ANALYSIS OF INCIDENCE OF LOAN DEFAULT IN MERCHANT BANK
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ANALYSIS OF INCIDENCE OF LOAN DEFAULT IN MERCHANT BANK
ABSTRACT
From 1990 to 2003, this study looked at the nature, problem, and prospects of innovative products introduced in the banking business.
The researcher identified four products and measured the amount to which they were able to please the clients in this research work. Smart cards, international money transfers, educational schemes, and integrated banking network transactions were chosen as products.
Data for this study were gathered through questionnaires and interviews with bank customers, as well as a survey of current literature on the subject utilising a basic random technique and the descriptive research approach.
The acquired data were analysed using a basic percentage, and the hypothesis was evaluated using the chi-square (x2) method.
The nature of the new product can be measured in terms of accessibility, speed, timeliness, simplicity, and reliability, according to some of the findings.
Customers who use the new product are mostly individuals who wish to transfer money locally or globally. They are quite satisfied with the new items.
Inadequate infrastructure in our banking industry, as well as the expensive cost of establishing it, led to the new product’s difficulty.
Based on the findings, the following banks were advised to collaborate and build a single data communication satellite to reduce ongoing issues.
A rival organisation that supplied electricity in competition with NEPA should be permitted to emerge in order to ensure an effective supply of electricity.
Finally, because this study cannot cover every aspect of this important subject, it is suggested that more research be conducted.
INTRODUCTION TO CHAPTER ONE OF ANALYSIS OF INCIDENCE OF LOAN DEFAULT IN MERCHANT BANK
A bank, according to Paget (1998), is “a corporation or person (or persons) who accepts money on current account, pays cheques on such account in demand, and collects cheques for customers.”
Banks are financial institutions that are in charge of the intimidation of funds. They provide as a bridge between simple money sources and deficit fund services. They also act as “a dealer in capital or, more precisely, a dealer in money,” as defined by Gulbert (1995).
In this capacity, they receive deposits and make loans and advances to any needy segment of the economy or individual. Investors and business owners. Because banks are not charcterable organisations, they provide these services for profit.
In carrying out this critical role, banks are confronted with a slew of issues that emerge by the day, in keeping with the dynamic nature of the Nigerian economy and growth.
Their main issue stemmed from the fact that those customers to whom the banks lend money on agreed-upon terms and conditions fail to repay on maturity,
putting a kink in the wheel of both the banks’ profit-making objectives, credit expansion within the system for economic activities, and the bank’s ongoing operations. This resulted in bad debts.
During the pre-independence era, when only a few banks dominated the sector, incidences of loan failure and bad debt were extremely rare. Of course, the banks’ administration and loan awards were thoroughly scrutinised before real disbursement by expatriates.
Many merchant bank executives are concerned about the rising number of loan defaulters and bad debts. Still, decisive and obvious action has not been taken by them to at least reduce the impact on their operations and the effect on the economy as a whole,
which is the purpose of this study to provide effective suggestions on how to reduce the rate of bad debt in merchant banks, particularly Ivory Merchant Bank.
Financial analysts all over the world agree that bad debt and loan default cannot be completely eliminated in the banking industry, but a constant check on every factor capable of generating this unpleasant experience for most financial and non-financial institutions that engage in funds intermediation directly or indirectly can be maintained.
It is worth noting that certain merchant banks in Nigeria, reportedly facing an increasingly difficult business environment, have applied to the Central Bank of Nigeria to convert to commercial banks as of the end of October 1993.
The occurrence of loan default in merchant banking, a very important sub-sector, gives no comfort; thus, the researcher’s interest in determining the immediate and remote causes of bad debts and how to remedy the unpleasant experience so that public confidence in the financial sector can be restored.
1.1 BACKGROUND TO THE STUDY
While reading through journals, weekly financial and business articles on the pace of increase in the number of distressed and liquidating institutions, the researcher was drawn into imagining what the financial system would become in the future if anything is done actively to rescue the situation.
We are unaware of the awful value of the currency “Naria” in recent years; would you argue that we cannot construct the Nigeria of our dreams if this is accompanied by repeated bank liquidation and failure?
