University of Nigeria...University of Nigeria Research Publications Author UFODIAMA, Cliffford Ndudi...
97
University of Nigeria Research Publications UFODIAMA, Cliffford Ndudi Author PG/MBA/92/11772 Title Commercial Banks Participation in Industrial Projects Financing in Nigeria 1990-1994: A Case Study of Union Banks Nigeria PLC Faculty Business Administration Department Banking and Finance Date August, 1996 Signature
Transcript of University of Nigeria...University of Nigeria Research Publications Author UFODIAMA, Cliffford Ndudi...
University of Nigeria Research Publications
UFODIAMA, Cliffford Ndudi
Aut
hor
PG/MBA/92/11772
Title
Commercial Banks Participation in Industrial Projects Financing in Nigeria
1990-1994: A Case Study of Union Banks Nigeria PLC
Facu
lty
Business Administration
D
epar
tmen
t
Banking and Finance
Dat
e
August, 1996
Sign
atur
e
COMMIX( :LAL BANKS PAR'l'ICIl'A'I'ION IN IN ])I! S'L'KIIU, I'KOJECTS FINANCING IN NIGERIA, 1990 - 1994 11 C:i\Sl.. S'I'IJIIY OF UNION BANK NlGP:KI;1 1'1,('.
COMMERCIAL BANKS PARTICIPATION IN INDUSTRIAL PROJECTS FINANCING KN NIGERIA., 1990 - 1994 A CASE STUDY OF UNION BANK NIGERIA PLC.
BEING A PROJEC ED IN PARTIAL EULHLMENT Ok I nr, KLVUIKCBI~NTS FOR THE
AWARD OF MASTERS LN BUSINESS ADMINISTHA'I1ON IN THE DEPARTMENT OF BANhTNG AND FINtIIVCE
UNIVERSITY OF NIGERIA ENUGU CAMPUS
SEPTEMBER, 1995
UFODMMA CLIFFORD NDUDI, a Postgraduate student in the Department of Banking
and Finance and with Registration No. PG/MBN11772 has satisfactorily completed the
requirements for course and research work for the degree of Masters of Business
Administration in Banking and Finance.
The work embodied in thji'diwrtation report is original ilnd has not bwn subrnittcd
in part or full for any other diploma or degree of this or my other Ilni\.crsity.
Dr. A. M. 0. Anyafo Head, Department of Banking
and Finance
Dr. A. M. 0. Anynfo Supen.isor
iii
DEDICATIOX
Dedicated t o my Mother, Mrs. Grace Ilfodiama
ABSTRACT
It coudd affirmatively be said that the index for measuring any growing economy's
technological advancement is the extent to which its industries, both small and I'uge-scale /
had been growing over time. *
It idfact that none of these industries can grow withouit the required assistance from 6 ~.
the financial institutions. Nigeria as a country is one of such gruiving ecvnvmies that has yet
to experience that industrial advancement. She had errharked on numerous programmes
aimed at stimulating the growth of both small and large scale industries. Indu~strialists had
in recent times subscribedo discriminating behaviour of the Nigerian commercial banks
towards the granting of finance as one of the reasons that militate against the growth of
indmtries in Nigeria.
It is against this b a ~ k g o t g d ~ t h a t . - this project shall focus on commercial hanks
participation in industrial project financing in Nigeria with special refercncc to urnion Rank
of Nigeria PIC for the period 1990 - 1994.
Research shall be conducted using both primary and secondary data. Interview for
primary data shall bc conducted with the Credjt Department at the Hcxl Offiet: of the
Union Bank.
Finally, in the analysis of the data, correlation coe:ficirnt shall be ~ised to determine
if there is ,a correlation between banks total advances to the manufncturing sectors and total
deposits in Banks.
T-distribution test shall also be used to determine the differences in mean deviation
of performance of banks in meeting the Central Rank of Nigeria prescribed minimum.
Percentages and graphs shall be used to determine the annual growth rate of both .
deposits and lending in banks and Time series analysis used to determine if the loan
disbursement is evenly distributed among the different sub-sectors in the econoiny. #
The findings of the research are that there is a high positive correlationbetween total
banks deposit and total banks lending to the miinufiicturing sectors, the dil'ferences in mean
deviation of performance of banks in meeting the Central Bank of Nigeria prescribed
minimum is not significantly different at n = 5.
Finally, loan disbursement to manuf,xturing sectors is not evenly distributed among
the different sub-sectors of the economy.
On our research findings, we recommend that banks shoiild open up more rmal
branches to ensure more mobilisation of rural s x i n g in accordance with the nual banking
scheme which the Federal Government commenced in 1977. ?his is to e.nsure increase in
deposit liabilities of banks which is bound to influerice lending to the manufacturing sectors.
Ban@ should also pqy attention to delivery time (improved efficiency) to ensure
customers confidence in the system with a positi\.e effect on its dcposil liabilities.
These recommendi-itions, i f urried out. shodd ensure effective industrid project
financing that can lead to industrial growth in Nigeri:~.
I wish to express my profound gratitude to my Supenisor, Dr. A. M. 0. h y n f o , and my
Lecturer, Mr. Aneke, for their'thorough and painstaking supen-ision all through the research
work. Their counselling and advise were vital and indispensable. In the same vein, I crm /
grateful to the members of General management of Union Bank of Nigeria plc, who granted
my request to use their Organisation in conducting this research.
In carrying out an exercise of this naturc, I owe a gre:it debt of gratitude to many
people who have offered guidance and assistance in one form or the other in the vario~is
stages of the project report. My profound gratitude itlso goes to my Mother, Mrs. G.
Ufodiama, and my brothers: Mr. Emmanuel. Okechuhu , Dr. Rrtty and Mr. Godfrey
Ufodiama, Mr. & Mrs. C. hi. Okosa who apart from their moral stipport, my academic
s~lcccss would have been a dream. Stretching funher, I extend my gratitude to Miss Agnthn
Anosike who typed d l the manuscripts in a very careful m'mncr and did the wonderful job -. - --
of paging and the gruesome paste-up of all the tnblcs and the mnthc.m:~tic;il s p ~ b o l s .
For all other errors in this project work, I asslime responsibility and would be very
happy to receive s~iggestions that nil1 help to impro\.e on this work.
vii
LIST OF TABLES
1. Union Bank loan and advances to the manufacturing sector as a percentage
of t o t i commercial banks loans and advances to the rnantllactaring
sectors 1990 - 1994 .............................................. 50
3. Union Bank total loans and advances to the economy as a percentage
of total commercial banks loans and advances to the economy 1990 - 1994 . . . . 51
3. Total Deposits in Union Bank as a percentage of total deposits in
commercial banks (1990 - 1994) .................................... 52
4. Commercial banks sectoral distribution of credit to manufxturin\g sectors . . . . 58
5. Union Bank's sectoral-'distribution of credit to manufacturing
/
6. Union Bank's sectoral manufacturing loans and advances by
sub-sector borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 . 7. Union Bank's manufacturing loans and advances analysed by
sub-sector borrowers ............................................ 69
viii
TABLE OF CONTENTS
-- TITLEPAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
APPROVALPAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii ...
DEDICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
I ASSTRAC~ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ACKNOWLEDGEMENT vi
LISTOFTABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TABLEOFCONTENTS vlll
CHAPTER ONE
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Statement of Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Purpose of Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -,-. - . 3
.' . 1.3 Significance of Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
1.4 Scope & Limitatbns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 The Need for Industridisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 /
Various Sources of Industrial Project Financing in Nigeria and importance
of Rank Credit to industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The importance of Commercial Banks Credit in Financing of
Manufacturing Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ;. . I T7 . . .* 3. ' .* Union Bank as a provider of Finance to Lndi~stries in Nigeria . . . . . . . . . . . . . . 18.
'Qpes of Facilities . . . . . . . . . . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Lending Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .'. . . . . . . . 23
Procedure for Appraising Requests for Lndustrirll project fin'mcing in Nigeria . 29
Methodsofhnding ............................................. 32
Lending Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CHAFITR THREE
3 3 Validation & Reliability of Measuring Instrument . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 'Analytical Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . 44
CHAPTER FOUR /
DATA ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.l Introduction and testing of Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.2 Comparison of Union Bank and all Other Banks loans nnd a<kances
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . to the manufacturing Sectors
4.3 Union Bnnk Performance with Regards to Meeting Central Bnnk of
............ Nigeria Credit Guidelines on bnding to Manufacturing Sectors 5'7
4.4 Distribution of Union Banks Loans and Advances to the Various Firms in the
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing Sectors 65
CHAPTER FIVE /
- . . ..................................................... 5.1 Findings 73
5.2 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Summary and Conclusion 75
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Bibliography 79
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
CHAFER OSE
A corporate body like an individual needs funds to carry out its oper:~tions to enable i t
achieve its stated objectives. Availability of finance is a pre-requisite to the provision of the
human and material resources used in production.
J3ozien (1982) says that "it is generally acknowledged that he availability of financial
capital is a pre-requisite for the rapid development m d transformation of m y nation's
economy". Since the provision and efficient management of this scarcc resource is best
facilitated by the existence and appropriate functionins of financial Institutions in the
economy, it follows that banks have n vital role lo phy by making rhcir vast financial
resources available for financing and promoting development.
The need for Lndustrial Project financing is further stressed by the recent economic r ' I
crises which is partly due to a fall'in oil revenue. Nwaltwo (1'180) says .'It ensures import'
restriction and export expansion. It equally stirnudntes foreign exchange earnings and /
employment opportunities coupled with the prmision of technical skills". lndustrialisation
is a means of achieving a degree of self-reliance and confidence for :I nation. Without
industrialisation, a nation can neither have the stability necessary for social peace at home
nor muster the respectability and means required for meaningfi~l invd\.enlCnt in international
affairs and interactions.
Industrial project finance is therefore the financial assistance given by bnnks or
financial institutions to various industries (both small and big industries) to assist them in
their operations. The financial institutions that procide such assistance include Development
Banks, Insurance Companies and Pension Funds, Commercial, Merchant and Co-operative -----
Banks.
Merchant Banks however, proiide long term lo'ms and Commercial banks generally
provide overdrafts, short and medium term loans and intlrmnities and leltcrs of credit in tht:
financing of industrial project in Nigeria.
Before providing these facilities, commercial bnnks adopt some biisic lending
principles to help identify, measure and manage the hiL@ risk involved in lending to
businesses especially as the money they lend out are depositors' funds. ' lhe three basic
principles behind all bank lending include - Safety of the loan, suitability of the advance and
profitability of the advance. Other factors which are taken into consideration are the amount
involved, repayment ability, security to be provided, term of repayment, etc.
There is also a standiud procedure which all commercial banks adopt in a bid to
appraise requests for industrial project financing which is done in conjunction with the
lending considerations. The following informatiodducuments are required by banks for
lending to industries in Nigeria: technical details of the project, mw materials availability,
project cost and manpower requirement, etc.
Banks can adopt any three main methods of financing ~nanulacturin~ industries, i. e.
Sole financing, Joint financing and consortium iin,ucing.
We shall limit our study to commercial banks participation in project financing in
.. . Nigeria for the period 1990 - 1994.
A Case Study of Union Bank'of Nigeria Plc.
The period 1990 - 1994 was chosen because it fell within the periods of deregulated /
interest rate and re-regulated interest rate, that commenced in 1993.
1.1 STATEMENT OF PROBLEMS
The issue of commercial banks participation in project fin.mcing in Nigeri:~ has been index
by which watchers of the banking industry gauge the performance of our banks in their
lending activities. This has of course led to pressures over the years on the monetary
authorities to take keen interest in the activities undertaken by banks 'and this cidminated in
the issuance of Monetary policy circularsiguidelines by the Central Rank o f Nigeria.
This research project uill focus on the problems of industrial project financing by - .. __--- - -- commercial banks in Nigeria.
" 1.2 PURPOSE OF THE STL'DY
(i) T o highlight thc role being played by commerci:d banks (with special reference to
Union B'mk of Nigeria Plc) in industrial project financing in Nigeria.
(ii) T o analyse the relationship between commercial banks deposit and industrial project
financing in Nigeria.
(iii) T o determine if Union B'mk and other Commerciill banks arc si~nificaaily meeting
the Central Bank of Nigeria prescribed minimnm target in their lvans to
manufacturing industries.
To establish if loans granted are evenly distributed among the different sub-sectors - . _--- - -- .
in the manufacturing industries.
SIGNIFICAYCE OF THE STCI3Y
The study could be useful to the government, which regulates the banking aclivities
with a view to getting them to finmce industries ntlequately.
It would dso help to find out whether the banks contributed finmcinlly to industrid
production and to determine to what extent they do so.
