DEBT RECOVERY TECHNIQUES IN THE BANKING SECTORS ISSUES, PROBLEMS AND PROSPECTS (A CASE STUDY OF UNION BANK NIG PLC)

CHAPTER ONE

1.       INTRODUCTION

       Actually, for every successful business, there must be a debt in the sense that one person or customer must own the owner of a business. Banks are not exempted from this, this due to the activities involved in their operations.

     Debts can be accrued as a result of bank over draft, frond and forgeries, borrowing and so on therefore banks recover these debts through the rules and regulations guiding the institution. The lender will explore all the available sources of repayment of the debt. The process of recovery is the cove of the management of bad debt as it is quite an unfriendly exercise carried out by the bank against a default customers to forcefully retrieve the banks money, in recovery of debt, there must be consideration of the security position of the bank, borrowers , ability to pay bank the use of debt collections recover by legal preceding and so on .

               Debt recovery can be described as responsible for the effective and economic planning and regulation of operations of an enterprise in fulfillment of a given purpose or task.

Failed bank recovery debt and financial malpractices defined debt recovery as a means of any loan, advances, credit, accommodation guarantees, or any other facility, together with the interest there on which outstanding and unpaid against a customers of a bank in favour of the bank.

In recovery of debt from the borrower or customers banks do encounter problem between the customers for inability to pay. Besides, improper documentation, credit concentration, poor supervision of the funds can or may consequently make the bank to be unable to meet its obligation.

1.1 BACKGROUND OF THE STUDY

The importance of banking in economic system singles out the industry for much heavier regulations than any other. Unlike many other economic activities, banking industry involves with statutory activities that governs it practice and it is constituted by laws. The current distress in banking sector has been widely acknowledge arising primary form non performing loans which have been traced to a number of factors such as poor management, loan policy concentration of credit, credit information emphasizes on income growth and unsound judgment, found and forgeries e.t.c.

Therefore, the federal government set up the Nigeria deposit insurance corporation (NDIC) to protect the customers which would have resulted to a problem towards their operation. The Nigeria deposit insurance corporation (NDIC) was establish by decree No 22 of 1988, the banking system has been singled out for this special protection because of the vital role bank play in an economy especially in the process of economic development.

The federal government by decree No 18 of 1994 establishes failed bank (recovery of debt) and financial malpractice tribunal which has the power to recover debt owed to failed bank.

Union Bank Plc formerly known as Barcklays bank was open in Lagos in 1917, the bank first office in Nigeria was located at the old mariner in Lagos other branches were opened in Jos and Port Harcourt.

In 1925, the bank was renamed Barcklays Bank Domino colonial and oversees and it became Barcklays Bank colonial and oversees in 1954.

In 1955, Barckey Bank Domino colonial and oversees was granted licenses in 1960, regional managers were appointed for the administration of the Eastern, Western and Northern Nigeria region. As a result of the development the bank was able to open over 50 additional branches between 1959 and 1970; in 1987 Union Bank of Nigeria has over 200 branches.

In the period of 1979, the performance of the bank was impressive because about 2500 staff voluntary retired under the Union Bank model of early retirement incentive package. The total staff strength has gone done to 8911 from the 1997 figure of almost 12.00

The gross, earning has grown from N13.8 billion which showed an increase of 33% over the 10.4 billion in 1997 profit before and after tax increased from N14billion and N1.2billion in 1997 to N2.1billion and N1.7billion in September 1998 indicating an increase of 38% and 43% respectively.

Total assets increased by 27% from N81billion in 1997 to N1200 billion in 1998 while total deposit stood at N77.2 billion in 1998 representing an increase of 30% over N59.3billion in 1997.

1.2 STATEMENT OF PROBLEM

Debt recovery in banks play a very important roles in strength and survival of commercial banks  in Nigeria. It has been established that while most debts are declared bad and unrecoverable by banks former boards and management, Officials of Central Bank of Nigeria (CBN) and Nigerian Deposit Insurance Corporation (NDIC) claimed that some of the debtors explained that the banks did not show serious commitment in recovering the debts, and that was why debtors were not keen in repaying.

Moreover, recent happenings has indicated that  a large portion of banks bad debts was incurrent through loans backed by director and top executives of the banks. Debts can be declared bad as a result of

1. Failure to pay outstanding financial obligations by otherwise financially “hearty” borrowers. This could be the result of fall in expectations, frustration of goals by unforeseen circumstances, faulty investment decisions or strategies, unexpected adverse policies.
2. Failure to pay by a borrower that is not in business or is otherwise insolvent.

