CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Lending is one of the core functions of a bank. Banks extend credit to customers as loans, overdrafts and advances, and the total of these facilities makes up the bank's credit portfolio. For the borrower, each facility is a liability: interest and principal must be repaid when they fall due. For the bank, it is the main source of income.

A persistent problem in lending is that some borrowers do not repay as agreed. This creates credit risk, the possibility that a borrower will fail to meet the terms of a loan, and it threatens banks, shareholders and the wider financial system. Abubakar et al. (2025) describe credit risk as a lasting challenge for Nigerian deposit money banks, driven by a high rate of loan defaults and, in some cases, weak capital adequacy. They also note that poor credit risk management has contributed to bank distress because unrecovered loans squeeze a bank's cash flow. Weak credit performance can therefore reduce earnings, erode capital and, in severe cases, threaten a bank's survival.

Performance data reflect these pressures. Abubakar et al. (2025), drawing on Central Bank of Nigeria figures, report that the average return on assets of Nigerian deposit money banks fell from 2.53% in 2023 to 2.17% in 2024. Banks therefore need credit management techniques that are effective and efficient if they are to remain profitable and stable.

Research on the link between credit management and bank performance in Nigeria has produced mixed results. Some studies find that weak credit risk indicators, such as high non-performing loans and heavy provisioning, reduce performance (AbdulAzeez, 2025). Others find that particular elements of credit policy matter more than others. Kwabe (2025), for example, found that credit terms and credit control procedures significantly improve debt recovery among Nigerian commercial banks, whereas collateral requirements and credit assessment procedures were negatively related to recovery in his sample. These differences suggest that how a bank designs and applies its credit procedures is as important as whether it has them.

The researcher's own observation over the years is that some banks continue to perform well despite the credit problems facing the industry, which suggests that they apply more effective credit management techniques. United Bank for Africa (UBA) is one such bank. It is therefore worthwhile to appraise its credit management techniques, identify the factors behind its strength and recommend them to other banks. This study accordingly focuses on the credit management techniques of UBA, Gboko Branch, chosen because of the bank's observed performance and stability.

1.2 Statement of the Problem

Granting loans and advances is one of the principal functions of a bank. These loans are a leading source of income and are central to the bank's profitability and its objective of maximising shareholders' wealth.

However, a significant share of the loans a bank grants is not always repaid on time, and some become bad debts that cannot be recovered. The consequences include:

1. higher write-offs of bad debts, which weaken profitability and shareholders' wealth;
2. deterioration in the quality of the bank's risk assets; and
3. a gradual loss of customers' confidence in the bank.

These effects are consistent with recent Nigerian evidence that loan defaults and weak credit administration undermine bank performance (Abubakar et al., 2025; AbdulAzeez, 2025). For improved performance, banks need credit management techniques that are both effective and efficient. By the researcher's observation, UBA performs better than many other banks, and this prompted the present study, which seeks to identify the credit management techniques the bank uses so that they can be recommended to others.

1.3 Research Objectives

The general objective of the study is to appraise the credit management techniques of UBA, Gboko Branch. The specific objectives are to:

1. identify the credit management techniques adopted by UBA, Gboko;
2. trace the trend of loans and advances granted by UBA, Gboko from 2007 to 2011;
3. determine the influence of credit management techniques on the performance of the bank; and
4. identify the difficulties associated with the credit management techniques adopted by UBA, Gboko.

1.4 Research Questions

The study seeks answers to the following questions:

1. What credit management techniques are adopted by UBA, Gboko?
2. What is the trend of loans and advances granted by UBA, Gboko from 2007 to 2011?
3. What is the influence of credit management techniques on the performance of UBA, Gboko?
4. What difficulties are associated with the credit management techniques employed by UBA, Gboko?
5. What credit management techniques and strategies could be recommended to other banks?