SCOPE AND LIMITATIONS
The study is specifically designed to examine the role of Union Rank of Nigeria Plc towards
Lndustriol Project Financing. Emphasis is on manufacturing induslries.
The study would draw conclusions based on the end-ofyear exposurc of Union Rank
to the manufacturing sectors, over the period 1990 - 1994.
15 RESEARCH QUESTIONS A'SD IMWTRESES
How does Union Bank's performance in respec1 of offcr of industriid loans compare with the
performance of the banking system as a whole'?
To answer this question, we shall look ar the relalive shiut. of tlnion h n k loilns and
5
its relative share of deposits.
Mean growth rate of its relative share of deposits to the mean growth rate of its
relative share of loans -_------
x = Growth rate of Union Banks relative share of deposits
Y = Growth rate of the bank's share of loans.
We shall also compare the mean growth rate of the banks loans to thc whole of loans
offered by all the banks combined.
Thirdly we shall compare Union Rank's performance in meeting the CDN prescribed
minimum loans allocation to the Industrial Sectors to that of the entire bi~nking system.
The following hypothesis shall also be tested.
HO,: fiy+px
Y = Variance of ratio of Union Bank's loans to the indi\ilual sectors
to the total bank loans Lrom CBN prescribed rirtio.
X = Variance of Union Bank ration of lo,ms from CRN prescribed
ratio.
Finally, we shall compare CBN disbursement of loans by Induslrial c;ikgories using
CBN classification of industries in Nigeria.
CHAPTER TWO
1.ITERATC.E R E\TF,W
The issue of bank's participation in industrial project financing has been over-flogqeed by
academicians, government officials and industrialist themse11.e~ .and experts from different
economic sectors. These people have been having their minds foct~sed on Iwsiness journals,
magazines etc. on the issue. All these actually induced me to carry out rcscarch on bank's /
participation in industrial project financing in Ni~eria.
2.1 THE NEED FOR IKDESTRLUISATIOS
"In the Lndustrial fields, thc policy of the Federation is to stimulate the iwablishment and
growth of industries which contribute both directly and materially to economic growth and
which will enable Nigerians to participate to an increasing merit in the o~vncrship, direction
and management of Nigerian Industr)." (Adekunle, 19th). tU1 thc go\.crnrnents regard
industry as a means to diversify the economy in order to ennue a bdancutl groivth and to
enhance the country's Balanced Pqments position.
According to G. 0. Nwakwo, "it is against this background 111;1i unc ciin fully
appreciate the expansion of bank lending generally xid the increase in t h e share going to a
industry in particularn. P. N. C. Okigbo in his own assertion mcntioncd that by 1960,
governrhent had recopised the need for direct pmricipation to promote dircct capital
investment particularly in industries".
Alan D. Mountjoy defined industrialisation as "the (ie\.elopment of mnnufactl~ring
industries applying science and technology in order to pro\-ide work Tor the growing
population and to raise the s t i \ n d ~ d of li~incg by increasing per ci1pit:i net income and
improve balance of payment position. It is aimed at import restriction :~nd increasing
exports".
According to A. P. Edet, "the small scale industry w- to r has historically been the
bedrock of industrialisation and foundation of most economic activity".
According to Dyer (1974). the main reasons for industridimtion are:
A. High level of industrialisiition is taken to..account for the development and rapid
economic growth of the advanced countries.
B. Manufacturing is seen as having then greatest capacity and potentii~lities to generate
economies of scale and positive externalities that induce re;il growth.
C. Accelerated technolo,eih progress can best be renlised and utili~ed in industry.
D. It is a means of diversifying the economic base promoting economic self reliance and
strengthening the balance of payment.
The importance of industrialisation on the development process of Nigeria was first
recognised and acknowledged in the 1962 - 1968 developm~ini plan. Howcvrr, the str:lteg
for industriolisation was tmderstandsbly that of total reliance on foreign priime in\.estment
initiative, supported by generous tax and other incen1ii.e~. 'The objccthx was import
substitu'tion particularlyconsumer goods. Up to 1978. ttlc impetus for intil~strinlisation came
mostly from the pri\-ate sector initiati\'es, but with phenomenal increaat. in p w n n i e n t . ..
8
revenue from oil, public policy f d on the industrial sector was nrticullatcd.
The Second National Development Plan 1970 -1975 accorded the highest priority to the /
industrial sector, only next to agriculture. based on the various national development plans.
the specific objectives of industrial policy were:
Diversification of the National Economy
Provision of Employment opportunities
Ensuring a rapid acceleration of the economic tlevelopment
Promotion of export expansion and import contraction
Stimulation of foreign exchange earnings and international recognition.
Dtverstflcatton of the Natious..&on~my - - -- --
It need not be met-emph;lrised that mnssne ind~~stri;~lisntion means the
diversification of the economic actikities of the nation concerned. It is quite evident
that our economy right from the advent of the oil boom in thc cnrly 70's has been
a monolithic one. This means that Nigeria has solely depend on oil, ncbglecting other
economic actkities. This is tnie because con~n .a t i \~e ly speaking the country earns
about 80% of its revenue from oil and the wont being that the clnphasis has k e n
on cmde petroleum. This situation of monolithic rconumy could be \.cry dangerous
for a nation as no attempt is made to diversify her ;~cti\.ities. Considering the
Nigerian case, this emphasis on crude oil coirld be drlngcrow c.spcci;~lly now that
there is a slack in the demand for oil the world o \ w coupled \vitll p111t and depressed
prices.
A1 these have cpntriduted immensely towards making the b t ~ l r e o~itloolt of the
economy to be bleak.
If Nigeria as a nation has made a judicious use 01' thc initial revenue from oil boom.
her future oritlook couldn't have been so DleC&. There shnulcl have arisen a
diversified economy if the revenues were used to e~iaSlkh a rcfincry industry which
will refine the crude petroleum. Therefore, tu sil\.uge this counlr! Irvin ~ h t : prescnl
economic crunch, mxsive industrialisation is the nrny ortt.
B. Provision of more Employnent Opportnnities
A critical review- o f - t h e e c o ~ today, \{.ill rt.\.cid that thcrc is n chronic
unemployment situation. I Jnemployment sitrintion is espericnccci in an economy
where the working class, that is those who are qualified to \vork are automntically
unemployed as a result of little or no industry. In the Nigerian ecimomy, the rate of
unemployment is reaching an alarming stage.
Nwajagu (1984) says "the existence of unemployed position in :I country has a lot of
dangerous effect, it results in armed robbery, currency anti d r y ~rafficking etc. in
order to sohe this problem, intensi\.c national industri:iIisntion is a busc for s o l \ i ~ g
the problem of unemployment.
If more industries are established, more people arc absorbcci, o ~ h c r s c n k e s \?.ill be
established 'md ancillary industrieswill be stimulated nnd iiicrext. tlcm;tnd for labour.
10
This means that in order to create more ernplopren! npportirnitic.~, there must bc
increased and improved industrial activities in the country.
C. Ensurlng a Rapid Acceledion of the Econorolc 1)cvcInpnicnt
Another significance of industria!i.cation can cnsily be rrctyiseci from i ~ s impact on
the acceleration of the rate of econonlic develqmcnt. It is n ncll kliown fuct that
if a nation wants to accelerate its uvcrdl ralc of econu~nic, she: must have
nianufnctunng production rising much f m e r than rhe o\wdl r;lte of Gross National
Product (GNP). It is evidently correct that !he in~p:~i.t of rnnni~fxttlring industry on
the economy very mlch depends on the strr.ict;~rc or cornpasit iort of nian~Lcncturing
outputs as well as the linkage: effects of nian~ltac~i~ring, protl~iction.
For the past years there has been s shift in the c!c:*ciop~iicnt !itcriit~~rc from GNI' per
capita growth to employment promotion arid o p i m d inco~nc cl~s~ribution. 'Illis
aspect of economic development is synonymous to the raisi~ig 01 thc st;indml of
living of its citizens generally.
D. PROMOTION OF EXPORT EWA
11 _- - - -
emerge and those f&dswhich a courntry formcrly import from other countries are
now being produced.
Throuph intensive inclustri:dis:!tion, innumerable land resources cspcci;~lly ngricultnral
lands, mineral resources and the very ilnportrrnt blessing of thc soil fertility which
nature has bestowed on the country could be Ilmwssccl not only for internal supply
but also to massively boost export and reduce the ad.;crsities of importation. The
establishrncr~i cjf industrial input txtsc ;+ill make the output to incrc;isr i~stronornicdly
with a high value added and \vl~cn intcrnntional :n::rkcts 1i~n.c bcen csplorkd, eqm-ts
will expand considerably thereby reducing importation for thc: b ~ n ~ f i t of the co~intry's
economic growth mcl stability.
The above situation can only be achieved if both gotwnlncnt and financial
instit~ttions s h o ~ ~ l d foc~ts their attention on the ohjccti~e of implcrnrntiition of policies
and programmcs desipped to establish a raw rriatcrkd base for thc jirowing nccds of
our industrial and productive scctors.
E. Stlmuhtlon of Foreign Exchange Farntngs mid 11~ternutloo:~l Rcciqnltlon
The volume of foreicy exchange a ccountq cams couplccl with the frtvo~lrable
. ' exchange rate a country enjoys principally is dc.terininL d by thc \ ohnit.\ of her exports
4
within n given space of 'time. If industrialisation i~nprtn.i:s, o{~r1*11i is incrc;lscd and /'
.volume of export expands. If the volume of ex1 nrt ~ p ; i n c i s \h,. cc - I I I I ~ ~ ~ will elljoy
foreign exchange earnings as the countries bit)ir~~ frdm the cr>untr): will pay with
dollar (S) or any other internationr~lly accepted currency. If Nnir;l (W) will be needed __-- --
by foreign importers :o finance their husine=s, t l x vnlrle of the Nnirn will appreciate
with the availability of these forcip ciurencics cot~plcd ivith thc fn~*olirnble cxhange
rate, t l ~ c country a n conveniently import othcr itcms from abro:1(1 for tllc bcncfit of
improving the general s t n n d d of l i ~ h g of its cit ilrerls.
Whcn a country has a~tnined this height, the country has attained internationnl
recognition, international respect and considcr.ltiuns. CIiher coumtries of the world
~4 like to invest in such a country. Ilnially tlwse in~.estrnents take the form of
acquisition of machineries. purcllijsing of lands and builtlings. The investip: country
will have to look for foreign exchmgr for the purch.wc of the fixd nsscts. As the
search for f0rei.y currency cuntinws in the stwk exchange mar kc^, the demand -for
the country's cllrrency exceeds the alypb and thlls, thcre is an incrcu! from old rflte
of exchange to thc new rate of ischange caused by the increase in the clcmnntl for
the currency.
No industry can be embarked upon wit?iot,t one type of fiintlirlg or anuthcr.
Ajayi (1980) sees the following as w-me of the ~ r ~ r i o l s sources id intl;~strial project
financing: /"
i) Owners contribution (Equity)
(ii)
(iii)
(iv)
(9
h
11.
C.
D.
Loans or credit facilities in the f i w m 01 long,. nic;li[i:n . I I ~ shtw ! L - L . I ~ : linnnce.
Over-draft or cash Advance
Lcxing :~nd hire purchase
G~~arantee~hdernniry
IIc identifies thc folli~,--ing ins!i:l::icns ns providers of ft~nds for ind~~stries:
The Citpihl lC1~ket
Ajayi (1980) also opined that :I subs!mtial p x t of equity capital is also being rrjisctif
throrlgh private piacemcnts. ?lie s t o c k exchmge is tlw i~~stitilti~ui i l l thc cnpitd - - _-----
rnxlxt for raising equity ~7pit:rl.
ncve1opnrc.n t Rank
The B;rnks that are in\.oh-ed in long-term iui~tis include the
Lnsurance Companies and Pension Funds
They provide long-term funds and also subscrilx lo equity.
commercial Banks only provide J~or t term workingc:1pild. h!nr;lk\vo (1980) indicnlcd
that Nigerian Cvmmcrcinl bn~rks merely ser,,ice r:~thcr ttmn finance hlristry and
conmerce. IIe said t11at "Nthoiigt~ t l ~ y 0~~1~i i~n; t I ly roll o ~ ~ r s o w funds such t.h;~t
in cffect they become l o n g tcrm Io~ns, unlike t hcir C O I L I I ~ C I ii;,l ts in I'It~ropc, Arncric;~
'and Japan, they do not in gcncrnl protiie nwdir:~n and long term !ii?nncc".
