current chairman of First Bank Plc is Dr. Ayoola Oba Otudeko, the Managing Director/Chief Executive of the Bank is Mr. Bisi Oni.