PROJECT TOPIC: THE RATIONALITY OF LOANS AND DECISION MAKING OF FINANCIAL INSTITUTIONS IN CAMEROON ACCESS BANK CAMEROON

ABSTRACT The recapitalization of the financial institutions in Cameroon since 2005 has brought about a total change in commercial bank lending behavior and credit management in Cameroon. With the growth in entrepreneurial activities in Cameroon, the demand for bank loans is at the increase. Small and medium scale business owners are constantly looking for business credit to expand their operations and sustain their businesses. This gap between business owners demanding bank loans and the inability of commercial banks to totally remedy the situation is disturbing and needs proper attention from the government. Employees of Access Bank Cameroon Cameroon plc, Far North Branch were used for the study. Findings from the study are limited to Access Bank Cameroon plc, Far North. Concerning methodology, data was gotten from both primary and secondary sources. Questionnaires issued to respondents constitute the primary source.   CHAPTER ONE

• INTRODUCTION

Commercial Banks operate to mobilize deposits from the populace and keep. Some in trust payable on demand. Through the performance of this role, Banks act as reservoirs for surplus funds and thus lend a safe portion of these funds to clients that have genuine needs for them. The banks have a special responsibility to ensure effective management of these funds kept in trust with them by depositors. Chester, A Rude puts it that the way and manner in which funds are handled “determines whether they are laying a sound foundation or creating future problems for either the borrower, themselves or the economy” If bankers unnecessarily withhold credit, the business suffers and so do the economy. Lending activities are prominent at all levels of our economy, which gave rise to loan management and credit administration. This credit analysis, documentation, disbursements, and monitoring of loans to ensure repayment of both principal and interests on due dates becomes pertinent. One of the goals of credit extension is to achieve prompt repayment on due dates thus loan management typically involves credit appraisal and administration. Lending carries a reasonable portion of the resource exposure of commercial Banks in Cameroon. Therefore, the ability of a bank to generate much profit is largely a function of effective and efficient management of its lending portfolio. Due to its trustee status and in order to protect the depositors Cameroon banks are being guided in their operations by so many regulatory bodies in order to avert bad lending and liquidity problems. Operations and prudential guidelines by the Central Bank of Cameroon are always in place. In spite of measures, which are aimed at protecting depositors and other public interests, the incidence of bad and doubtful debts resulting from lending activities has been on the increase in commercial Banks in Cameroon. This is as a result of negation in the primary objectives of granting credit and profit objectives of banks, hence the need for an appraisal of the present lending and credit administration techniques.

• STATEMENT OF THE PROBLEM

Most Commercial Banks in Cameroon are currently being threatened by huge bad debt burdens. This incidence has eroded the confidence in the industry and eroded shareholder funds in most cases. Have BOFID (1993) and prudential guidelines helped in arresting these trends? The roles of the regulatory framework are analyzed to ascertain the level of assistance to the financial system.

• OBJECTIVES OF THE STUDY

In the light of credit policies of commercial Banks vis-à-vis regulatory guidelines, this research work has the objectives to evaluate or appraise various techniques in the Administration of Bank lending from the point of disbursement to the point of recovery at the same time identify causes of an increased level of bad debt profanation. The research has also identified reasons for bad debt provisioning and recommend appropriate strategies that may be appropriate in reducing debt write-off. The study also has the objective of ascertaining credit appraisals and the effect of bad debt provisions on the income of Commercial Banks.

• HYPOTHESIS:
  1. There is a high correlation between lending and Bad debt portfolio in Cameroon Commercial Banks.
  2. The credit policies of Banks and regulatory guidelines if properly implemented can help reduce bad and doubtful portfolios in Cameroon Banks.
• SIGNIFICANCE OF STUDY

The current spate of liquidity problem vis-à-vis distress syndrome being experienced in the Banking industry is a function of lending policies and poor credit management. This trend has given rise to colossal losses of shareholders' funds and depositors' hard-earned savings. Therefore this research work is apparently going to be useful to top-level managers who may find the recommendation and suggested strategies useful in managing credit portfolios. In a similar manner, branch and credit managers will be guided on loan disbursement to ensure strict adherence to lending guidelines and economic analysis of the environment. Banks shareholders would be able to acquaint themselves with the adverse effect of bad debts hitherto covered by the management of their respective Banks. Again students of Finance will find this piece of academic work useful in their academic pursuits.

• SCOPE OF STUDY e research work limits itself to one case study i.e access Bank Cameroon plc. The investigation was conducted at the Branch level and annual report material made available to the researcher. The research focused on the lending process before and after disbursement up till final repayments with emphasis on effects, causes, and remedies of Bad Debt. The assumption of this research include the following
  • That all Commercial Bank grant facilities to worthy clients with high expectation of 100% repayments of principal plus interests
• That all Commercial Banks in Cameroon are governed by the same operational guidelines offered and professional conduct as issued by the Central Bank of Cameroon in addition to their internal policies The study is limited to facilities with a repayment tenor of between 1 – 5 years duration.
• DEFINITION OF TERMS

In order to have a common knowledge and understanding between Research work and the meaning transmitted to its targeted beneficiaries, it beholds that a clear and unambiguous definition of words often used in the study be given. Although the words may have numerous meanings, the ones given herein should be regarded as those referred to their usage in this research work. Some of the “words” are defined as follows.

1. LENDING: A process by which a Bank customer is founded for the specified purpose and specified period of time with a promise to repay the amount borrowed and applicable interest.
2. CREDIT: This involves giving (receiving) goods or purchasing power now in return for a promise to receive or re-pay the goods or purchasing power later. It is the sale of goods, services, or money claims in the present in exchange for a promise to pay (usual money) in the future. It includes the power to repay both principal and interest instalmentally or in a lump – sum in the future. BAD AND DOUBTFUL DEBT. This may be defined as a loan or debt, which has become irrecoverable at the date of maturity. A loan may be termed bad or doubtful in the event of the borrower's failure to repay the loans in accordance with the terms and conditions of the agreement.
3. ANTICIPATORY DEFAULT: On the other hand recognizes the happening of certain events which are ipso factor conclusive evidence of default whether or not the loan or the interest has fallen due”(Banking digest and Finance Vol. 5).
4. FINANCIAL INTERMEDIATION: This is defined as financial transactions, which bring savings surplus units together with savings deficit units so that savings can be redistributed into their most productive uses.
5. SECURITIES: This may be defined as something that provides safety, freedom, from danger or anxiety, something valuable for example a life insurance policy given as a pledge for the repayment of a loan or fulfillment of a promise or undertaking.
6. COLLATERAL SECURITY: This is any security deposited by a third party to secure the indebtedness of the customer with the advantage that in the event of bankeupty or liquidation of the borrower, the value of such securities may be ignored in the proof of dividend against the fail estate.