Okigbo (1981) observed thn: cornr;xrc;d lxinks tlirccr thcir iirntls to short tcrm uses
principally because of the nature of so~lrcc of thc lu~lcls - current & p i i s . 1 lc fit1 !her ~ c n ;
on to say the respond to the dynamics oi the economy. int1ic;wtl bo~h by dircc~ives anti
gpidelines from monetary authorities and by the signals from the fi1x~nci.11 nxxlets, rhby will
/' apply an increasing proportion of their rewlLrcrs to n~c:!ii ,in nnd longer term uses so far as
such application is consistent with :IK wirrces of t l~c resources and security of their
operations. It shodtl bc noted t l ; :~ t iii the rc-porr c:1 fin;;nci:~l S ~ I C I I ~ , ill(: fin;lr~iiill systcin
review committee (1976) proposed ontl :lie So\.crnmcn: ::cc~ptctl t h : ~ t while l l ~ com~ncrcial
banks had in the past concentrated on short tenn lcniling they SI~LNLIL! 10 somc eslcnt be
consistent with bankjng prt~rl~ncc. ir:i.rcnsing!! ur~dcrtalc marc 11:i~li111n ;wit1 long tcrrn
lending, designated as such.
project fiilancc in Nigcrin "equity cclpi:nl, prrfercncc shares, mcJi111n ;in(! Ioi~g term loans, . . -
a
short term funds (mostly working c:~pit;rl), conmctx fin:u~ce (of l " t ~ ~ ~ r i - y builtling) and
I5
costs such 3s raw materials, wages and snl:~ries and ~~rilit ies, all the other ttlnrls go into the
making of the fixed assets.
Accortlin,q to him, the pro\.idcrs of int1ustri:d prc~ject iinnncc ill Nigc,l.i;\ i ~ l c l ~ d e lhc
government (both Fede rd and States), hlustri:d De\elopmc.nt finant.2 i~:.;titutions. othcr
financial institiltions, indigenous and foreign pri\*nte in\.estor\: ;\nd ,omr In!r.rr~n~iond 1;innnce
Institutions.
Based on the existing literalurc and espcricnce, user :uc 01' tlic opinion hat in~lr~slriid
project financing could be raised in the folloning ways:
Owners Contribution i.e. Equity Capital
by a merchant bank.
I m g , medit~m, short term finance or creclit f:rcilirit.> can bc r;~isc(l lhr-o~rgh the hiinks
o r insurance compimies. . &J
1311yers credit for machineries.
~qyAie;s credit for machineries.
The under mentioned institutions do provile industrial project finance in Ni~er ia but
we shall Iirnit our study to commercial b i m h industri:tl project financing, which is the s~~hjec t
of this research.
(i) C~rnmercial Banks
(ii) Merchant Banks ,
/ (iii) Insurmce Companies
(iv) Development Institutions
We shall llscuss commcrcial banks to determine its roles-as providers of finance for
industries and its limitations tuu.ards playing the rolcs. 011 the injportoncc of commercial
banks in Nigerian Financial System, A j q i (1980) expl:~ins 111;it they currently constitute the
largest single group in the fi~~ancial sector. Niger ia ccon~mercial bmhs like their counter
parts elsewhere obtain their funds frorri two main swrct;s:
One is capital and reserves ,anti the other is dcposits. Using deposit liabilities of main
institutions in the financial . system --r for illustrating dominnnce of co~~unerci:~l banks, Appendix .
1 shows that commercial b'mks are controlling over 86% of iota1 dcposits o f nioin institutions
in the financid.system.
This commercial banks dominant rvle has lcd to various go\,rrnlnznt actions to
control their activities and to ensure that their actions corlfonn to I I K . ;nwved nntionsl
objectives.
'In Nigeria, the government h3s tended lo considcr the role of com~nercial banks as
crucial to the attainment of social goals ,and objectiim t i u t ihey Ilare taken steps to bring
17
them under more direct control. Spclcific directives are gi\.en to thc commercial banks
throi~gh Central Rank of Nigeria periodic monetary policy circ~~lars/creciit ~ ~ ~ i d e l i n c s which
direct the banks as to the sectoral allocation of their landings, interest banks colild charge
or pay and conduct of external transactions. Since 1969 when the monet;iry policy circular
begnn to be issued the Central Bank of Nigeria has succeeded in gctting the banks to direct
their loans and advances towards the preferred sectors (c.g. agriculture and nmwfactrlring).
Tht: sectord allocation of commercial banks loms and advances as per the g~lidelincs fw the
pcriod I!BO - 1994 is shown in Appendix 2.
2 3 TIlE IMPORTABCE OF CO?,1MERCIAL n.k3KS CREDIT IN FINhhiCKYC 01;
MANUFACTURING LYDGSTIUI~S
. . Every time a firm makes an investment decision, it is at the sillrle t h e nxlking a fi~imcid
decision. The investment projects.,of a comp:my can be financcd either by increasing the
owners claim or creditors claim or both. Raising of equity shares or retention of earning .
will increase creditors cldms. The various means uwd to raise funds represent the financial
structure of an.enterprise. The term capital strucnue is used to represent the proportionate
relationship between thc various longer term forms of financing such as tlcbentures, long
term debts, preference ~ ~ p i t a l and ordinary sh,ue ca~l tal including rcscnvs and retilined
earnings. .
?he financing or capital structure decision is a significmt man;~gcr.i;d ciccision as it
influences thc shareholders return and risk. The market value of the share is affected by the
1s
capital structure decision.
The use of fixed charges sources of funds such as bank credit nlong with owners
equity in the capital stnlcturc is descrikcl as financial leverage on the shnrcholders earnings.
Financial leverage tends to magnify thc shnreholdrrs earnings uncler fi~vo~lrable
economic conditions.
The role of financial leverage in rnagdfytng the earnings of the shnrcholdcrs is based
on assumption that the fmed charges funds like bank credit can be obtained at il cost lower
than the companies rate of renun on its assets. _.
Thus, when the difference between the earnings generated by asst:r> financed by the
fixed charges funds and the cost of these f h d s is distril>uted to the sharrholdcrs, they get .'' .. * , ; 7 ,
additional earnings withorit increasing their OHTI investments. 'lie earnings per share or rate
of return on the ordinary shareholdcrs equity increases. ' I l k assumprion is even more
applicable to Nigeria where interest rates are low and rt:gulnted by the Central Bank.
Manufacturing being in the preferred sector even enjoys ;1 prcfercntiai low rate of
interest. Since 1990, the interest rate for adv'ances to th: mnnufxturing industries ranged # '
between 15 - 21% per annum. It must be noted that rhe enrniqy pcr allmv or the r i k of
return on equity will fa l l9 the &npany obtains the k d charges funds ;it n con higher than
the rate of return on the companies a w t .
2.4 UNION BANK AS A PRO\-IDEH OF FINANCE 1'0 1SI)l'STKIk:S 1S NIGEliW
. into millions of Naira. sponsors of industrial finances can finance their projects by
contributing the whole amount reqiiired by miking use of their savings even though this is
not wise in view of the advantage of favot~rable financial Ic\wnge mentioned above. As the
amount is often huge, financing with-only-pei-sonal swings is near ilnpvssiblc and this h;ls
given rise to the need for deficit-spending.
Financial intermediaries have come into existcncc to make fiinds available to meet
deficit spending.
Financial intermediaries can be regarded 3s institutions that raise !heir firnds by
borrowing and using them for lending. They split the borrowing - lendins process into two
separate transactions, offering to lenders a claim on themsehm in exchange fur money and
then, quite independently, lending the money to ultimate borrowers. this enormously
facilitates both borrowing ,and lending.
Financial intermediaries offer a very tviide range of claims, so that it is casier for e x h
saver to select the type which best sluts his taste for liquidity, risk - aversion, e:l.se of access,
scale of investment and yield. in tiew of the rcmge of clainls they are able to offer, they are
in a position .to tap a great proportion of people's savings in a monetized economy. Financial '
intermediaries are also able to offer a wide range of credit facilities and each burrower can
select the w:!rce of finance best suited to his inthidud requiremeli!~. '1'hc.y :ire :tble to tap 4
an enormous area of savings at comparatively low cost nrrtl this help tllcm to reduce the cost
of finance to borrowers so helping to stimi~lnte investments.
In Nigeria, financial htermc'diaries could be classified inlo two t)~.o;~d gro~ips. i. e.
2 0
bnnks and non-banks. The banks inclirde Commcrcial Ikmks, Merchant Banks and
specialised bnnks (Federal Savings Rank. I<Il313, NACI3, NRCI and I-etlc.r:~l Mnrtpgc nmk).
The non-bank financial intermediaries incl~lde the 1naur:mce Cumpanics. Nation:d Prokident
F~lnds, Credit %and Cooper:~tive..Sccieties and Lnvestme!it Compnies.
All these through thcir intermcrliation role prixklc indusrrinl prujchct financiq; i n
Nigeria. 'They freqnently specialise in types of claims i>ffcrcd to snl-css. Most of them
provide industrial project financing in onc way or the othcr. The rolc of Cvmn~ttrcial bmLs
in this respect is out-st,mding.
Commercial Banks, in addition to transferring funds from savers to illvestors also
increase the supply of loanable finds deposit. This is accornplishcd whenever the bank
makes loan or grants to a cllstomer by the use of o\wdr:ift facility. AS ilisci~ssed earlier,
commercial bonks in Nigeria currently constit~lte the largest s in~lc griwp in the finmciid
sectors. This emphnsises thcir irnport,mcrr w providers of ind\istrinl project ii~wncing thereby
helping to alleviate the financial umstraitlt i n inc1us:rics.
Union Bank of Nigeria Plc is one of the bigiqest t!me Commercial Banks in Nigeria
and these contribute a greater percentage of all co~nmercisl loans and ~ I ~ V U I C C S to the
industrial sectors.
We shall discuss the types of facility pro~ided by commercial bmks and in particular b
tfnio~l Bank of Nigeria towards financilrg of industrial projects in Nigcri:~.
2 5 TYPE OF FACILITIES
While development banks provide capital 'md also provide mcdium nntt l t q term loans to
industries, the merchant and commercial banks d o pro\.icte equity cnpitd to some extent.
Merchant, Banky however, provide long-term loans. union lhnk like other
commercial banks generally provide overdrafts and letters of credit in the financing of
industrial project in Nigeria. A brief e.xplanation of the different types of credit are as
follows:
(1) Overdraft
Consistent with their traditional roles as pro~iders of short term finmce, this is the
most common form of commercial bank lending.
A firm is given a limit up to which it may overdraw its account to enable it finance
i ts working capital requirements. This account is expected to flrlctriate by swinging
into debit and credit from tlme t o time'uithin the linlit d l o w d brlt the facility is
repayable on demand. tUthouL@ the facility is said to bc shorl lerm and repayable
on demand, this is purely illusory. If the business continues to be going concern and
the amount is conducted satisfactorily, the limit is reviewed yearly and renewed in
most cases with yearly increases in limit to co1.l.r \he effect of inl1;rlion and growth
of business. In practice this has become \he longest form of long tern] finance b
available t o a well conducted manufacturing compilny account.
(11) - LOAN
This facility is available to virtually all types of custolners ; ~ n d i t is I ~ C main type of
22
credit for personal customers and for financing of a manrlfacturing companies fixed
assets. Loans unlike overdraft are facilities granted in bulk. IJs~ldly a separate
account is opened for the loan'account. The balance of this accou t is often reduced
through instalmental payrdents usually morhly, quarterly or annually as agreed with /
the company. Short term loans are those that mature within one year and is hardly
approved for manufacturing industries of long gestation period required.
Medium term loans are those that have maturity p e r i d of up to fi\ e y c x s as it is the *
type usually provided to manufacturing industries for financing of thcir fixed assets.
Long term loans usually have nlaturity periods of more than five years are hardly
provided by commercial banks. Recently, commercial banks in Nigeria and in
particular Union Bank have in very rare instances probide loans with a maturity
periods of up to seven years but the amount involved and number of ;~ccounts do not
rectify describing commercial b a n b as probiders of long term loan.
(ill) Guamlees m d Indemnities
A guarantee is a written promise made by n bank to be coDaterally ansverable for
the debt.of another, usually its customers. Union Bank like other commercial bcmks
issue guarantee on behalf of its customers in ffrnwr of aty m uwr.;c;rs ~ ~ ~ p p l i e r 9f
machinery or equipment to the effect that payment wordd be made under the agreed
terms between the buyers and the seller. this facility is very liseful where
manufacturing company wishes to f i a n c e its machinery and equipment wilh buyers
credit o r suppliers credit. While guarantees involve secondary liability, indemnities
23
involve primary liability. Indemnities are issued to ship owners in respect of loss of
bill of lading to enable for example, the ship owner to deliver the plmt or mncliincry
for a manufacturing indLstry to _the. company representntivcs in licu of the - - __-
presentation of the original bill of lading.
