CHAPTER ONE INTRODUCTION 1.1      BACKGROUND OF THE STUDY

Financial institutions are instrumental to the growth and development of the economy through the acceptance of deposits and granting of credit facilities to investors. They are actively in financial intermediation where finds are taken from the surplus unit and channel to pr d cave unit of the economy. Some of the deposits are withdrawn at short notices. It is required of financial institution to maintain adequate liquidity (cash) in their portfolio to meet the demands of depositors and at the same time extend credit to borrowers in order to make profit. They are institutions that issues finance obligation in order to acquire finds from the public.

This finds helps to facilitate economic growth and development as they are channeled into productive uses the financial sector of any economy does matter significantly in economic development of a country. Lewis (1970s) shares this same view in his development process by stating that “the financial sector of any economy matters in economic development. If the financial sector is repressed and distorted, it can intercept the history impulse of development.

Ebhodagha (1990) is of the belief that the flow of finds from financial intermediates may permit significant increase in growth rate of output if the find are allocated to uses which are straight in the process of resources creation. Undoubtedly, it is with the view of the critical role that banks and other deposit taking institutions plays in the national economy that they tend to the most regulated of all business. Among aspect of financial institutions activities is the management of loans, advances and other credit to customers. Most financial institution have been known to carry over whelming sizes of credit and advances these credit are largely concentrated in customers loans and as such form the most risky aspect of bank portfolio. Management of credit is now a matter of serious concern notably to but also to banker and financial institution in the Nigeria business environment.

1.2      STATEMENT OF THE PROBLEM

The Nigeria financial system has recorded an unprecedented number of bank failure and dwindling performance in recent times. Even with the ongoing consolidation exercise (reforms) fears have been expressed in some quarter that many may still go because of high debt balances and their seeming liability to recover them. Debt recovery measure put in place are not also helping matter. The argument has also been that the amount of loans and advances that these banks. Financial institutions gives out are responsible for their down turn of non performance. Equally, accusing finger are also been pointed at managers for not ensuring that equitable collaterals are secured for the creditors some observers of the Nigeria financial sectors agrees that problem faced by theses institution may not be unconnected with the amount of credit granted by the financial institutions. Thus this research work tries to look into the credit management of financial institutions to ascertain the vises of these arguments.

1.3      OBJECTIVE OF THE STUDY

The purpose of this study is to critically look at:

1. How credit facilities are manage to meet pre-determine objectives.
2. How individual banks access potential borrowers considering the craftiness of Nigeria borrowers and the present economy trend.
3. Flow loans are granted considering statutory provisions.

1.4      RESEARCH QUESTIONS

To gather the required information needed for the study the following questions are relevant:

1. How does financial institution ascertain the, credit worthiness of their customers?
2. Are loans granted based on statutory procedures or are subjected to certain influence outside the institution criteria.
3. To what extent does economic situation in the country affects the payment of debt?

1.5.     RESEARCH HYPOTHESES

To have a focus on the answer(s) of the above research questions, the following hypothesis shall be tested.

HO: There is no significant relationship between efficient credit management and profitability of financial institution in Nigeria.

HI: There is a significance relationship between efficient credit management and profitability of financial institutions in Nigeria.

1.6      SIGNIFICANCE OF THE STUDY

The Significance of the study lies n its usefulness. This study is expected to be useful to a number of persons and institution are follow; it will be useful to bank particularly who wishes to ensure efficiency in the management of their credits. It will also be useful to policy makers in their effort to fashion out dynamic and reliable policy measures in dealing with debt recovery problems. Lastly, it will serve as reference material for future research in the area of financial economic development

1.7      SCOPE OF THE STUDY

The focal point of this research is intended to cover financial institutions particular located in Nigeria with a mort elaborate study of United Bank for Africa, Access Bank Plc, United Bank and First Bank Plc, as a selected Banks in Port-Harcourt.

1.8      LIMITATION OF THE STUDY

In carrying out any research, it is usual for the researcher to encounter some difficulties. This work could not do without its own problems. This study is limited to Nigeria. This area of coverage is a serious limitation of the study as there is no time to see people who work in these institutions. The escalating crime rate, Northern agitation and subsequent imposition of curfew in North did not help matters as it disrupted the activities of these institutions. Cost pose another constrain as there is little or no money to purchase text books on financial management and other relevant materials.

1.9      DEFINITION OF TERMS

Credit: Credit in this context refers to a debt an obligation to pay at a’ future time. The obligation may be highly formal and embodied in a contract which details the right and duties of the parties.

Credit Worthiness: This refers to the evaluation of the financial stand of the borrowers, particularly as it relates to meeting obligations.

Financial Intermediaries: It is a process where lenders and borrowers of funds are brought together by selling or using debt instruments to supplier of fund and channeling the funds to borrowers or the deficit unit of the economy.

Financial Institution: Institution means a group of various deposit taking institution, operation, agent and market instrument that interact within an economy to provide financial services. These services include resources mobilization and allocation, financial intermediation and facilitation of foreign exchange transaction in order to promote international trade among nations. The financial institution plats a major role in the promotion of economic growth and development. Specially, financial institutions collects saving from surplus economic unit and channels funds to borrowers or deficit economic unit.