Bank lending via loans, overdraft, capital intensive project financing via loan syndication, and trade credit finance all over the world. The process of financial intermediation is becoming more complex.
As they attempt to meet expectations in this area, they (banks) are presented with the unpalatable pill of loan defaults. When loans are due for payment and are not paid, they are considered defaulted; thus, an examination of the incidence of loan default in Merchant banking.
1.2 STATEMENT OF THE PROBLEM
There is no debate about the issues confronting Nigeria’s banking system today. Every bank is striking in order to keep up with the competition. In their everyday operations as a conduit for money,
whereby they aggregate funds and disaggregate them to the investing public, they are met with snags of defaults on the part of loan and advance beneficiaries to satisfy their commitments, which have major consequences for the lending banker.
As a result, banks are expected to act quickly to fix the issues in order to avoid lending them into crisis. Failure to return money borrowed by consumers has a significant negative impact on banking operations. Such situations necessitate research and analysis in order for a solution to be proposed.
1.3 OBJECTIVES OF THE STUDY
(1) Determine the root causes of loan default.
(2) To determine the frequency of loan default and bad debt.
(3) To ascertain the extent to which merchant banks monitor projects for which they have given credit.
(4) To identify the consequences of loan default in commercial banks.
(5) To give recommendations on how loan default and bad debt might be reduced or avoided.
1.4 RESEARCH QUESTIONS
(1) What precautions has the bank taken to avoid loan defaults from occurring?
(2) What is the frequency of loan default at your bank?
(3) How have you been able to monitor the advances made to customers?
(4) What do you believe are the causes of loan default?
1.5 RESEARCH HYPOTHESIS
Following extensive investigation, it is up to the researcher to formulate the following hypothesis.
Ho: The rate of loan default in merchant banks is low.
Hi: Loan defaults are common at merchant banks.
Ho: Loan supervision and monitoring are not important loan default solutions in merchant banks.
Hi: Loan supervision and monitoring are important loan default solutions in commercial banks.
Ho: Loan default does not result in merchant bank failure.
Hi: Loan default causes merchant bank failure.
1.6 THE SIGNIFICANCE OF THE STUDY
Ivory Merchant Bank will examine their credit analysis, loan disbursement, and recovery formular based on the guidance and recommendations provided at the end of the study. It will also advise the treasury manager on liquidation management in order to prevent the bank from going bankrupt.
It is vital to note that the research findings will be of tremendous use to other financial intermediaries in their everyday dealings with both the savings fund and the borrowing public.
Implementing the researcher’s recommendations will also restore public trust in the financial industry.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
The research will focus on the influence or incidence of loan default on the expansion and functioning of Ivory Merchant Bank in Nigeria Limited. As a result, additional bank innovations and products,
such as corporate finance termination and investment advisory services, merchant bank loan syndication procedure, are out of the scope. The investigation would be limited to the Ivory merchant bank’s office.
It is also critical that additional research be conducted on merchant bankers’ corporate and investment advice services to establish their (merchant bankers’) involvement in speeding the industrialization and economic development growth of the Nigerian economy.
1.8 DEFINITIONS OF TERMS
1. Loan: A bank loan is a financial facility issued by a bank that is in tender to be used for financing of a certain purpose, and it usually has a set period and payback schedule.
2. Loan Default: This might be defined as a circumstance in which clients fail to repay the bank loans they obtained.
3. Loan Default Incidence: This is the percentage of borrowers that are unable to repay their loans in Ivory Merchant Bank.
4. Merchant bank: According to the Banking Amendment Act of 1979, a merchant bank is “any person in Nigeria engaged in wholesale banking,
medium and long term financing, equipment leasing debt factoring, investment management, issue an acceptance of bills, and management of this trust.”
5. Ivory merchant bank: This is a merchant bank that was founded for the purpose of lending in the banking business.
6. Bank Lending: These are the essential principles that a banker should follow when giving loans and advances to customers.
7. Bank Lending Criteria: These are fundamental aspects that a banker should assess before giving loans.
8. Finance System: The Nigerian finance system consists of both banking institutions and non-banking institutions.
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