(iv) Letters of C d l t
A documentnry credit is n letter addressed by a banker to n beneficiary (usually
exporter) undertaking to make a payment to the beneficiary or to pay, accept or
negotiate a bill drawn on the importer, against stipul:~ted shipping documents r~nd
provided that all the terms o i ihe credit have been met. It may be irrevocable or
revocable, confirmed or unconfirmed. In view of the huge sum of money involvcd
in the payment for the mnnufncturing indas!ries plant, rn.;chincq. : i n ! vijr~ir:ni.llt. n
confirmed irrevocable letter of credit ensures that payment is not mnde to the
supplier until the goods have been despatched as evidenced in the bill of lading.
Unfortunately, this does not give the irnporter any guxantee that the goods will be
precisely of the type and quality ordered.
Having discussed the major forms of commercial banks industrial projcct financing,
we shall now discuss the criteria that guide bmks and indeed most financial inlcrmediaries
in this lending activities.
2.6 LENDING CONSIDERATIONS .'
Due to the risks inherent in bank lending wit the possibility thiit the actu;~l outconlc of n
, Lu!&Hw.g?m p?aIs;l-&P".r
24
facility may be different from-expected outcome, the uncertainties inherent in business
undertakings, the inability to accurately predict hllrnan behaviour and changes in character,
banks adopt some basic lending principles to help identify, measure and manqe the hiL@ risk
involved in lending business especially as the money they lend out arc depositors' money.
These principles are not irrefutable law. They arc indeed elastic and capable of wider
interpretation to meet given situations. There are three basic principles of bank lending and
as recommended by Edozien (1!272), these are to bt: carefully weighed after the satisfaction
of which the bank then subjects the proposal to other factors of lending consideration which
are further applied to minjmise the risk of non-payment. The three basic principles behind
all bank lending which should serve only as a guide are discussed below:
(1) Sdely
It is essential that financial assistance should be granted to relii~ble borrowers who
can pay from reasonably sure sources and within the agreed period. The liquidity of
the loan or overdraft should be unquestionable and there should be ndequate
insurance against unforeseen developments. The banker must have reliable
information about the customer, his business e-xperience ,uld integrity, nature and
prospect of his business in relation to economic conditions imd neccts. The question
as to whether he is cre& worthy should be well settled from thc onset. b
(it) SuitabiIity
/ The banker should also satisfy himself about the suitability of the advance. Even
when the requirements of a borrower satisfy all safety and risk consideration, it is
2 5
necessary for the bankcr to ensure that the purpose of the loan is not in conflict \\.it11
the economic and mcicrtary policies of the gotcrnmrtnt. In Nigeriil, bank lentling is
highly regulated and controlled by the Central fixilk. 'Ihis is done t h r o q h the issw
of the Annual Credit Allculution Guidr.lints and the imposition of qn:llitativtt
limitations on bank lending. The g~u'drlincs v i q from )car to qcnr dcpcnding on the *
monetary policy bring'pursued by the Fcdt-rnl Go, urnn1cr;t. 'I'hc purpose of the lo:~n
The next criterion to consitler ir tbe profit:1141y of the ad! ;lilCc. i r is ;I WCII known
i fact that banks arc 1w.incsscs ertnldished mninly to ninkc profits und not as a
charitable organisation. I: is rhcrcforc nctcss.lry 11!;11 !he :uiianct. is profitable,
2 6
interest rates paid to depositors. 'Illis allows banks to make some profits. Ln order
to improve profitability o n loan, Union Rank ~ i \ t s preference to projects with
auxiliaq earnings. It is generally more profitable to Icnd to ~ n ~ l r n ~ f a c t u r i n ~ industries
than to a hotel intiustry even if inkrest rntcs to be charged :Ire the s,me. 'Ihis is
because the turnover from manufacturing industry \\,ill dcti~iitcly be higher than that
of hotel industry, and the hislit-r the turnover thc more revenue for thc bank through
commiwio~i on turnover (COT). A m a n u f x t ~ ~ i ~ ~ : i~i,Iustry ,llw 1x1s ; I better prospect
of doing foreign business with the bank and this ivill yield revcnw to the bank
through exchange commission, letter oi creili~ corniniAo~i, etc.
After gjjving these three basic pr;:lcipIcs of fentiin,; ( 1 1 ~ co~isider:~tion. the pmposd
is then subjected to further n~i:il>is ancl \ . , t ~ i ~ ; l i t , o h r factors are taken into
consideration before n propos;~l c:ln bc gr:lriti (1 t.1. rcjl clctl. I I I L . ~ S:ictors include the
amount requested, the repayment plm. the secririty :iriil the term of the loan or
overdraft facilities. 14 brief ciixlission of thcse f m o r s follows:
Amount /
The customer is espccted to dc-termirie f;iirly ;~cc~~r. l tcly how mulch finance he
/' 27
borrowing powers of the company aild that of the directors as nay lending above the
limit would be ultra-vires. Qlljtc oftcn the aml-b!!lt requircd i>). n customer is too high
that a bank cannot proiidc i t alonc becaiise of thr risk i ~ i i ~ o l \ ~ t i or its stnt~ltory
lending limit (c~urcntly 33 of the sum of the p:lid up cc~pit;tl mil st;~t~ltory rcsenvs
of commercii~l hanks). In this c . 1 ~ the bank m:ly :irrnngc for a loan syndication and
this involves insiting other banks to nssisr to proiride the fncilities rcqiiired.
(ii) Hepuynien t
The manager or the Icnciin~ officer n-ill be more inclir~cd to lend if the customcr can - -. - - -
demonstrate how and whcn repnymcnt is to bc mnclc. ' I lerc is h:irdly a prospective
borrower who will riot w e a r of possessing surr source c!f reptiying thc loan or
o i w d r d t grmtetl to him. Ilc \vili paint n rosy picture of his proposition, eng;tge in
illusory mnthcmatiwl calc~~l;~tions of cspcctecl rctllrris am1 in thc pnxcss he will start
counting his chickens before the eKqs are hstc!icct. A scasoncd birnker i~s~~;rlly
examines all dmuments nttachrd to ?he propoiition ra cnsure th:it rep:lyrncnt colild
be met.
(ill) Securll.
Contrary to what many prospcctiit b ~ \ ~ - i m r r s thinL, the ablllty to produce tx~giblc
collateral security is not the most in ,pr tnnt criierton for g r s n t r ~ ~ ~ ~rcxiit fa~llities ;IS
the offer of the securi~y does not weaken the nci-tl for ;I t l i o r t q h cx ;un i~~;~ l i~ )n ui lhc
proposals. However. this does not mean th:it security is u n i m p o r l ; ~ ~ ~ . banks ask lor
security because the best plans can 90 astray espcci;llly in these ~inc~~rri l in times. after
the bank manager has evaluated the proposal, he is able to assess s h t risks the bznk
runs in lending to the ctwtomer. It is r p n this assessment that he bases his reqrlests *I
for security. Security is never looked upon as the source of repayment but only as
something to fall back on if the unespccted source of rcpnynler~t fails. It should only
selve as a buffcr (i. e. nil Inwrance against unforeseel: adverse clevelopn~ents).
It is generally ngreerl therefore that facilities. are not to be midc just bccnwc they
are secured but because security is tabcn on!! ;IS i\ form of insurance. 'fie real
security for a facility is the character and ability of n cnstomcr ant1 his business or
resource to generate repayment. It is accept.lh1e fact that where p q d e have
something at stake,,,they r?re more caurjous, thcrcfore, whcrt: a customer has pletiged
his hard earned assets as sect~ri~y he is more prone to rcp;ly or at least ~n;lke effort
to repay his loan. To be nrrcpt;~h:e, as security- must have the following qwditics: It
must be easily and accurately valued, could bc end) pcrftctcd, ensi!y renliu;~blc and
must maintain if not ;~ppreciate in valt~e.
Commercial bonks are hasicdly interestid in short term iinnncing beciulse most ol
their deposits are repayable on dcmand or at s h u t notices and SO thcy cannot nfforcl
to lend on long term basis. Most of the leading commercial bmks have sct up
corporate finance dcptlrtments (a.ith go\crnrrrcni C I I C ~ ~ I . : I ~ C I I I C I I ~ ) to make rnciltt:m
29
financing are undertaken in this department.
Customers connection is another factor which has y i n e d prornincnce in most lcntling
considerations in this country. A customer inny not bC3 ;~hle to meet these
requirements for a standard proposal but bec:ulsc of his connection with a source of
profitable business, political connection, etc. his propo.mls may be p j v m a second
chance.
The lendhg considerations di_sc.ussecl so Tar cvmtitt~tt. pcnerd o\ er-\ iew of thc b;isic
principles 'and considerations th:~t banks :tad most other 11nnnc.ial 1j1ttwncdi:mes apply to all
types of borrowing cvstomers including tfiosc of industrial project fin;lncing.
As lending to riranuf;ictl~ring in:!i~s!ric.s is fairl~- n 11cw ph'*nr~!n~'r1:i in Nip-rim
Banking Scene, each financial intrrmediaq, be it l l e ~ . c l o ~ ~ n ~ c ~ ~ t Dank, Merchant h n k ,
Commercial Bank, Insurance Company, etc., hnd t o tk.\dop its own proceciwrs, U'r shall
in the next section h i t ourselves to the procedures adoptcd by IJnion 13ank ivr nppuisine
request for financing of industrial projccts in Nigeria.
In addition to the general lending considerations dixusscd :~bove, lentling to iiimlufncturing 4
industrics involve some d i i i t i o ~ t d lcnding consirlcrotions. 'The mdcrmrntionrd
information/documents are usually reqiiirrd by Union U m l ; for lc~itli~ig lo industrics i n
Nigeria.
(1) Techntcal Dctnlls
FIcre Ihc bimk would need to be satisfied with the type of mnchincry chosen and the
process technolo-gy involved in the production process. They consider production
capacity as vital and would hardly approve fxiIitics for a ncw brewery with a
_ _- - -- - prodnction capacity of below 200,000 hectolitres as thcy do not consider s~lch
breweries to be viable ventwes in this country. me b m k prcfcrs to finance projects
where machinery chos~i ; h a w bee11 tested in rhls country a11d prt'lt'rably the ones
which have local reprcsentati~cs. 'The process technology ?~lvol\.cd s11o11ld not be too
sophisticated more so that \it are yet a tle\.eloping country. The Iwnk n.u~Jd like to
be satisfied that adequ:itc proiisions ha\ c k e n rnntlc fur power wpply and wstcr and
in view of the general lack of water and f reqn~nt po\var fail~lr~.s. tIic h n k insists on
the provision of bore holcs and standby generators.
(11) Raw Materials
Sotucing of raw materials is a very importmt lending considerations in the financing
of industrial projects. As we aware. Nigeria in nn cltternp lo ind~~striulise hurriedly
did not give adequate attention to the sonrcing of rilw n~steri;lls for her inci~istries ss
a result most industries in this country are heavily tlcpcndrnr on irr:pmed rilw
materials. With the 011 glut arid reduction in f o r e i y ~ eschangc e:rrnings iinilow of b
imported raw materials ha1.e k e n curtai ld so tllar thesr co~npanies are now
'
attempting to source their raw materials lxa l iy . A proj~.c1 \\.!~rcli is plnilned to bc
heavily dependent on imported raw materials is tar;:dly not fin;lncCd by l J h n Bank.
(111) Project Cost
The bank usually requires a detailed estimate of the project cost. This will include
the cost of all fixed assets, working capital and Icttc'r of credit reqtiircn~cnts with the
aid of the projected cash flows. Cost of all fixed ~ S W I S ;ire verified ivitli \he rdcvant
proforma invoices, and costs comparcd with costs of simil;w assets in thc past. The
bank also verifies that certahi costs ~micjuc. to Nigria are included. These i~iclrldc
cost of electric generators and twrc hules '1l;t: h i i t dues all !hr aI.w\c to i11surt: hat
the total project costs is as ncar accur:ite as powblc I>L.cx!stt il i~ on i t that the
financial plan is to be based.
(tv) Manpower Rcqntrcmcnt
To reach a concl~~sion on'whclhcr or not to pro~.i,tc finance, the bank is intcrcslcd /
to know the total manpower requirements, die breakdown o f it a d ;dso the
breakdown of emoluments to bc pahi to each crltcgory. r rom these, and the
organisation structure, the h m k will be i ~ b l ~ b to assess if the right c;dibrc of staff cnultl
arrangement and recruitment mcthuJ are adcqurltc.
A project plmned without adeqtiate attenticw hc:ii:g paitl tu rcwuiting the ri$it-
calibre of staff would hardly o M n iinimcc fcrr:: Union C ,~nk .
