SECURITIES PERFECTION AND DEBT RECOVERY IN BANKING INDUSTRY (A CASE STUDY OF SKY BANK PLC NIGERIA)

1.0       INTRODUCTION

Bank plays important roles in the economic life of a country particularly a developing nation through the provision of banking services. As agent of development, they provide loans and advance including a variety of contingent facilities, which could either be short term or long terms. This explains why credit guidelines contained in government’s monetary circulars stipulate aggregate calling on credit creation as well as the sectoral allocation which bank and other financial institutions must comply with during a fiscal year.  

In recent time, bank have witnessed a phenomenal growth sin terms of loans in their portfolios a s a result of equity interest, which of federal government has in most bank and the need to finance industrial project in line with the nation’s rapid growth / industrialization.

Some of the facilities generally provided by bank include: short term finance medium term finance, long term finance, building / mortgage loans advance against produce etc.

When bank are providing these kinds of facilities and some other are exposed to some risks. Lending has some other are exposed to some risks. Lending has become a vital function in banking operations because of its direct effect on economic growth and business development.

In this paper, we shall consider lending policy and careful study and proper analysis of securities and how it’s been perfected.

Through a banker is expected too exercise consideration skill, use his experience and techniques in analyzing credit proposal and assessing the risks, it has been established from experience that unforeseen situation sometimes affect the borrowers ability to pay and his has led bankers to insure themselves in case the unexpected happens, by demanding some from security.

Securities and perfection are particularly relevant to our situation in this court. Where some customer showing are financial impedance resulting in overtrading, poor management, capability, loan morality in business affairs, conflicts of; objectives in corporate and lack of proper accountability in financial management.

Bad debts simply means loans or facilities granted to a customer but cannot be re-couple by the bank from the customer after all efforts has intensified. Bad debuts are emotive to banker whose stock in trade is money, view them with dread. There can never be an exhaustive and debts as they are as multifarious as there are diseases.

1.1       STATEMENT OF THE PROBLEM

In the years past, it has been observed that undocumented / unperfected loans accounted mainly of the collapse and hear-collapse of many banks both in Nigeria and broad (First Bank of Nigeria Bi-Journal review Vol 6 1998 December).

Thus in a savannah bank Nigeria plc and Anor Vs Ajilo and Anor 1969 help that the plain lift having failed to properly documented and perfected. The loan document and security could not enforce repayment against the defendant. The loan became irrecoverable. This case highlights the importance of security perfection and the cost that could arise therefore if it is left undone.

This write up focuses on documentation of loan agreement and its effects on bank and by extension the whole financial system.

1.2       OBJECTIVES OF THE STUDY

The main objective of this project is to appraise the effect securities per function and debt recovery in banking industry in Nigeria.

1.3       RESEARCH QUESTION

The research questions of this study were born out of the huge debts which come about as a result at bank inability to realize the security pledged due to poor credit documentation and perfection. The question therefore are:

1. 1. What are the affects of poor credit documentation on bank credits?

1. 1. What are the types of acceptable securities and documentation procedures for the purpose of lending?

1. 1. What are the various types of method adopted for debt recovery?

1. 1. What should bank do when they notice any sign credits becoming doubtful?

1.4       STATEMENT OF HYPOTHESIS

There are a lot agitation on the significance of good securities to bank lending prior to this write-up. Some bank customers complained that their bank deprived them from financial assistance in time of need for investment purpose due to their inability to procedure reasonable collaterals not minding their long standing good record with them.

In the same vein, bank have also in their bitter experiences in loan recovery argued their position even securities are taken for loan and advances.

What then are the cause of these incidents, is it loan documentation and repayment problem or are there any other salicut reasons.

The hypothesis is then to test that:

Ho:      That there is a relationship between poor credit documentation and defaults in loan repayment.

Hi:       That there is no relationship between poor credit documentation and defaults loan repayment.

1.5       DEFINITION OF TERMS

This section embraces a brief explanations on specific terms not of common usage that appeared in the body of this work such terms includes.

Credit: This term used for an amount of money granted by bank (lender) to a customer (Borrower) in from of loan and advance in order to finance capital                     

Perfection: This is the process of investigating the true owner of a security, its documentation and obtaining the governors consent (in case of legal mortgage).

Documentation: This is the term used in obtaining security in the legal from and the process of recording, perfecting and security.

Security: This terms denotes property pledge by a borrower as a means of guarantee for the credit grantee e.g lands, shares etc.

Default: This is a term sued when a borrower fails to fulfill his obligation or when he fails to repay the amount granted to him as credit.

Debenture: It denotes an instrument issued by a company or individual acknowledging the indebtedness of a specified (sum outstanding from time to time) and at a stated time with interest there of.

Stamping: This term is used as an evidentiary purpose on the mortgage created. The mortgage created should be stamped within 30 days of the execution.

Registration: It connotes the document created must be required in compliance with either case law or statute and is done at Corporate Affairs Commission within 90 days.

Insured: This terms is used by insurance company, which means, “Risk Against Loses”

Uberrimae Fidel: This is an insurance term, which explains that every information required must be given in utmost good faith.