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THE IMPACT
OF DEBT MANAGEMENT ON THE PROFITABILITY OF THE BANKING INDUSTRY
ABSTRACT
The impact
of debt management of profitability of the banking sector partially zenith
bank. The debt management function of bank not only extended with credit
function of meet the credit of individual, organization and communities in area
of its operation. But also that it tries to earn return that will increase
their wealth of its stakeholder by advancing credit to it customer. This study
shall take into the impact of debit management on the banking profitability.
The study is an application of questionnaires to capture variable of the impact
to the study. The questionnaire is further breakdown into primary source of
data collection and secondary source of data collection. Method of data
analysis, the data collection will analyze by sampling percentage method. The
sampling revealed that inefficient debt management, poor financial analysis,
unfavourable economic and the causes of debt management on the profitability of
the banking sector particularly zenith bank. If the debt is properly managed
the tendency is losing of profit by they will institution will be critically
reduced. It is the hope that they will improve the credit management not only
in zenith bank of Nigeria plc. Also in the whole banking industry of Nigeria.
CHAPTER ONE
1.0 INTRODUCTION
It is that
banks never make bad loan at least they are bad when they are made. However
banks find out that invariably a small portion of their loans become bad and
doubtful and eventually must be written off.
This basic
risk of lending function is not entirely bad; bank would be demise in not
bearing such rick in the course of underwriting a variety of business
enterprise and customer needs. When a bank does not experience at least a few
loan losses, this is likely to be a sign that the bank is passing up
profitability opportunity. Never the less well managed banks should do all they
can to minimize loans losses which all deduce their profitability.
Banks
conduct loan review to reduce losses and monitor loan quality. Loan review
consists of periodic audit of the ongoing performance of some or all of the
active loans in the bank’s portfolio.
The safety
of any loan or advance is of importance and paramount of the bank, banks by
emphasis on the character (honest), integrity and reliability of borrowers. The
company (borrowers) as a profit oriented outfits; banks expect their facilities
to yield level of profit which to declare to the shareholders who own the bank.
Therefore,
the quality of debt management should be impresses upon.
1.1 BACKGROUND OF THE STUDY
The effect
of credit risk management: it is said that banks
Never made
bad loan; based on this research been conducted it was discovered that most of
the problem facing Zenith Bank Nigeria plc Lokoja branch, even in many banking
sector among other includes job satisfaction. It seems like the banking
industry is becoming Nigeria most frustrating sector based on this finding.
We come in
contract with bankers who are full of woes about their jobs, their responses
are not farfetched rather then I’m just doing this job to pay the bill, I went
for an interview yesterday.
Because I
want to change this job. I don’t even mind the take home pay etc.
One of the
problems from the warehouse include capitalist without a good knowledge of
information technology and with a good knowledge of Nigeria economy manage the
banking sector. Zenith bank of Nigeria plc in particular why manage information
technology sake and not for the return of investment.
Therefore so
much money goes for unnecessary InfoTech. Banking sector has been fined by
unpaid loans and therefore lay off workers to recoup some credits from within.
More money would have been made by properly managing loan form investment and
generating enough return to set up the salaries of bank workers. Consequently,
management of Nigeria financial institutions are faced with tremendous
challenges and should brace up most of these factor that rise to this problem
include credit risk and performance of Nigeria banks. This study evaluates the
impact of credit risk on the profitability of Nigeria banks. This significantly
contribute to financial distress in the banking sector majorly course the
problem of banking sector continues to be directly related to high level of
debtors regarding loans. However, banks find out that invariable, a small
portion of their loans becomes bad and doubtful and eventually bad; banks would
be remiss in not bearing risk.
When a bank
does not experience at least a few loan losses, this is likely to be a sign
that the bank is passing up profitability opportunities nevertheless well
manage banks should do all they can to minimize loan losses which will reduce
their profitability. Bank conduct loan review to reduce losses and monitor loan
quality loans review consist of periodic audit of the going performance of some
or all of the active loans in the bank’s portfolio. On 26th January, 2010 an
analysis of the challenges faced by bank move on base regulating bank. The
structure of Nigeria banking sector.
The basic
risk in the course of under writing a variety of business enterprise and
consumer needs when a bank does not experience at least a few loan losses this
is likely to be a sign that the banks
should do all they can to minimize loan losses which will reduce their
profitability.
1.2 STATEMENT OF THE PROBLEM
The problem
that lead to credit default, how loans turn out bad are taking into
consideration and its effect or impact of profitability and financial statement
of banking industry. With which zenith bank of Nigeria plc branch is
particularly considered.