It is evident form the above that Union bonk is disposed to prcnitlt. fitcilitics to
manuficturing industries if she is con\.incxd about the s o m d i ~ ~ s s , pruf;r;it?ll~ty 3 1 ~ 1 \i.il)ilitj.
of the project and on the borrowers nian;rgi.rictl cornpctcricc ililtl r;chnlc;ll A111b to csec~itc
32
the venture successfully; indeed sound and 1-iable projects of kno\vledgcable, efficient and
reliable management seldom fails to attract deserved loans. To ensure this, the bank adopts
some methods of lending which will be discussed in the next section.
2.8 METHODS OF LENDING
The methods of firlancing manufactwiilg industries adopted by finnnci:il intermeiIi:~ries
depends on the size of facilities requcstcd, the subhector in\dverl iund the she or risk a
financial intermediary is prepared to take. Nigerian Industrial Deitlopment Rink does not
provide working capital facilities1 and therefore she wordd always \vimt another bank to
provide working capital facilities. The Insurance Companies, Nigerinn Ihnk for Conlmerce /
'and Industry, Merchant Banks and Cornnlercid Bank c;ich provide both tcnn loans for fixed
a5sets and working capital facilities. These institutions can therefore ntlnpt any of the three
main methods of financing manufacturing industries.
The methods are sole financing, Joint fin'mcing ;rnd consortium fin:lncing. We shall
now discuss each method of financing as prclctised in Union nank.
Here the bank sinply provides all the facilities required. It is oltzl~ practised where
the bank's management consider the amount reqllircd a s risk i t could carry alone. b
It is advantageous to the customer in that negoti:~tiun is chaslt.r, quicker and cost of --
.-
perfecting sccuriry is chcapcst.
(11) Joint Financtng .
Here the bank invites just a bank or an insurance cornpay to ;lssist in providing
facilities requested or required. It is often practised where the biulks managment
wants to spread the risk invoh-ed. Often it is at the customer's rcqrlest. Thc
borrower has to deal directly with two different institutions and this is tinw
con~uming. It is often more expensit-e to perfect security under this nlc~hoti of
financing.
(U) Consortturn Financtng
This is a major method of finmcing iniIu.tria1 projects in Nigeria. It involvcd a lninimunl
of three financial intermediaries pooling resowces toge:hcr to finarm a prcject. h x i a h l y ,
one of the finalcia1 intermediaries act as the "Imc! Bank" ,mcl has the responsibility of
coordinating the financing armngernents. The hank le:lcls a consorti~rnl W ~ C i t wants to
share the risk inherent in a lending, where the total facilities r c q ~ ~ i r c d csceetIs its stt~tutory
lending limit to a single borrower., The statrltory lending limit of linion Bank currenlly is
W40.19m. Once a lending proposition has been agreeti, one might :tsstrmc that i t is only
/' necessary to-review the facility, say annually. Unfortunately n varier); 01 unexpected events
can combine to modify the trend of bo~rowing. Herr comcs the importance. of crodit control.
We shall discuss the procedures adopted by Union Dank for control of crcclit.
PROCEDURE ADOPTED FOR COSTI<OI, OF CKI*;DI'I'
Ln Union Bank, facilities for fincmclng of ~nclustrinl pro,ccts ilrc :rpprrj\ cct by mcmbcrs of'
general Management (Assistant General Managers, Executive Directors i~lld Miuii~ging /
Dircctor/Chief Executive). Requests for very h e a ~ y amounts are :~lso subjected to the
approval of the Board of Directors. As soon as apprcnx! is given at thc l I w d Office level,
drawn down is done iit branch level where customers n~nintiun accotmt.
Control of Credit is thc Branch Manngers responsibility. Hcfore hc al1on.s (1~1n.n-
down of facility he ensures that all conditions prcccdcnt to drn~vn-clown h ; n ~ been mct by
the borrower. lie reviews the hrro~vingcnston~ers account ri-gd;trly and i f there are i i i i~wse
trends he reports to the Hexl Office \in Xegionnl Office. Adverse trends include diversion
of funds, adverse market trends, c h x g e in cu~stomc.r's attit~itjc to bmk. etc.
Control of credit is animportant function in any bank. It is time consuming and ii
not given adequate attention, debts oftcn results. 2 .b :\.;IS mcn:ionctl carlicr, cc?mn?crrial
banks are business established to mnkc profit. Their m i n so111-ce of incomc is interc51 on
lending. They would normally like to l w d and lend more lm for ~01111~ ronstr:~i~lts.
We shall now discuss these lending corlsrr;iinrs ~\i:h rc lc~cncc to Icnding to
manufacturing industries in Union Bank.
An attempt has been made to idcfitify thrce areas of constr ,hts which could inhibit rhc
performance of Union Dank with regnnls to financins industrial pr~)jc'(:t\. 'l'hc t!we are;~s
(i) Constraint of the law
. ' (ii) Constraints cr+ted by borrowers
/'
(iii) Others e. g. economic, political and exposure to the firm.
(1) The Constratnt of the Law
In view of the fact that commercial b'mks rely essentially on other peoples funds in
financing their credits portfolio and because they create nioney through their lending
operations the government hiis prescribed specific laws to snfegu;lrd the interest of
the third party who keeps money with the bank. There are also 1an.s that regulate
the economy. a bank is obljgcd to ensure that she complies with these laws. These
laws include:
(a) Cash Ratio __--- -I --
Commerci~~l B'mks are expected to maintain a pcrcentagc of thcir cicn~and deposit
in form of cash balance wirh the Centrd Bank. For this pllrpose banks are grouped
into four classes, based on the ,mount of total deposit liabilities. 'lhe classes and the
minimum ratio of cash to demand deposits which the cornmcrci:il I~nnks ;Ire reqi~ired
to maintain with CBN are:
w. Total Deposit Liabilities
A W1 billion or more
Cash Ratio
9%
B W500m or more but less than Wlb 8 C'L
C WlOOm or more but less th'm W5OOm 7%
' D Less than W ~ O O ~ 6%
SOURCE: Cennal Bark ;\lor~etaq Policy circi~lur 28
The discriminatory cad ratios to be maintained is to ensure that largc and small banks feel
the impad of the scheme equally. Union B,mk is in c1;1ss A.
(b) Llqnfdity Ratio:
All commercial banks are r e q ~ ~ i r e d to nnintnin a minirnunl of 30% of thcir
deposits in cash or approved securities. The corn~?osititrn of clualifling asscts !lave
been changed several times. The foUo\ving are the currently spccil'ied l iq~~iii assets:
- Vault cash
- Balances with the CI3N
Net Inter-nank Brlnnces - -..- _.- -
Money at call
Bills discounted
Eligible development stocks
- Bankers Unit Fund nncl
- Negotiable certificate of deposits.
Most Nigerian Cornmcrcial banks and indeed Union Bank have pern~nnently
kept their liquidity ratios 1vt.11 above the 30% !imit.
b
(c) Legal Lending Limit
The 1969 Banking act stipulates that no single 1o:rm or ci.c(li~ m y zxcec-d 33?4
of the sum of the paid up capital and statutory reserves of il commercial h n k or
3 7
more than the slim of the paid up capital and statutory resenres of ;I merchnnt bank.
For Union Rank this me~ms a current rnaiirn~im of W40.19111 to a single borrower.
(d) Ssctoral Dlstrtbutton of bans and Advances:
The Central Bank of Nigeria in its sectoral distribution specifies each year the
percentage of cdmmercia~ b'mk and even Merchant banks total loms and advances
that must go to 'each sector of the economy. For this purpose the economy is
classified into two major sectors. The preferred sector consists mainly of those
activities which are on the priority list of the government ;md are therefore
encoruaged m,mufacturing is in this sector. Loans to the prefrred sector co~isists
mainly of credits extended lo finance general commerce (imports, and domcstic
trade) personal lonns etc.
Each item is allocated a percentage share-minima in the case of the preferred sector
and maxima in the case of less preferred sector - -7-
(e) b ~ s lo Rural Areas
Jh pursuit of ;he policy on rid banhing. cumn~ercii~l bcrnks in 1004 are
required to lend not less than 50% of total deposit mohi1iml in their rum1 b
branches in such areas. The policy is intended to accrlcrattl e c o n o ~ ~ ~ ~ c g rwlh
of the rum1 areas and to spread the b:ml;ing habit and clc.\~lopment in the
co\mtIy.
38
(ii) CONSTRAXNTS CREATED BY BORRO\I.'EKS:
If borrowers come up with good proposals that mcer n b:ink7s lending
considerations, the bank is always willing to lend. ?'he following are some of
the constraints created by the borrowers that inhibit tending for industrial
projects (manufacturing industries):
- Unsatisfactory status report on share holders
High gearing
- Poor feasibility repot
Lack of technical partners
- Wrong choice of projects e.g the one with high imports content etc.
(iii) OTHERS
These include the economic situation of the country, the political situation
and the bank exposue to the firm. A buoyant economy stimulates lending while a
depressed one causes a reduction in demand for loans. A stable political situation
stimulates lending in thatd1orecasts could be made. A bank's existing exposure to the
lirm determines its attitude towards further lending to the finn. /
SUMMARY AND CONCLUSIOSS
In this chapter: we have discussed how difficult i t is for ;I prijcct sponsor to s;~vt' all
the amount required to finance ,UI industrial project. 'To a l l e \ i~ te this constr;~inr financial
39
intermediaries have come into existence. Financial intermediaries include bmks and non-
bank financial institutions. The bank finnncinl intermediaries incl~lde commercinl banks of
which Union Bank is one.
After this, introduction we narrowed down our discllssions to how ~ n j o n Bank in
articular goes about providing finance for industrial projects (m,mufacti~ring). We discussed
the types of facilities provided which are as follo\vs: O~.erdraft, Loan,
Guarantees/indemnities and letters of credits. We went in depth into general lending
considerations before discussing Union Banks procedure for appraising requests for industrial
projects.
We mentioned that the method of lending adopted depends on the size of facilities
requested. These methods of lending were identified m sole fincmcins, joint financing, and
consortium fin,mcing. Approval of facilities is only the beginning of :i new rclntionship with
a customer. The facility has to be repaid and this led us into discussing the procedures
adopted for control of credit. We later discussed wh:it could be the b;~nk's Icnding constraint
and we identified three major areas of constraints i.e constraints of the law, constraints
created by the borrowers and others which we termed economic and political. N 1 these
constraints will not be operational at any given time but their existence needs be noted as
they could always affect the lending performance of a bank. b
EIow then has Uni~n Bank fared despite these constraints? This It.;~tis us to chapter
four'where we shall attempt to e\.aluate the performance of the bank in industrial project
financing in N i p i a .
SOTES
1. OLUSEGUN B.A. and OBANLA P., "Bank anti lnduslrlcs on l<canan~ic
Development", Business Times Jan. 25, 1988
3 -. FEDERATION OF NIGERIA STA?EME3NI' ON I NI>IJS'I'RIAL POLICY
Sessional Paper No. 6 (1961), p. 20
3. ABDULWI T N W O AND CO SOLICITORS (1986), E:_s~.~il,lish~ng_~j~tslnss;l.in
Ni~eria, (Lagos, Academy Press Ltd)
4. ADEKANYA F. (1984), The Niserian 13ankin~-I-I&n<i Book (Ikdt'ord Shire 1 . J . K
Graham Burn).
5. NAYL, S.I. and Ojo, 0.0. (1981) Moncy a r ~ ~ i - ~ ~ ! ~ ; ~ n ~ _ L o n ~ l i ~ ~ ~ George 1UIcn and
IJnwin Publisher I .td).
6. CASS. T. (1970) Sta~istical Method in hian,?rzemunt. (London: C~isscl S: Coy. L.td).
7. CRUCKER A. 41. (19'7J). Statistics for Teachers, (Windsor Ucrks NFER Publishing
a. Ltd).
(London: The blacmillan Press I-td)
9. DEYI-El E.P. (1968) Practice of Banking (London: b1:ictlen;ild nntf E \ m s 1,td). b
10. DYER, J.E. (1971) A P~rnctic~~l Appro~ch to l .er~111g (1.ondon: institute of Ihnkcrs)
11. FREUD J.E. and Williams F.?'. (1982). Modern hsiness S t ~ ! ~ ~ i c s ,
(London: Pitman Books Ltd).
NWANKWO (3.0. (19W), The Nigrian Financial Svsti-nil Innt lon: M:lcn~ill;ln
Publishers Ltd.)
OBLJIOFOR E. E. (1985), Business Stntis~cs Vd.1. (L.;\gos: M;~n:\genlent Science
Centre).
Essex: 1-ongman Group Ltd).
