THE IMPACT OF INFLATION ON LOAN REPAYMENT IN THE NIGERIA BANKING INDUSTRY

 ABSTRACT
In Nigeria, lending had become a vital function in banking operation because of its for the banks.

Bank lending has become a main source of income for the commercial banks: The repayment of principal with the interest agree on loan serves as the avenue on which a bank survive on. Therefore, there must be enough assurance that the bank lending will lead to the bank business growth in terms of increase in income

The need to determine the effect of inflation on loan repayment is to view the length at which money value is being depreciated and how the financial institution were able to regulate the interest at hand

We need to understand the margin at which the interest on loan is being disbursed out to customers and the effect of interest payable at the end of total duration of the payment looking at the inflation rate.

The profitability of the bank which emerges from the disbursement of loan could be affected if the inflation is not properly monitored.

Therefore the central bank of Nigeria, being a control tools to all the banks must enact and examine the inflation rate continuously so as to see, that the banks achieve their aim of profitability from the loan given so as to maintain its financial functions in the economy.

TABLE OF CONTENT
Title page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract v
Table of content vi

CHAPTER ONE
Introduction/ background to the study 1
State of the problem 2
Objective of the study 2
Signification of the study 3
Statement of the hypothesis 3
Research methodology 4
Scope and limitation of the study 4
Definition of terms. 5
References 6

CHAPTER TWO
2.0 Introduction to inflation 7
2.1 inflation and value of money 12
2.2 The principle of good lending 14
2.3 Loan Management 18
2.4 The role of the regulation supervisory authorities 19
2.5 Preventive Measures 19
2.6 Curative Measures 20
2.7 Causes of Loan Problems 21
2.8 Loan Grading System 21
2.9 Liquidity and Profitability 22
2.10 Liquidity and Solvency Ratio 24
References 26

CHAPTER THREE
Research methodology and questionnaire deign 27
Introduction 27
Determination of population 27
The population of the study 28
Selection of sample size 28
Research Techniques 29
Research Question and Hypothesis. 30
References 33

CHAPTER FOUR
4.0 Presentation and analysis of data 34
Introduction 34
Data Analysis 34
Data Interpretation 36
References 52

CHAPTER FIVE
Summary of research findings 53
Recommendations 56
Conclusion 57
Bibliography 59
CHAPTER ONE

INTRODUCTION AND BACKGROUND TO THE STUDY
In Nigeria, lending had become a vital function in banking operation because of it direct effect on banking growth. Infact, the bulk of the profit made by commercial banks is derived from loans. This is the basis of the economic functions of mobilizing and intermediating funds between the surplus economic unit and the deficit economic unit for which banks are well –known.

The principal objective of bank lending is to provide growth, profitability and liquidity for the bank. Therefore, for any lending application to be successful there must be enough assurance that it will lead to the bank business growth in terms of increased income

The determination of inflationary rate as an aspect of loan repayment is basically to set up an assumption in form of solution on interest rate payable on loan. Inflation depreciates the value of money in a way that such money is exchanged for a few goods. For this, we need to consider the interest margin at which the loan is given at a particular year and however, the interest payable at the end of total duration of payment watching the inflationary rate.

Okunnu in Principle and Practice of economics, says that “ in the economy as a whole, the effect inflation must be well studied purposely to know the rate of its effect, from there, government and financial industry can set a fiscal measure and monetary policy to control impact on the economies.

Central bank as the regulatory authority of the financial industry, it handles supervisory, and the ultimate control over other banks in order to bring the awareness of rate of inflation and adjustment needed to abide by in the banking industry.

1.1 STATEMENT OF THE PROBLEM
Paucity inflation on loan repayment does not only affect profitability but also results in production service interruption and inefficiencies. The problem normally encountered during the impact of inflation on loan repayment are:-
Depreciation of money value as the yearly repayment is affected
Determination of profit margin averaged
Credit disbursement is negative which automatically has an effect in business transaction.

