How Credit Negotiation Impacts on Debt Recovery in the Banking Sector (a Case Study of Jaiz Bank Nig Plc)
OBJECTIVE OF THE STUDY
The objective of the study is to investigate how credit negotiation impacts on debt recovery in Jaiz Bank Nigeria PLC. The specific objectives are;
- To ascertain the impact of insolvency on debt recovery in Jaiz Bank Nig PLC
- To ascertain the impact of bankruptcy on debt recovery in Jaiz Bank Nig PLC
- To examine the impact of receivership on debt recovery in Jaiz Bank Nig PLC
REVIEW OF RELATED LITERATURE
This chapter presents the review of literature based on the following sub-heading; theoretical review, conceptual review and empirical framework.
This section presents the review based on using the following theories; customer- supplier relationship theory, the expected utility theory and value based portfolio theory.
Customer-Supplier Relationship Theory
The Customer-Supplier Relationship theory was proposed by. The customer-supplier relationship theory holds that there are costs and benefits that accrue to both the lender and the borrower in their relationship created by the debt recovery techniques. The four types of costs in the debtor-creditor relationship range from presale, production, distribution and post-sale service costs. According to theory main benefits include customer economics, power, the nature of the decision-making unit and the institutional link between the creditor and the debtor. Therefore, depending on the quantity of interest charged on the loan there is always a wide range of profit margins that would accrue to the creditor if the debt is fully repaid and also accrue to the debtor if they fail to pay on the debt repayment. The proponents of this theory use a portfolio approach to analyze customer-supplier relationships and use it to recommend a classification matrix. This theory thus implies that debt recovery techniques is a significant aspect of the performance of financial institution whereby debt repayment is a matter of association between the creditor and debtor and the continuation of mutual interests in terms of gains for both parties.
The Expected Utility Theory
The expected utility theory was proposed by. The expected utility theory is supported on logical explanations related in social and human psychology. It contends that individuals have limited information processing capabilities, that exhibit systematic bias in processing information. They therefore hold that behaviors like default on debt repayment are motivated by risk aversion with an expected utility of unwarranted gains through earnings from the unpaid debts. However, this theory is not plausible since it fails to provide a reason behind the default decisions made under uncertainty like business failures, loss of employment and accidents. Collecting reliable information from potential borrowers becomes significant in achieving effective screening in debt recovery techniques that are used to enhance performance of financial institutions as suggested by the expected utility theory. The trend has assumed a reduction over the years, the amount of debts is still high and requires further relook so as to increase the performance of financial institutions. Compared to other banks in other towns, financial institutions town debt portfolio has been reasonably small yet it has managed to tame the loan defaulters by having an efficient debt recovery technique. This theory postulates that in the presence of risky outcomes, a lender makes use of the expected value criterion to ensure their debtrecovery. Some people would be averse to risk enough preferring the sure thing, although it has a less expected value, while the less risk averse customer would choose the risk and higher mean lender.
This chapter examines the various methods and procedures that will be adopted in carrying out this study. These include the following: design of the Study, area of the study population of the Study, sample and sampling techniques, instrumentation, validation of the instrument, reliability of the instrument, method of data collection, method of data analysis and decision rule.
Design of the Study
The study adopted a descriptive survey research design in which questionnaire and other form of instrument for data collection was considered appropriate for data collection. This design was considered suitable for the study because of its ability to describe the behavior of a given group of people. The design of the study was suitable because it assist the researcher in getting responses on the influence of credit negotiation on debt recovery in the banking sector. Therefore, information concerning credit negotiations such as bankruptcy, insolvency and receivership. This was used to ascertain how it influences loan recovery in JAIZ bank.
Population of the Study
The population of the study consist all bank employees and customers of JAIZ bank in Lagos and Abuja. According to records there are 280 staff of which only 130 are available in branches in Lagos state, while 150 are available in Abuja. The study makes used of 534 customers of the bank giving a total of 1014 respondent for the study
RESULTS AND DISCUSSION OF FINDINGS
This chapter presents the result and discussion of findings based on the following; answer to research question, test of hypotheses and discussion of findings.
