Post-Reform Appraisal Of Commercial Bank Investment And Lending Activities

INTRODUCTION
1.1 BACKGROUND OF STUDY
Reform which refers to making changes for improvement in order to remove abuse and injustices in the banking industry. Reform is what that brings, lead or force banking industries to abandon a wrong or evil course of life, conduct and adopt a right one. According to Wikipedia
Reform resulted from the appraisal of the financial environment. Due to the changing characteristics in the banking industry, there was a need for banks to resort to consolidation to meet the new capital requirement by CBN for bank to operate.
The increase in the capital base (paid up share capital) from N5 billion to 25 billion naira, left an option from some commercial bank to consolidate in other to meet up the requirements. The number of banks decreased from 89 banks to 24 banks due to consolidation as the only option left from those banks without the need of financial muscle to meet N25billion new capital base requirements. OJIUKO and NGWU (2004; 89)
However, banking all over the world has a fundamental nature which is risk and intermediation between the surplus and deficit unit of the economy. Its main business is maturity transformation which is defined as borrowing long and length short, which is a cardinal rule of financial management. This enable meet her financial obligation as the fall due or as the manage their affairs prudently. KANU and OKEZIE (2005; 116)
Management of their affairs is centrally based on management of their lending and investment activities to ensure liquidity and maximized profit. Lending is the highest earning asset bank balance sheets that contribute materially to the bank achievement and fulfilment of the objective of profitability by providing a higher return than other financial assets.
It also helps management to satisfy the legal and other regulatory objectives of monitory authorities. It is a vehicle through which banks management attempt to satisfy the credit needs of the community in which they operate or serve. NWANKWO (1990:112)
Lending activities although being the highest earning to the bank is also the illiquid and most risky of bank operations.
Apart from this, lending is an important aspect of banking and of the cardinal principles of classical banking is to ensure effective lending, which is to maximize profitability and ensure adequate liquidity.
However, the bankers view runs contrary to the demand of a developing environment which demands that bank lending objective should in cooperate contributions to the development of the environment in which they operate. That is, operating as a co-operate citizen.
This dilemma facing banking activities in developing economy like ours, needs to be resolved to ensure a conducive environment for the banking operations as well as to avoid crises. KANU (2003:2)
In addition to other segments of bank activities they invest in all forms of government, private and co-operate securities so as to increase the level of economic activities in a given economy and to increase their profit.
Without doubt, banks have as their objective the desire to survive, to make profit and to grow. Banks invests for the following reasons: for survival, growth, make profit or receive return and to increase the market value of their shares. In attempt to achieve this objective, the bank has to manage its lending and investment activities well to have adequate at hand to meet the withdrawal need of her depositors, contribute to the development of the environment in which the operate and as well make profit to their owners. KANU (2003:2)

1.2 STATEMENT OF THE PROBLEM
Banking lending and investment activities intend to enhance the development of the economy especially in a developing nation like Nigeria) and also achieve a trade of between liquidity and profitability. This objective can only be realized if the loan and investment portfolio are effectively and efficiently managed.
But the problem is – can credit management in our commercial banks actually safeguard the banking system in Nigeria against distress and protect the interest of depositors?
How best can they access their customers to guard against the result of default in repayment of loans and advances?
Have banks been able to reconcile the dual conflicting objectives (liquidity and profitability objective) through credit and investment management?

1.3 OBJECTIVES OF THE STUDY
Commercial banks promote economic growth and development through their lending and investment activities.
This study intends to review the extent to which the Nigerian Commercial banks have contributed to the economic growth through lending and investment.
To ascertain how effective their lending activities has been in regards to reconciling the dual objective.
To investigate the lending procedure of Afrik Bank and Diamond Bank and then identify the nature of investment they undertake.
To review the extent to which deposit nature affects lending activities in Diamond and Afrik Bank.
To ascertain the effect of monetary policy on banks’ lending ability.

1.4 RESEARCH QUESTIONS
1. Does Afrik bank and Diamond bank grant loan?
2. Which sector of the economy is mostly favoured with the loan granted?
3. What factors influence your bank mode of advancing loan to customers?
4. Does deposit nature and position affect your bank investment and lending activities?
5. Does change in monetary policies affect investment and lending activities of your bank?

1.5 STATEMENT OF HYPOTHESIS
HA: There is a significant relationship between the level of deposits lending and profitability.
HA: Changes in monetary policies leads to change in investment and lending activities of commercial banks.

1.6 SIGNIFICANCE OF THE STUDY
It is hoped that when this study is completed, the findings and results from it will add to the existing stock of knowledge on the subject matter. It will also help borrowers to understand the effect of overdraft and the interest charge, commitments fee, appraisal fees, prime rate etc on loan accounts.
The study will be available for those who will be future researchers and most importantly, in partial fulfilment for the award of the Higher National Diploma (HND) in banking and finance.

1.7 SCOPE OF THE STUDY
This study research will cover or concern the lending activities of Afrik Bank and Diamond bank and the influence of Central Bank of Nigeria Monetary Policy On their lending activities.
It will grow further to ascertain the effects and nature of deposits and level of withdrawal on lending and investment activities of Afrik bank and Diamond Bank.

1.8 LIMITATIONS OF THE STUDY
In the course of carrying out the research, I was faced with the time constraint. Insufficient money was also a limiting factor. Difficulty in assessing, the banks summary and having access to the banks information required of the work was also a hindrance to the completion of this project. These and other economic factors beyond my control limited my study.

1.9 DEFINITION OF TERMS
1. DUAL CONFLICTING OBJECTIVE– These refers to two objectives of an organization that varies to each other’s expectations on a compromise grounds. For this work, this work refers to “profitability and liquidity objectives” of the bank.
2. INVESTMENT-This is the commitment of financial resources in acquisition of asset with the expectation of future benefits.
3. LENDING-This is the transfer of resources of the bank to various economic units of the economy through loan, overdraft, discounting of trade bills etc.
4. NATURE OF DEPOSITS– This refers to the structure of deposits which include demand deposits that is unstable, savings and time deposits that is more stable than demand deposits.
5. COMMERCIAL BANKS-Are financial institutes established by law to perform some functions which includes: deposits acceptance, agency service, executorships functions, developmental functions, fund lending and transfer etc.
6. REFORM-This is the improvement of amendment of what is wrong corrupt, unsactisfactory and conduct. It is a change for the better
7. SECURITY-It is the right or interest in property which is given to a leader creditor (creditor) by the borrower for the purpose of providing cushion on which the leader fall back on in case the borrower default is required
8. MERGE– this implies a combination or fusion of two or more formally independent bank into an organisation (bank) with common ownership and management.
9. ACQUISATION– This is the act of getting possession of an organisation by which the ownership and management of the independent operate properties and businesses are brought under the control of a single management.
10. CARMEL PARAMMETER This is a measure introduced by (CBN) to secure blank capital base. It is a measure to strengthen and give qualities to bank for them to have secure capital base. This fall meaning of camel include: capital, adequacy, asset, management, earning and liquidity
11. COLLATERAL– This is a secondary method of repayment which only pay a roll on the occurrence of unexpected in the condition of the ban
12. CREDIT-this is a loan of money given to a borrower on an agreement credit term and its maturity period varies
13. DEPOSIT– this is the is a transaction involving a transfer of fund to another part for safe keeping
14 DEPOSIT ACCOUNT-This is a savings account in which the deposit is held for a fixed term or in which withdrawal can be mad after giving notice or with loss of interest