PANDY I. M. (1986) Fdncia l blnnc~,cement (New Idhi: Vmi Iid~lcationd Books)
PERRY F. E. (1984), Inw and Practice Re1;1tinr!~oo~j~nki1]& (Ibadnn: Spectrum
Books Ltd). _- ---_I--- - -- -
PERRY F. E. (1981), Elements of B;mkinp. (Ibadm: Spectnm Books Ltd).
IJZOAGA W. 0.(1981) Moncv and 13nnkingNieeria (F~IIISII: Nigeria, fi)urth
Dimension Publishing Cu: Ltd).
WESTON J. C1: RIIIGH~tCl E.F. (1978). hlanqeri;~l Finance, (I-Iimlalc Illitlois: 'The
Dryden Press)
VANHORNE J. C. (1983), Financial blnnnpoment and Policy, (Ncn Jersey: Practice;
NWAJAGU, P. C. (1981), 'The Role of Comniercii~l Banks In Intlust~hll I;lnimcingV
M. Sc. Project Report, Univrrsity of Ibadan, 1981.
TUDUNWADA, L. (1981), "Problems Facing Industries In Sigcria", I311llion, \,.ol.
6, No. 3. JulyiScpt. 1981, pp. 23-27 (Lrtgos, C. n. N)
ZOYYAD, H. R. ( l98 l ) , "Lndustrial Development in Sigeria in the Eighties B.uIlic,!~
Vol. 6, No. 3, Jdy~Sept 1981.
AKINGBlWE, J . A. (1985), 'Yenlure Capital us u Koutc to '~cchnoiogicnl Gmwth",
Bullion, Vol. a) No. 2, Apri1:June 1985.
AJAYI, S. I. (1980), "Growth in the Banking Inclusln. i l l Sigcriii". Ihmestic ;tnd
Internntionnl Bnnhbg. Scnices, pp. 170-188. Pnper prewntcrl at thc 15th ;lnnllill
Bankins Seminar, Dec. 1980.
ADEKUNLE, J . 0. (1986). 'The role of Banks in a t lcp~~sscc l economy", a paper
- .- .- -
presented at a symposium orgnnised by the Banking anti Finance (;ri~tluate Stt~di'nts
Association at the Uni\.ersit); of Ibadan, May 1907.
CILAYTER TIIREE
* ' SOURCES OF DATA - /
Two main sources of data were used in the study. 'Ihese \\.ere secondary data sources and
primary data sources.
Extensive llse of official d w r n e n t s and record5 \verr made. I'ublishcd and
unp~lblished records of banks and other financial instirutions in\.ol\-ed in projcct
financing were used. Go\.ernment bulletins, journds. estri~ctions form text books,
Articles and papers presented at seminars by \ x i o u s bank stnlf. \\.ere equally used.
These secondary sources of data pro\.itled mow of the (hta ~lscil in this study.
(b) Prlmary Data - _-_ - -- --
Interview constit~ited n sonrce of primary d ; ~ t ; ~ . 1 3 1 ~ to flcsihility offcrcti by such
method, the reseauchcr chose it. Oral intc.n.ic\\* \vns esicnsi\,cly utilired to obt;lin
first-hand information from both Union Eliink nnd 1ndlistrit.s t l i ; ~ t hcnefittttct form the
scheme. Such jnten.ie\w were schedulccl and fisecl ;ipproprintcly ~vith the bank ;it its
Head Office in Lagos and Ie\v sclcctrti inilu.stricb that bzncfittcd from tlit- b;lnk. ( S w
Appelirlix 111)
3.1 , SAMPLES USED
The interviews were held at Union nank of Xlger~;i 1%. L i ~ o s 11~;1d Ollicc. ('cntr:tl Ihnk
44
of Nigeria, l ~ g o s . I-'lo~~r Milling and B'akeries at Lngcw. Obik;~ Pe;lcc. Shop. I - ~ I I ~ I I , hc;lds and
Heads West Afric;~n I .t(i., I ngcx, Farm A.\soci;~tc.s I t r l . , I .;ISOS, / . ; ~ n t l i l I / ~ l n c l ~ l \Vest Africitn
Ltd., L;1gos, tlitchi.llcti Nigeria Limited, Ligos. Shell 13. I'., I'ort-II:~r.cor~rt.
3.2 VALIDITY A'SD RELIhRILII'Y OF . \ . IUSI'RIS(; ISSl'KI'MI<STS __ . Validity of nn instrmcni -irf measurement is thc clegrcc. or c5stcnt to \vhich sl~ch an
instrument nctually rnc;isures \\.h;it it is tlcsi!gcd tu nlc;l>llrc.. It bcconics \xlicl if it is t:~ilor;.il
to elicit information that is iiii!iz3ble in achiciing the rcscarch objecti\-cs. This was thcrcfore
thoroughly considercd in constructing the intenirw guides. Arnbiguily of q ~ ~ s t i o n s ~ ~ 1 . t :
carefully avoided. Leading questions were equ3lly ;n.oicied c\.en though somc questions were
worded to ensure consistency of the opinions and picces of infornintivn ~i \ .en out by the
respondents.
3 3 ANALYTICAL TECHSIQC'ES
The data are responses made by bankers and industries as to the hanks pnrticipntioii in
project financing in Nigeria. ' f ie data were reported in tables to show the direction of the
perceptions and the trend of he figures mpplied.
The analysis technique include the use of percentascs as nsell :IS correlation co-
efficient and 1-test techniquc. The product moment co-efficient \\.:IS 1lst.d to mcb:I.;ure: thc
linearity or col~elation betivcen total deposits ,mil t r \ t ;~ l loans.
'The formula used n.as
where
X = Total Deposits at end of each year
Y = Total Advances to manufacturing sectors
N = Number of pairs of data used in analysis
R = Correlation Cuefficient
The T- test technique was also used to determine the differences in mean deviation of
performance of banks in mssting the Central Bank of Nigeria prescribed minimum targot.
The formula is
where
X = Mean of the deviation of other banks from prescribed minimum
Y = Mean of deviation of Union Bank from prescribed minimum
S = Estimate of standard deviation o
--- .- /--- -.
46
n= Sample size
In the analysis, if the value of correlation co-cfficicnt is -1 $r i 1. i t nxlns that as
deposit increase, loans or facilities granted to manufacturing industries incre:ise in sitme
direction.
The t-test technique is to cokduct n test of differences of mean betwecn the mean
growth rate of Union Bank's loans and that of the loans gnnted by the entire banking i
system. If the answer is less than 4, if confirms the con,en.ativt: uttitudc of Union Bank in
their average annual growth rate in loans of 3% when compsrect with ;wecigl: annual growth
rate of all banks of 14%.
C M E R FOlrR
DATA ASALYSIS
In evaluating the performance of Union Bank in Industrial project financing, we shall use
the undermentioned parameters:
6 )
( i i)
(iii)
4.2
Comparison of ?he 1~;ion Bank and all other commercial hanks loans and fid~i~nces
to the manufacturing sectors.
Union Bank's performance with regards to meeting thc Centr;il Unnk guidcliiies on
lending to manufacturing indu.tries!sectors. Distribution of Union Bank's loam and
advances to the various firms in the mimufacturing sectors.
A detailed discusion on thc abo\x inc.ntioiict1 pxlrnelcrs c)l c.\rrlll;~ting the
performance of Union Dank follows:
COMPAIUSON OF TIIE UNIOS BAXK ASD ALL OTIlER CO31>lliRCLiL
BAYKS LOANS -itYD AD\XSCES FOR ISDI'STKIAI, YU0,JECrS
(MANIJFACTI;RISC. SECTORS)
As shown in Table 3, Union Rank's total lvnns and ;~d\mces t o n x l n ~ ~ h c t ~ ~ r i n ~ sectors stood
W3044.8milIion. Union Bank's sharc of tot;~l commcrci;tl b:uiks ;d\.arir-~.~ r c ? ~ i i c scbc-lor wils
/
while Union Bank's ad\.ances to the sector grew from W420.4m to WS10.2m, a p,ro\vth rate
of 28.9%.
In December 1%0 both commercial banks and IJnion Dmk ad\mces to the
manufact~iring sectors showed a negative annual g o n th rate of -1.3' L a n d -0.451 rcspecti\vly.
'Ihis sudden and sharp dccline may be 3s rt result of thc oil fillit and consequent recession
which mmt have tlccomted for the poorjnegative gron-th mte rccorded npithin that pcriod.
'The more rapid fall in annl~al growh rate of lJnion Rank ;itl\.i~nccs to ~nan~~fncturing
sector than that of total commercial banks betwecn the pcriod 1989 -I%O and the
__ - - -
consequent reduction inpercenta~e share of Union bank could be attributed to thc increased
competition brought about by the increase in the n~imber of commcrci:d banks. As at
december 1982, commercial banks were 2 2 . the number increased to 77 in 1985 and to 60 by
1990.
As at Decembcr 1991 the percentage of loan) zstended bj conlnlcrcial banks Src\v
by 345 and that of Union Bank was 4.055 compared \vith [previous incrcasr of 1.35 and -
9.4% respectively. This could be as (I result of increase in thc deposit 1i;lbiIities of
commercial banks and Union Rank re~pecti\~cly. Credits to p w n m c n t \vitl'lin this period
also attribyted to the expnnsionary credit increases. 'I'he perccntngc incrc:~scs in loi~ns to
manufacturing sectors fell to 10% as compared with the previous increases of 315 by
commercial banks and 3.94"i. as compared to 4.065 by Union UmL. IwC;iuse thc i n d ~ ~ ~ t s i a l
sectors capocity ~rti]i/ation dropped by ,m a\.ernpe oi .Sq from 305 111 1091 to 255 in 1902.
the naira cost of forci_gn exchange remained high throughout the pcriotl. :ind this uggravatcd
the business environment resulting in higher costs, su;~ring price5 ol goinls and 5c.n iccs,
49
massive consumer resistance and enormous build-up of unsold wares.
The share of total bank's manufacniring loans to total loans increased in 1993 at the
rate of 17.4% compared to the pre\ious increase of 10.0% as at 1992. follow in^ the
increased demand for bank credit, total loans and advances rose to W6305.3 million or 17.45
compared to an increase of W5207.5 million or 10% ir! the preceding year. the sectoral
analysis of this loan shows that banks continued to veer away from policy tarsets.
Agriculture and manufacturing received 13.8% and 28.8% as against the prescribed targets
of 15.0% and 35% respectively. Allowtion to other sectors exceed the stipulated ceiling of
50%.
n e percentage increase in loans to manufacturjng again fell in 1993 by 7.43% as
compared with the previous increases of 17.1% in 1 W3. This could be as a result of tight
monetary policies of Central Bank with this p e r i d and increase in thc n~rrnlxr of comn~ercinl
banks from 60 in 1990 to over 87 comn~ercial banks which raised the Icvel of competition.
5 1
TABLE 3
UNION BANK TOTAL IX)ANS AND ADVANCES TO TIIE MANUFACTURING -. -- __c-
SECI'OR AS A PERCENTAGE OF TOTAL COMMERCIAL BANKS IX)ANS AND
ADVANCES TO THE MANUFACIWRING SEXTORS 1990 - 1994
Commercial banks
Omwth Rate (%)
loans and advances to
Rate (%)
13.81
UBNLoars & Aclvatxa to manufacturing eecton,
Source CBN Economic and Financial Review. Various Isma and CBN I m and Advances Rtmdv.
M M ~ ) =9.57
% of UBN Loaos and Advances to mufactun'ng to total commercial banks
g e average annual growth rate in Loans and Advances to manufacturing sectors
granted by Union Bank
(3-35s
For all Banks
There is a difference of about 11% in annual growth rate in loans and advances
granted by Union Bank when compared to total granted by all banks.
TABLE 4
UNION BANK TOTAL U)ANS AND ADVANCES TO THE ECONOMY AS A
PERCENTAGE OF TOTAL C O M ~ - C U L BANKS LOANS AND ECONOMY
UBN Loans & Advances to the
-*omy December of each year
1990
1991
1992
1993
1994
% of UBN h a and Advaoces to
commercial bank9 loans and advances
Commmcial banks total loax and advanoca to the
economy
#millions
19,362.4
m095
35,871.2
26,9985
24,979.0
SO-: ~ e n b d ~ankof~fger in Economic and Finanrial R N h . Vinious I- and Union Bank Advonces Reconlr.