Problem of
banking sector in Nigeria is credit risk and the performance of Nigeria
banking. This problem evaluate on the impact of credit risk on the
profitability of Nigeria banks. However in banking sector most of the banks are
not medically sound to discharge effective service that could have justify the
creation and the profitability of the banking industry. Finally mismanagement
of found in another crucial problem faced by banking sector in Nigeria
especially zenith bank of Nigeria.
It is a
result of this that the researchers decided to conduct a research on this topic
in order to improve the service toward Building a viable service to our dear
people Nigeria especially the people of Kogi state in particular.
1.3
OBJECTIVES OF THE STUDY
To appraise
the impact of debt management on profitability
To x-ray
process of interviewing prospective lender
To advice
lending institution [banks] to adhere to legal provision
To encourage
the credit manager to study the business of the borrowers structurally and its
nature.
To emphasise
the need for credit managers to be well trained
1.4 SIGNIFICANCE OF THE STUDY
This
research work will been a good benefit to all financial institution that offer
credit facilities to its customers particularly zenith bank of Nigeria plc
Lokoja branch, it will also be highlighting various form of collateral
securities and other method of recovering back the principle as well as the
interest.
It will also
assist fellow students and researchers who may want to use the research work as
a reference point.
The
researcher aim is to identify facts about the Impact of debt management on the
profitability of the banking industry, a case study of Zenith Bank Nigeria Plc
Lokoja Branch.
The
researcher will also suggest possible solution to the problem. The solution if
taken serious will go a long way in improving the impact of debt management in
zenith bank plc Lokoja branch could be used as a model for other zenith bank
branch that facing similar problems.
The
significance of the study is to help debt management toward areas that need
re-organization in order to enhance the performance of effective realization of
the management goals or objective.
The study is
going to help in identify the reason behind why some creditors are more
effective and why some are lacking behind.
1.5 RESEARCH QUESTIONS
These are
question which the researchers intend to find answer to.
The question
emanated from the topic of the problem which is to be investigated by the
researchers.
Does debit
management gain the amount of money that is lend To organization
How long
will loan last in the hand of borrowers?
Does proper
interview of customer protect the image of the banking industry?
What is
course of irrecoverable debt?
Does bad
debt affect the profitability of a banking industry?
What are the
causes of improper security of banking industry?
What are the
reasons why banks lend money to customers?
What are the
reasons why banks grant credit to customers?
1.6 RESEARH HYPOTHESIS
Hi: Debt
management has significant impact on the profitability of cooperative finance
banking industry.
H0: Debt
management has no significant impact on the profitability of cooperative
finance banking industry
1.7 SCOPE OF THE STUDY
This
research work is designed to cover the credit aspect of banking industry various credit facilities offered
by bank method of recovering debt and the measure to employ as curative and
preventive to credit default.
1.8 LIMITATION OF THE STUDY
Despite the
assurance given to the researcher by the debt recovery department of zenith
bank of Nigeria Plc Lokoja branch on information of bad debt the researcher was
unable to lay hand on some vital or useful documents and information which are
often labeled secret and confidential however the researcher had made effort to
ensure that relevant information were obtained for the successful completion of
this research work. More so respondent were not very cooperative as none of the
willingly accepted the questionnaire in fact most of them spent between two and
three days to compete it and each time the researcher appealed then it was one
complain of the other such as I am preparing my branch account for conclusion
in the annual report, I have a lot of file to clear, I am too busy, I have a
meeting to another and several forms of complains.
1.9 DEFINITION OF RELEVANT TERMS
By relevant
terms, the researcher mean technical language used or employed in the conduct
or writing of the project which may be misconstrued or misinterpreted this
going another meaning of the original intention of the researcher such key
terms used in the research proposal can be defined as follow:
Banking:
According to Rajesh Goyal (2011) banking is activity of accepting and safe
guarding money owned by other individuals and entities and then lending out
money in order to a profit.
DEBT:
Business dictionary defined debt as a duty or obligation to pay money, deliver
goods or render services under an express or implied agreement ones who owners
is a debtor, one to whom it is owned is a debt, creditor or lender.
INDUSTRY:
Chaise (2009) defined industry as a good of manufacturers of business that
produces a particular kind of goods and services. It can also be sees as a
segment of the economy involving the manufacturing and transportation of goods.
IMPACT:
Murray (1928) sees impact as the action of the object coming forcibly into
contact with another.
MANAGEMENT:
Koontz and Weihrich (2003) see management as “the process of designing and
maintaining an environment in which individual working together in group,
efficiently accomplish selected aims”
PROFITABILITY:
Michael Harris (2008) sees profitability as the ability of a business to earn a
profit. A profit in what is left of the revenue a business generates after it
pay all expenses directly related to the generation of the revenue such as
producing and other expenses related to the conduct of the business activities.
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