This section presents the result of research questions and hypotheses used in the study. It started by answering the research questions and testing for the research hypotheses as follows
SUMMARY, CONCLUSION AND RECOMMENDATIONS
The study investigated the impact of credit negotiation on debt recovery in the banking sector (a case study of Jaiz bank Nig Plc). Three purposes, research questions and hypotheses were raised to guide the study. A descriptive research design was adopted for the study. The population of the study consists 1014 while a total sample of 323 was selected using a purposive sampling techniques. An instrument entitled Credit Negotiation and Debt Recovery in Bank Questionaire CNDRBQ) was developed for data collection. The validity of the instrument was done by expert and the reliability was measured using Cronbach Alpha reliability technique. a reliability coefficient of 0.72 proved the instrument useful and reliable for the study. Mean and standard deviation were used in answering research question and t-test was used in testing the hypotheses. The result of the findings indicates that is a there is significant impact of bankruptcy on debt recovery in Jaiz Bank Nig PLC, there is significant impact of bankruptcy on debt recovery in JAIZ Bank Nig PLC, there is a significant impact of receivership on debt recovery in JAIZ bank Nigeria. The study recommended that borrowers should be adequately informed of penalties for loan default because, for any bank to survive it must have a sound credit policy that enables it achieve profitability
Credit management strategies are the plans of actions designed to ensure appropriate granting and controlling of trade credit. It would enhance receivable collection from trade debtors using suitable measures that would lead to increased sales volume, total revenue, and reduction in financial risks. The objective of this study is to explore the effect of credit management strategies on liquidity and profitability. This was measured by evaluating the impact of credit risk assessment strategy on the customers’ ability to pay, the effect of debt recovery strategy on the level of bad debt; and credit collection strategy on the level cash inflow. Related literature reviewed showed that credit sales and associated financial risks had become a threat to banking sector. This issue has negatively affected the banks’ liquidity and profitability through poor receivable collections and the resulting bad debts, which have a chain of effect on the economy.
The study recommends that, JAIZ bank ought to formulate and implement strategies that can enhance more efficient and cost-effective recovery of loans.
Implication of the Findings
The policy implication drawn from the outcomes of this study is as follows:
- Credit risk assessment strategy has a significant impact on the customer’s ability to pay. The organizations in this industry need to have effective credit terms and proper risk assessment strategy by setting a credit period, evaluate the degree of the durability of collateral presented as security before credit is granted, offer rebates to speed-up the receivables collections, and raise an invoice as a credit instrument for transaction proof. To assess customer information and avoid risk, the controller should evaluate financial statements of customers and ascertain their creditworthiness.
- Debt recovery strategy has a significant influence on the company’s level of bad debt. A debt recovery plans should be designed and implemented to aid recovery of debt, especially the overdue emanating from credit sales to customers. This would help the firms to maximize receivable collections and reduce bad debts loss.
- Receivable collection strategy has a significant effect on cash inflow. The company should adopt a stringent credit collection method instead of a lenient policy. A collection period should be stipulated, and age analysis should be produced at the agreed interval to assist in the collection effort. Supplies should be stopped on overdue accounts.
- Banking sector in Nigeria should pay close attention to receivables and liquidity. This effort is likely to influence the company bottom-line when adequately managed.
Contribution to knowledge
This Contributed to the body of knowledge and suggestion for future research This study contributed to the body of knowledge conceptually by defining of credit management strategies, also theoretically by confirming the relevance of trade credit theories of financing advantage and transactions costs in the quoted chemical and paint manufacturing firms in Nigeria. Finally, the study contributed to literature based on the empirical evidence produced from the data analysis.
Suggestions for Further Study
The following suggestion were made for further study
- Effect of Bank Receivership and Censorship on Loan Recovery in Zenith Bank
- Economic effect of loan recovery on business growth in Nigeria.
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