53
TABLE 5
TOTAL DEPOSm IN UNION BANK AS A PERCENTAGE OF TOTAL DEPOSITS IN COMMERCIAL
Sonrce: Central &mk of Nigeria and Finondol Review. Various Issues and Union Bank Reconk
BANKS (1990 - 1994)
Using tables 3 and 5, we were able to determine that there is a high positive
. correlation between banks deposits and advanca to the manufacturing sectors. The
computation of correlation co-efficient between commercial banks total advances to the
manufacturing &tor and total deposits in commercial banks is shown thus:
.-. . -/---
% of UBN Deposits to Total
Deposits
19.2
Total Deposits in Commeraal baoks
MbiUion
17 397.1
Total Deposits in Uniw Bank
mbiioa
3330.45
54
VERIFICATION OF WHETHER OR NOT THERE IS A CORRELATION BETWEEN
COMMERCIAL BANKS TOTAL ADVANCES TO THE MANUFACTURING SECTORS
AND TOTAL DEPOSll3 IN COMMERCIAL BANKS
--
TOTAL DEPOSITS
(x) Billion (y) Billion
Use product moment Formula for linear correlation coefficient
/
where
X = Total deposit at end of each year
y = Total advances to manufacturing sectors
n = Number of pairs of data used in analysis
R = Correlation coefficient
WORKINGS ---
The correlation coefficient we estimated from the available data was 0.872 which in
effect means that there is a subskmtid positive correlation betwecn total commercial bank
loans and advanms to the m a n u f ~ t u r i n ~ ; sectors and total deposits in commercial banks.
In thc same vcin n simi::~ thing was don? for the Union Bank's total lonns nnJ
advances to the manufacturi~ig s~ctors and its tl..tal deposits.
Thc computation wmcs thcw:
VERIFICATION OF WHFI'1JF:R OR NO r '1 fIERC 1s A COKIcEL41 ION EEIWEEN
UNION BANK'S TOTAL ADVASCES TO TlIE AMAN UI;ACTL'BlNG SECTORS
AND TOI AL DLPOSITS 1N UNION BAKM
I 1 (x) Billions 1 (y) Billions
Use product moment formula for Linear correlation coefficient
where
X = Total deposit at cnd of each ycar
y = Total advances to manufacturing sectors
n = Number of pairs of data used in anesis
R = Correlation coefficient
The correlatjdh cocfficicnt calculrrtcd was 0.978 bvhich also n m n s that thcrc is a
substantial positive wrrclation hctwccn rotd Unkm Bank loans and advmccs to thc
manufacturing sectors and total dcpositb in Union R m k .
43 UNION RAXK PERFOKMAKCE WIT11 REGARDS TO SIEE'TINS TIIE CENTRAL BANK OF NIGERIA GUIDELIKES OX LENDISC TO hIANUFACTURING SECTORS
Table 6 shows commercial b a k s sectoral di~tribution of crcciit to manufacturing industries
for the period of December 1990 to 1994.
h'column 4, table 6 shows the percentage share of manufacturing to total Imns and
advance8 made by commercial bunks to the economy for the p e r i d decerntxr 1990 to 1994. . --
the entire economy from D w m b c r 1990 to Deccrnhcr 1994. 'I'he Ckntral Rink prcxribc.d
limit was 35% form 1990 - 1991.
9 The Central Bank of Nigcrirl prescribed minimum percentage allocation to manufactnring
.. ---
sectors is also shown in ~ o h = 5.
As could be seen from tablc fi colt~mn 6, thc cornrncrcinl banks have nevcr met the
Central Bank's prescribed minimum. The only time when they nearly met thc min im~~m was
at December 1993 when the variancc was a b u t -1 1.65%.
End of Total loans and year advances to the
ecuuuniy
- Total loons and 8dvawcs LO
mcufxming
3
The. Union Bank's tot:!l loans and adt.mces to the m ; m i ~ l c t : r i n sector iind the
entire economy is shown in table 7. It covcrs the period Deccmber 10iN to 1394. Culuinn
/ 4 of the table indicates the rciative sharc of Union h n k ' s nronulactiu~ng sector aihmces end
TABLE 7
UNION BANK'S SECTORAL DISTRIBUTION OF CREDIT TO
MANUFACTURING SECTORS (19!XJ -1994)
Total loans 6 Total to Perantage of the eocraorny man~rlacturing rnamrfacturing minimum to
manufncturing
Test of differences of Mean deviation of performance of banks in meetinn the
Central Bank of Nigeria - -- prescribed minimum target. Using tables 6 and 7. - -=- -
Use T-distniution tcsts
Note:
where
X = mean of thc deviation of other banks from prescribed minimum = 14.5
Y = mean of the deviation of Union Bank from prescribed minimum = 14.1
S = &timate of kandard deviation
n = sample size = 5
Assume 95% confidence limit for 5 degrees of freedom
The probability that t would cxcccd +2571 is 0.025.
=us There is no signifmt differences in mean at n = 5.
GRAPHS
PBRCBNTAOE OF WANS DISBURSED TO THE MANUFACTURINQ INDUSTRIES BY COMMERCIAL BANKS FOR THE PERIOD 1990 -1994
Y m Percentage of Manufacturing to total loans
1990 1991 1992 1993 1994
PERIOD
GRAPHS
PERCENTAGE OF LOANS DISBURSED TO THE MANUFACTURtNG INDUSTRIES BY UNION BANK OF NIGERIA PLC (1990 -1994)
Percentam of Manafactarinn to total loans
2815%
D.7wo 2435%
un% 22Wo
PERIOD
64 ORAPHS
PERCENTAOE OF LOANS DISBURSED TO THE MANUFACTURINQ INDUSTRIES BY BOTH COMMERCIAL BANKS AND UNION BANK OF NIOERIA PLC
FOR THB PERIOD (1990 -1994)
1990 1991 1992 1993 1994
PERIOD
o--.o--n rate of growth of loans to manufacturing sectors by commercial banks
x--x-x rate of growth of loans to manufacturing sectors by Union Bank
65
Ln conclusion we a n say that Union Bank's performance with regrds to meeting the
Central Bank's prescribed minimum lending to man~~fscturing indrlstries was better between
December 1W0 to december 1993, than that of commercial banks credit to manilfncturing
sectors under the same period.
4.4 DISTRIBUTION OF UNION BANK'S LOAN AND ADVAXCES TO THE VARIOUS
As classified by the Central Bank of Nigeria there are fifteen subsectors in the manulacturing
sector of the economy.
Table 8 shows Union bank's loans and adunces extended to the mnnufrlctuuing sector
from 1990 - 1994, the analysis is done on si~bsectoral basis in line with the Central bank of
Nigeria classifi~ition.
The general trend has been in the upward direction in thc sense that the total lo'ms
and advances extended to the manufacturing sector row from W420.5m in 1900 to W540.2h
in 1994.
The manufacturing sub-sectors that are well favoured in the tlish~rsement of loans
and advances are textiles and apparels, Beverages, tobacco and tobacco products, building
materials, poultry, ceramics snd glass, and miscellaneous manulacturing and processmg sub- 6
sectors. The miscellaneous manufacturing subsector appears to ha\.e got the highest loan
idlocation for the entire period. This may not be surprising in that the sub-sector consists
of various categories of firms whose number is large and who cannot I>c clasificd among the
first fourteen subgroupings.
Textile and apparels subsqtor seems important in view of its share of total Jonns and
advances. The share of total loans and advances allocated to it varies annually but there was
no year in which it was dss than 10%.
The Beverages, Tobacco and Tobacco products sub-sector is another sector that
appears to be well favoured in the disbursement of loans and advances to the manufacturing
sectors.
In 1990 its share of total loans and advances was 15% though there wm a slight drop
in 1994 when its share was 13.74%. The growth in this sect0r.k not unconnected with the
construction of more breweries and soft drinks plants to fill the gap created by ban on
importation of beer and soft drinks in the late eighties, over 18 breweries were established
during the period. - -
The building materials, pottery, ceramics and glass subsector also enjoyed a lot o i
favour in the loan disbursement. It had at least allocation of 13.56% as at December 1994.
TABLE 8
UNION BANK .WLIFAC~URWG LOLYS AYD ADVANCES BY sun SECTOR BORROWERS 1990 - 1993
Mcaf & other food processing
8.18 1.94 9.10 7.07 9.20 2.01 10.01 1 91 13.50 1.49
Tobarm Products
(including weaving. F i s h i
I Wood Products 1 22.05
13.93 Publishing
Manufacturing M.98 of tubber products
Soaps, oil & 20.19
Buildii 60.96 matcriak Pottery & Ceramics cQ
Other non- 20.57
Metallic 22.67
(Melting &
Miscellaneous 93.44 I
Total to 420.5,
68
UNION BANKS MANUFACTURING LOANS AND ADVANCES ANALYSED BY SUB-
SECrOR BORROWERS (1990-1994)
Computation of standard deviation using formula
-
where n
S = Standard deviation
Xi = Value of subsector i
X = Arithmetic mcyn = n
/
TABLE 8A
Year
Total amount to manufacturing #
To determine by how much Union Bank's loans and advances to the various
manufacturing sub-sectors dcviatc from the mean i,c, to show by how much thc loan and
Arithmetic Mean X
Standard-Deviation
advances are spread, we had to compute the standard dcviaiion for each year.
1990
42.05
Our results is shown in Table 8a. The result shows that as Union Bank loans and
280
10.13
1991
43.85
2.92
1056
1992
45.62
3.04
10.99
1993
50.68
1994
54.02
337
2121
3.60
13.01
advances to the manufacturing sector increase the deviation from the mean often increase. #.
The deviation went up by as high as M13.10m in December 1994.
In effect the loans and advances to the fifteen sub-sectors are not evenly distributed.
Some sub-sectors appear to be getting more loans and sdvances than others.
In an attempt to determine which sub-sector enjoys more loans and advances we had
to d o a time series analysis of Union Bank lo& and advances to the manufacturing s\ib
sectors for the period: 1990 - 1994.
TABLE 9
UNION BANK'S MANLTFACI'URING LOANS AND ADVANCES AiiALYSED BY SUB
Tot a1
-SECTOR
Meat & Beveragcr Orbcr food Tobacco & pracaine Tobamo
products i BORROWERS
Paper &
products
Printing& Publishing CtC. products products
Sourn: &urb Loans and Advancer
The analysis is shown on table 9. h.1iscellaneorls manufacturing and processing had
an arithmetic mean M10.69~1 to come highest.
Apart from this sector, Building materials, pottery, ceramics and gins., tcstiles and
apparel and Bevera~es, tobacco and tobacco prod~lcts sub-sectors with arithmetic means of
6.75m, 5.3m, and 6.77m respectively enjoy more loans and advances than other sub-sectors.
This is in agreement that we have good number of textiles, bnilding materials ;md beverages
(beer and soft drinks) firms in his country.
The standard deviation also shows building materials, beverages and testiles firms as b
being among the four with the highest figures of 12.07, 13.12, and 9.84 respectively. This
'could be interpreted to mean that these same firms have enjoyed mere absolute increases in
loans and advances for the period under review.
In view of the analysis and findings in this sector we conclr~clc that:
As Union'bank l o b s and advances to the mmufactuing sector increases, the /
deviation or spread from the arithmetic mean of loans and advances to the fifteen
manufacturing subsectors increase. The loans to the m'mufacturing sub-sectors are not
evenly distributed i.e some sectors appear to be gettins more loans and advances than others.
Building materials, pottery, ceramics arid glass, Bewra~es, tobacco and
tobacco products and textiles and apparel each got higher absolute increase
in facility over the period than other sectors. This agrees with our knowledge
that within the period more building material firms were set up as a result of
boom in the construction~cornpanies during the 70's
More breweries and soft drinks were financed to fill the gap in demand for their
products consequent upon the ban on importation of bcer and soft drinks in late eighhs.
All these involve more demand for financing from Union I h n k and all banks in
general.
OFFICIAL YEBLICATION S
1 Central Bank of Nigeria - Annual Report and Statement of Account 1990 - 199-4 .'
2. Central Bank of Nigeria Economic and Financial Review 1990 - 1994.
3. Central Bank of Nigeria - Monetary Policy Circular 24 - 28 /
4. Union Bank Annual Report 19!X - 1994.
5. Union Bank Various Advances Circular.
CHAFTER FIVE
5.1 FINDIIVGS, RECO*MMEISDATIOSS, SLW-MARY AND CONCLUSIONS
Some of the findings of the study are as follows:
(i) That increase in bank deposits have a positive effect of encouraging more
lending for industrial projtxts.
(ii) That there is no significant differences in mean deviation of performance of
banks in meeting the Centrd Bank o f Nigeria prrwribcd minimum target.
(iii) There is a great variation in nveragc annual growth rate in loans and
Advances granted by Union Bank to manufacturing sectors when compared
to total loans and advances granted by all banks.
