CHAPTER ONE

1.1 GENERAL INTRODUCTION

Loan syndication is an inter-bank relationship and facilities in carrying on a common interest in financing a project. Where client borrowing requirement are extremely large and the risk also very light that it exceed the capacity of one banks, as it is often the case with major industrial, commercial, or agricultural undertakings. One bank arranges in close association with the customer syndicate facilities by grouping a consortium of banks to meet such financing request. The organizing bank is called the lead or managing bank, the loan is called consortium loan while the participating banks are referred to as loan syndication and the process of providing the loan is known as loan syndication.

Corporate loan syndication group (CLSG) purchases and sells interest in loan, in the corporate and commercial real estate sector corporate sector loan syndication includes;

– Leverage financing

– Middle market manufacturing

– Commercial financing companied

– Cable and communication companies. Syndication in the real estate sector includes;

– Pooled property funds

– Construction and development

A common feature of the International Merchant Bank management of loan syndication is a classical management of its asset. Loan syndication management is the act of handling a pool of inter bank relationship and their fund so that if not only preserved its original worth but also over time appreciate in value and yields and adequate return, consistent with the level of risk involved.

It is therefore our aim in this researcher to investigate syndication management strategy in international merchant bank and to see whether it is any way influenced by the nature of loans and advances of the bank whether its influenced of a positive or negative nature. According to Ansoff (1965).

Traditionally, the measure of success in a business firm has been profit, it is this measure that distinguished a business organization or from all other forms of social organization.

The factors that are likely to influence a bank’s desire to invest in a particular investment outlet include the nature of the project, the profitability, the cash flow situation and the maturity pattern of the banks. The importance of these various factors in the determination syndication varies from one bank to the other depending on the nature of the management and the overall business environment.

International merchant bank operates in the setting described with the cope of the direction of the bank Act. In this Act, banking business is defined as: the business of receiving money from outsider as deposit, irrespective of the payment of interest and the granting of loans. Advances and acceptances of credit or purchase and sale of securities and in incurring of obligation to acquire claims in respect of loans prior to their maturity or assumption of guarantee and other warrantees for others or the effecting transfers and clearing such other transaction as the minister may, on the recommendation of the central bank order published in the federal government gazette designated as banking business. It is easily seen that loan syndication management appropriately falls within the area of banking business as defined.

The function, objective, operation and setting of the merchant banks differs from those of commercial banks. In this Act of 1968, it is provided that merchant banks could engage in all forms of banking activities those undertaken by commercial bank except the operation of current account for small saves. The merchant banks are licensed to assist in the channeling of liquidity into the economy through granting of medium and long term investment, and also to perform specialized services in the area of equipment leasing, corporate financing project preparation debt factoring and rendering of advisory services among others. The provision on universal banking. For international merchant bank, it was considered that since they normally deal with large customers, which operate expectedly higher level of efficiency. They also need to mange their syndication more professionally to maximize the returns.