1.3 OBJECTIVES OF THE STUDY 

(1) To identify debt recovery techniques in banking sector

(2) To indicate debts recovery techniques employed by banks

(3) To find out the problem of debts recovery in the banking sector

(4) To identify the prospect of debts recovery in the banking sector

(5) To find the recommendation and the improvement of debt recovery in the banking sector.

(6) The finding of prospect to re-structure the Nigeria banking sector.

1.4 SIGNIFICANCES OF THE STUDY

Is the current distress in the banking system as previous discussed, which calls for concerted effect of debt recovery in the banking industry.

The result of the study will help restore back loan advance portfolio. Ensure good banking system, ensure that loan and C.B.N creditor guideline is adhered to. The result of this study will provide means how fund borrowed by customers can be monitor to ensure that the funds are not diverted for other purpose.

1.5 LIMITATION OF THE STUDY

This is about the banking sector and its placed on the work of Nigeria deposit corporation (NDIC) which report with the case study of union bank plc.

The bank managers, staff and customer was interviewed to seek their opinion of ways debts recovery to other banks or financial institution.

Then, the identification problem would be those encountered during the depts recovery of debts and financial malpractice decree in bank will help looked to cover the scope of this work properly to certain problem and limitation encountered which also figure out major problems in the negative attitude of some staff and customers towards realizing useful information necessary for research. So before drawing my conclusion, I will state categoritically that the time period carried out for this study was duely a major limiting factor.

DEFINITION OF TERMS

Bad debt: Is described as bad debt which do not just emerge from the blues the usually reflect a logician metamorphrases from a doubtful stage before declared bad.

BANKING:

Section 61 of the bank and other financial institution decree No 25 of 1991 (BOFID) define banking business as the business of receiving deposits on current accounts saving accounts or owner similar accounts, paying or collecting cheque finance or such other business as governor may be published in the gazette, designate as banking business.

FINANCIAL DISTRESS:

E.C.Agene (92) define financial distress as a condition when the bank system as a whole has negative capital and current profit are insufficient to cover losses to such an extent that the banking sector is unable to generate internally positive capital for debt recovery as a means through techniques to bring problem or prospect to the banking sector.

1.6 REFERENCES TO THE STUDY

Van Hon James C. (1980) financial management and policy practice Hall Inc

Enllowed CLIRR Edition.

Nigeria deposit (1995) insurance corporation annual report and statement of account

Failed bank (1994), Recovery of debts and financial malpractices in bank.

Holy land C. (1994) the role of the continuation.

Bank anolified problem and prospect retail banker international.

Decree (1993) the press in promoting Nigeria at seminar on safely and soundness of Nigeria Banking system Abuja.

2.0 CHAPTER TWO

2.1 LITERATURE REVIEW

In this chapter we review the delinquency of the related literature how fraud and forgeries affects the banking system due to lack of adequate supervision of credit granted, loan policy, the role of regulating and supervising authorities, the judiciary and law enforcement agencies in the recovery of debt has causes loan delinquency which as a result of problem in many banks, is from the inefficiency of the board of management or wrong choice of personnel who instead of being committed to the progress of this institution are careless, self centered, and greedy. The credit officers and managers are not well trained for sound judgment in credit analysis when there is default from the customers, the funds may become irrecovable of debts due to lack of techniques to problem to salt out prospect to debt recovery in the banking industry, or system. Then, fraud and forgeries is one of the causes of loss for many Nigeria banks the inadequate accounting system which coupled with internal control system in many bank may lead to the loss of debts recovery and techniques on how to set solution for the problem associated with debts recovery for the prospect of defaulting banks or customer.

Also, in debt management, the quality of management cannot in any doubt make important differences in bank management. Poor bank management has resulted in the excessive risk taking by some banks in the past.

According to EBHODAGHE (1994), Banks were often at fault through excessive operating expenses, inadequate administration of loan, portfolios, an overlying aggressive growth policy to attack deposits, interest rate speculation coupled with other insurance of poor judgment that resulted in stress for the bank same on debts recovery.

On like the ownership structure political interference in the banks management dwell in international (especially in government of banks, which have contributed to the financial distress of most bank, some shareholder borrow from their banks more than the capital they put into their account for the start off through director related companion.

And that brought about the of the regulatory authorities concerned about the decreasing of bad debts in the bank because of its or that negative impact of such debts on the bank liquidity / capital adequacy and profitability. Almost the entire fund used by banks for loans to customers do resulted to debts due to the few factors mention above, for debts recovery of such the literature review has recorded problem associated and a way out.