(iv) That manufacturing loans and advances are not evenly distributed among the
15 sub-sectors .:ind that this must have contributed to the unbalanced
developments in the industrial sectors. /
5.2 RECOMMENDATIONS
b
Actlons to In! hken by the Federal CkwernmclnVCentn~l U;mk of Nigwlu.
(i). In view of the fact that banks including Union &mk are not meeting the prescribed
minimum allocntion to manufacturing industries the ~;ovrrnn~entiCerltral Dank
74
should enter into dialogue with them with a \iew of determining their constraint and
removing them. The inability of project sponsors in meeting credit lines for the
importation of machineries and spare parts could have been holding up investors and
hence inability of banfcs to meet the required minimum allocation.
(3) Penalties should contin6e to be imposed on banks that fail lo meet the prescribed
minimum target as stipulated by Central Bank of Nigeria. /
(iii) Ln order to ensurt: more mobilization of deposits by the commercial banks/Union
Bank, the Federal Government should continue to puuslie \igorously the Rural
Banking Scheme which it commenced in J a 1977.
(iv) The level of banks participation in equity ownership of companies should be lifted
to reduce the inhibiting effect of high gearing on lending for industrial projects.
ACTIONS TO BE T U N BY BA..KSII%ION BAVK
(i) Ln order to achieve more growth in deposits and hence increase their loans advances
for industrial projects,.they should do the following:
(a) Continue to co-operate with the Central Bank of Nigeria and ensure that they
open promptly the rural branches whenever they ilre instructed to clo so.
(b) improve on efficiency level, e. g. time to lodge in money and clearing of
cheques etc.
(c) Embark on more public enlightenment programmes rhrorigh the print, voice
'and electronic media as well as th rou~h rulers and xxid and adult education
75
agencies to educate rural dwellers on the facilities pro\-itled by them.
(d) I~IE;L h d c l educatc prospective investors on thc :td\mwigc of pocling
resources together. The advantages include the ability to diversify and share
risks.
(e) To ensure a balanced development in the industrial sectors. Banks/Union
Bank should ensure that loans and adv,mces are equally extended to the 15
sub-sectors in the manufacturing industries.
5 3 SUMMARY ASD CONCLUSIONS
In view of the important roles of industrial sectors in the Nigeri'm economy, that is their
roles towards economic development and improving standard of living of individuals, this
study has attempted to identify h n k s participation in indtlstrial project financing in Nigeria.
It was indicated in Appendix 1 that commercial banks constitrltc the largest single
group in the financial sector and as such their role in financing industrial projects would be
crucial to the achievement of the overall 0bjecth.e of government with regards to
manufacturing. Union Barik being one of the biggest three commercial banks operating in /
the country was chosen for our study.
Union Bank generally provided the following types of facilities to borrowers:
Overdrafts, shon and medium term loans. guarantees and intlemnities. letter of credit
facilities. Union Bank is also guided by some criteria in tiding Icntiing clecisions anti thew
include the ufety of the facility, its suitability in line nsith the g~\~~rnrn i .n t uhjecti\.es and the
76
profit to be earned by the Bank. The bank would also want to be utisficd that the m o u n t
required would see the project through and ensure that the repayment programme would be
feasible, that the term suits its lending portfolio and that there is security it could fall back
on if the expected repayment is not forthcoming. Union Bank atjmes enters into joint and
consortium financing arrangements with other financial instjtutions regarding adequate
facilities to sound projects. 'This is partly done to di\.ersify its risk base.
Attempts were d s o made to esaminc: the lending constrainis which coidd inhibit the
performance of Union Bank with regards to financing industrial projects in Nigeria. 'I'hree
areas of constraints were identified as follo\vs:
(9
(ii)
(iii)
Constraint of h e law"
These include Central Bank of Nigeria minimiim cash ratio and liquidity ratio /
requirements, the legal lending limit to a single borrower ;md the central R'mk of
Nigeria aggregate credit expansion limit.
Constraints created by borrowers:
These inclnde high gearing, poorly prepared feasibility studies, wrong choice of
prdjccts and lack of technical and financial ability of sponsors.
Others:
These include economic and political situation in the colmtry and the banks existing
exposure to the firm.
An elevation of the performance of Union Bank with reg;~rds to financing industrial
projects shows that the Bank is a major pro\ider of finance to manufacturing industries in
77
Nigeria. It was found that increase in bank deposits has n positive effect of encouraging
more lending for indlistrial projects.
The sub-sectoral analysis of the distribution of banks' loans and advances to the
manufacturing sectors revealed that loans and advances are not evenly distributed among the .- ____- ----
fifteen sub-sectors.
With the exception of misceUaneous sub-sector, the building mnterinls, pottery,
ceramics and glass, beverages, tobacco and tobacco products and itppart.1 sub-sectors as
shoun in table 9, each enjoy more loan and sd\.ances tan others.
In Federal Government's attempt to ensare that enouLgb credit is allocated to
industrial sectors, the Central Bank of Nigeria in its annual monetary policy
circular/guidelines has ahass prescribed a minimum percentage of total commercial and
Merchant bank loans and ~dvances that should be given tc the n~;lnuf;lcturin~ scctors. The
prescribed minimum for commercial banks was 35% in 19")0,35% in 1'991,355 in 1992,35%
in 1993 and 42% in 1994. Our study revealed that the commercial bbanks?Union Bank never
met the Central Bank's prescribed minimum percentage allocation to the mcmufncturin~
sectors. The average annual growth rate of Union B ~ l k loans to industries is significantly
small when compared with total average growth rate of dl banks.
Q e r e is no doubt that commercial banks and in particular Union Bank are playing
a prominent role in financing of industrial projects. We believe that they still need to do
more in order to ensure that the Federal Government achieves most of its main objecti\,t.s
with regards to the industrid sectors as set out in the \m-ious Nationill lkvelr>pn~rnt Plans.
The objective include:
(i) To ensure increased level of self-reliance in the s ~ p p l y of indmtrial products.
(ii) Increase the local resource content of msn~dacturing outplit throw@ increased
substitution of local raw materials and manpower for imports.
(iii) Increase employment opportunjtics.
(iv) Maintain a rapid growth of the manufacturing sectors.
(v) Promote the development of export industries.
BIBLIOGRAPHY
NOTES
ABDULAI TAW0 & SOUCITORS (1986)btablishing business in Nkeria, - ---
(Lagos: Academy Press Limited).
ADEKANYA F. (1984), The Nieerian Bankinr H a d B w k , (Bedfurclshire, U. K
Graham Burn).
AJAYI, S. I. & OJO, 0.0. (1984). Money and Rnnki%q, (London: George Allen and
Unwin Publishers Ltd.).
BRECKINTON, R. B. (1 W), Fin'mcid ?lfmecemen~ (D. P. Publications Enst-Leigh
Hhnts).
CASS, T. (1970), Statistical Method in Management, (London: C~ssell A Co. Ltd.)
CROCKER, A. S. (1974), Statistics for Teachers, (Windsur Berks: NFER Publishing
Ca. Ltd.)
DONALDSON, T . A. (1979), Lending. in International Commercial Bankins.
(London: The Macmillan Press Ltd.).
DOYLE, E. P. (1986), Practice of Rankins, (London: Macdenall and Evans Press
Ltd.).
9. DYER, L. S. (1974), A Practical ApproachJ.~ Lending, (Lmdun: The Institute of
Bankers).
_ _ -- 80
FREUND, I. E. and WILLIAMS, F. I. (1982), Modern Bosiness Sti~tistics, (London:
Pitman Books Ltd.).
FURNESS, E. 1,. (1 985), Money.-Cedi~jn Develokg - Africa, (Exeter: Ncw
Hampshire, IJ. S. A)
NWAKWO, G. 0. (1980), The Nigerian i ~ i l S t , (London: Mncmillan
Publishers Ltd.).
OBUIOFOR, E. E. (1985), Business Statistics Vol. 1. (Iagos: hfanagemcnt Science
Centre).
OWEN WATSON, Lonepan Modern Engish Dictionary
OLUSEGUN, B. A. Obanla, Bank and Ind_ustries On Economic D_~evelovment,
Business Times, Jam. 25, 1988.
OJO, A. J. and ADEWJNMI, W (1982). R m l r i n ~ ~ n d - ~ j n m c e in Nigeria,
(Bedfordshire: U. K. Graham Burn)
OKIGBO, P. N. C. (1981). Nigerian Financial System S t r u c t ~ ~ c and Growth, (Harrow
Essex: Longman Group Ltd.)
PANDY, M. (1985). Financial Management, (New Delhiani Educational h o k s )
PERRY, F. E. (138d), The Elrments of Bilnkix, (b:lrl;!n; Spcc!rw Fwks I.td.)
SHPLHI, M. A. (1981), Money and Cla~itid Market in Nigerh, I,:~jios: John Wesl Pub.
Ltd) /
UZOAGA, W. 0. (l!Xl), Money and Bankins b Nlger~a (Emrgu: Nigeria Fourth
Dimension Pub. Co. Ltd)
8 1
22. WESTON, J!& B R I G W i , E. F. (1978), hlnnagerinl Finance, (Hindale Illinois: The
Dryden Press)
23. VANHORNE, J. C. (1%3), Financial Management & Po&, (New Jersey: Prentice
Hall kc.)
ARTICLES AND SEWBAR PAPERS
1. AJAGU, P. C/ (I=), The Role of Commercial Banks in Industrial Project
Financing", project Report, University of Ibadan, 1984.
2. TUDUNWADA, L. (1981). "Pmbkms Facing Industries In Nlgerta", Bullion Vol. 6
No. 3 July/Sept 1981, pp. 23 -27 (Lagos, CBN).
3 ZOYYAD. H. R. (1981), "lnduslrial Development in Sigerlil in the ELghkn",
Bullion vol. 6 No. 3 July5epr 1981 (L3gos. Cenrml B31:k of Nigeria).
4. AKINGBADE, J. A. (1985), Venture Capital us p u p to Tc~hnological Growth",
Bullion, Vol. 9 No. 2, ApriUJune 1985.
5. NAYI, S. I. (1980). Grotrlh In the Banking Industq Ln Nigc~-Lt", Domestic and -_---
International b.mking Senices, pp. 170 -188. P:~pzr prcscntcd at the 15th Ann~~al
Ranking Seminar, Dec. 1980.
6. ADEKUNLE, J. 0. (l986), 'The Role of Banks in a dqrcsscd Economy", at 3
Symposium organised by the Banking and F~nance Grad~iiitc Studenls nr the
University of Ib;id;~n, may 1983.
APPESDIX 1
DEPOSIT I.IABILITJ!% OF MAN ISSTITIJTIOXS IN THE SIGEWIAS FINANCIAI.
SYSTEM (1990 - 1994).
I PERIOD (I373 OF DECF.MBER EACH YEAR) bidliom
1. COMMERCIAL BANXS 1 DEMAND 1 7066.2
TIME 685 1.0
SAVINGS 3699.9 17591.1
2. MERCHANT B M S
TIME 1318.2
SAVINGS 1848.7
4. MORTGAGE BANKS 1~
PERCENTAGE OF TOTAL
(dl
M P E S D K 2
COMMERCIAL BANKS LOANS AlriD rlDVA!!CES CLASSIFIED BY PUWOSE 199U - 1994)
1. High Priority
a. Agric. Production (Agric RL F o r m , Fishing
b. Manufilcturiog Enterprises (including Agro-Allied industries)
c. Non Oil export & Solid Mineral
2. Other Sectors
TOTAL
PRESCRIBED RiTIO CPERCEN
Source: Centmi Bank Monerar?: policy Cirnrlar. Circular 24 - 23.
APPENDIX 3 IWER\'TEW QC'ESTIONS
SECTION A (FOR RANKS) t
3 . Do your bank extend credit facilities for industrial projects'.'No.
2. Is the type of facilities extended in the form of loan, overdraft, letters of credit or
indemnities?
3. Is the amount of loan granted to industries satisfactory?
4. Is there any relationship that has existed with the industries?
5. D o your bank offer professional advise to industrialists in the form of consultancy
senices or preparationf-lZashih~-studies?
6. What could you recommend for the improvement of banks participation in financing
of industrial projects in Nigeria?
SECTION R (FOR I3Di'STRE.S)
1. Do you think that your industry is adequately financed by banks'?
2. Is the type of credit facilities obtained from bLmks in the form of loan, overdraft,
letter of credit or indemnities?
3. Is the amount of facilities granted by commercial banks satisl:~ctory?
4. Can you rate the extent of loans granted by commercial banks'!
5. Do you think that ignorance of how to attract loans and Inck of indus!ri:il knowledge
among some industries affect the rate of industrialization in Nigeria?
6. What could you recommend for the improvement of banks in industrial project
financing in Nigeria?