1.2 OBJECTIVES OF THE STUDY
The scope objective is to make the banking system to really understand the impact of inflation on loan disbursement and repayment examining the interest rate percentage and the duration of payment

The central bank being a financial tools to other advocate orderliness and control of inflation in the financial system
The bank must be well organize, making sure that profit aimed must be achieved. Loan policy must be review as the need to be evaluate /banking standard.

1.3 SIGNIFICANCE OF THE STUDY
This study is aimed at unwilling the practical importance of loan repayment management in a banking. Also to give the played by loan in improving the economic standard of the populace and development of the economy as a whole. It shows how loan repayment is a thing of importance to the banks and the depositors. It also center on the need for proper loan repayment viewing the impact of inflation on the overall business of the financial institutions i.e. banks and also give assistance to finance manager and those concerned with related responsibilities on the need for proper loan repayment management.

STATEMENT OF THE HYPOTHESIS
The hypothesis which are to be tested:
  1. ALTERNATIVE HYPOTHESIS (HI): The impact of inflation has no significant relationship with the profitability of a bank.
  2. Null HYPOTHESIS (HO): Loan repayment is a good indicator of profitability and bank gross lending.

ALTERNATIVE HYPOTHESIS (Hi) Loan repayment is not a good indicator of profitability and banking gross earnings.

The Null hypothesis state that there is no direct relationship between the two variables. The alternative hypothesis state that individual explanatory variable must be significantly high before it can be sufficiently accept.

RESEARCH METHODOLOGY
The research of data are mainly primary and secondary sources and this depends on first bank of Nigeria plc. Annual report and its statement of account for the period of 2000-2004, as we have the yearly circular of monetary policy and credit guidelines policy.
The examination of various literatures will be considered to test for validity and reliability.
The statically technique for data analysis will also be employed
SCOPE AND LIMITATION OF THE STUDY
the scope of this study covers the basic activities in the financial system targeting the finance department, we need to bring into focus the general banking cash inflow and outflow, viewing the loan disbursement and repayment and the scope of limitation as it affect the banking system.

The study will cover the following;
  • Loan granting
  • Interest evaluation
  • Inflation percentage
  • Loan repayment
  • CBN regulation on loan
  • And inflation
  • Banks regulation and review.

Data collection will be basically on primary and secondary interview and bank financial annual report
The limitation of the study covers the first bank of Nigeria. All financial activities and banks policies will be make use as in carryout the research .

DEFINITION OF TERMS
INFLATION: according to S.I Fashoro, say inflation is generally: defined s increase in the level of price sustained over a long period of time” it is a situation where increasing supply of money is not matched by the supply of goods and series”

INVESTMENT DECISION: investment is a decision to allocation capital (money) or commitment of fund to a project with the motive of expecting series of benefits in future. It can be defined as the use of money capital for the acquisition of capital goods i.e. creation of wealth by converting liquid resource.
LENDING: Bank lending can be refers to as process in which licensed financial intermediaries carryout there activities by taking money in form of deposit from the credit surplus unit (CSUs) and given it inform of loan to the credit deficit units (CDUs) changing interest and other bank charges.

BANKS: Banking business is defined as the business of receiving deposit on current account, savings account and time fixed account and here other valuable goods is being kept.

DLONA REPAYMENT: This formed the primary security of a banker. The ability of a borrower to repay the loan within the agreed period the principal and interest are up to date in accordance with the agreed repayment terms.

REFERENCES
1. Fashoro S.I (1996) Advanced Economic Banambol limited
2. Okunnu M.A (1999) Monetary Economics, Edal Nig. Plc
3. Odufuye M. B. (1998) Securities for bank lending, Kenadeb publishers
4. Omolumo M. I.(1993) Practices of the bank Management, Lagos Omomlumo consult
5. Pandy F. (1991) Business and corporate Finance, bosto allyn and bacon incorporation
6. Hill M. (1987) Management accounting RMC ALLEN PUBLISHED.



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