1.5 Research Hypotheses

The following hypotheses were formulated and tested:

1. H01: There is no significant relationship between credit management techniques and the volume of deposits mobilised by UBA, Gboko. H1: There is a significant relationship between credit management techniques and the volume of deposits mobilised by UBA, Gboko.
2. H02: There is no significant relationship between the credit management techniques adopted by UBA, Gboko and the volume of loans and advances granted to its customers. H2: There is a significant relationship between the credit management techniques adopted by UBA, Gboko and the volume of loans and advances granted to its customers.
3. H03: There is no significant relationship between credit management techniques and the level of profit made by UBA, Gboko from 2007 to 2011. H3: There is a significant relationship between credit management techniques and the level of profit made by UBA, Gboko from 2007 to 2011.

1.6 Significance of the Study

The study is significant in several ways. First, it can supply information and inputs that other banks may use to improve the efficiency of their debt management. Second, it can generate strategies for reducing credit risk and bad debts in the Nigerian banking sector. Third, it adds to the stock of secondary data available for further research on this and related topics. Finally, it deepens the researcher's understanding of credit management techniques and their importance for bank performance and for the Nigerian financial system as a whole.

1.7 Scope and Limitations of the Study

Credit management covers a wide field: building customer relationships and confidence, appraising loan applications, approving and disbursing loans, supervising loans after disbursement, recovering debts and managing bad debts. Doing these well requires reliable information about each customer, including business or employment activity, other sources of income, spending habits, assets, business and residential locations, and banking history with other banks. Information management and support are therefore vital, and this study covers all of these aspects.

Data were collected by questionnaire from staff of the UBA branches in Gboko metropolis. The period covered is five years, from 2007 to 2011. Some of the information required was confidential and could not be obtained from the bank as original documents, so respondents had to give estimates based on their experience at the bank. To improve validity and reliability, the responses were cross-checked.

1.8 Research Assumptions

The study rests on the following assumptions:

1. Respondents have adequate knowledge of credit management and the techniques used to manage it.
2. Respondents were independent and unbiased in the information they supplied.
3. The information obtained reflects the actual debt management activities and situation at the bank.
4. The variables studied remained constant throughout the study period, since variations could invalidate the findings.

1.9 Organisation of the Study

The study is organised into five chapters. Chapter One is the introduction, covering the background, statement of the problem, objectives, research questions, hypotheses, significance, scope and limitations, assumptions, organisation of the study and definition of terms. Chapter Two reviews related literature under relevant sub-topics. Chapter Three describes the research methodology. Chapter Four presents, analyses and interprets the data. Chapter Five summarises the work, draws conclusions and makes recommendations.

1.10 Definition of Terms

Liabilities: Debts that a person or organisation owes and must settle in future; obligations that will require an outflow of cash or other resources.

Asset portfolio: The combination of different assets or investments held by an individual or institution.

Bank risk: The risk associated with a bank's activities, including its lending activities.

Credit risk: The possibility that a borrower will fail to repay a loan or meet the agreed terms.

Non-performing loan: A loan on which the borrower has failed to make scheduled payments for a specified period, so that the loan is classified as in default (Abubakar et al., 2025).

Financial institution: A firm that supplies basic financial services to the community.

Surplus economic unit: A lender with more funds than it needs, which can lend the surplus.

Interest rate: The charge for borrowing money, expressed as a percentage of the amount borrowed for a stated period.

Bank performance: The extent to which a bank achieves its objectives, whether private performance (maximising the firm's long-term profit) or social performance (maximising the welfare of society).

Financial instruments: Financial assets that are traded in the financial system.

REFERENCES

AbdulAzeez, F. O. (2025). Credit risk management and financial performance of listed deposit money banks in Nigeria. Federal University Oye-Ekiti institutional repository. https://repository.fuo.edu.ng/items/79d8179f-d21e-41dc-8985-b8075e404d12/full

Abubakar, N., Hamza, H. D., & Ibrahim, U. Y. (2025). Effect of credit risk management on financial performance of listed deposit money banks in Nigeria. Kashere Journal of Management Sciences, 8(2), 82–95.

Kwabe, J. A. (2025). Moderating influence of loan monitoring on the relationship between credit policy and debt recovery of some selected commercial banks in Nigeria. ADSU International Journal of Applied Economics, Finance and Management, 10(2). https://ajaefm.adsu.edu.ng/index.php/journals/article/view/179