This project studied the management of bad and doubtful debts by Nigeria commercial banks. It noted problems associated with the wide spread development of bad account by banks as being occasioned by so many changes that are unfolding as a result of the deregulation of the Nigerian Financial System. It viewed the incidences of bad debts as one of the greatest problems facing both old and new generations of banks today with adverse consequences on their profitability level.

This project traced the origin of bad accounts to a number of factors some which may be internal, external or by act of God. e.g. the death of the owner of business. It was help that an account becomes bad the very day the facility is granted. Carelessness on the part of lending officers and his inability to interpret and respond promptly to warning signals may cause an untold loss in addition collusion by lending officers with the borrowers and absence a clearly defined lending guideless by banks may be responsible for high loan default. It is even difficult to identify control once a facility has been agreed by management.

The most effective way of limiting one’s losses however is to stop paying out but trading margins are particularly important.   











1.1 Background of the Study

1.2problems of the Study

1.3Objective of the Study

1.4Significance of the Study

1.5Research of the Study

1.6Plan of the Study


2.0Literature Review

2.1Meaning of Bad Debt

2.2Management Of Bad Debt

2.3Effects of Bad and Doubtfully Debts

2.4Risk Analysis


3.0Research Methodology

3.1Historical Background of First Bank

3.2Sample and Population of the Study


3.4Method of Data Analysis

3.5Validity of Instrument

3.6Administration of Instrument

3.7Observed Problem

3.8Limitation of the Study


4.0Data Presentation and Analysis

4.1Data Presentation

4.2Data Analysis

4.3Test of Hypothesis

4.4 Findings


5.0 Summary, Conclusion and Recommendations

5.1 Summary


5.3Recommendation for Improved Management of Bad Loan





Among the industrial sectors in Nigeria today banking sector arouses the public interest most it is the most visible and of the fastest growing section in the economy a past from the fact that the monetary of every policy guideline document issued by the central bank of Nigeria in January of every year regulates the activities of the entire economy the banking sectors is responsible for carrying out most of the policy issue contained there in the sectors is also subjected to frequent controls and reputations. In popular jargon, the banking sectors has become one of the most critical sectors and commanding heights of the economy with wide implications on the level and direction of economic growth and transformation and such sensitive issues as the rates of unemployment and inflation which directly affect the lives of people the banking sector is without doubt of the fastest growing industries in the country today from total of 26 in 1980 the number of commercial and merchant banks in the country growing steadily to 40 in 1985 where it stabilized until it increased to about 49 in 1987 beginning from 1987 and following the introduction of structural Adjustment programme (SAP) in 1986 there had bean a rapid growth in the number of bank increased by 15 i.e. 30% to reach 66 and additional 15 joined it in 1989 which 1998 witnessed 21 new enchants to bring the total number of commercial and merchant bank to 102. Before the government placed temporary ban on the opening of banks in 1991 there was not less than 125 banks operating in the country. From N12million and N20million for merchant and commercial bank respectively paid up capital increased to N40million and N50million one notable implication from the development is the sudden rise in the volume of bad doubtful account which bank are compelled to carry in their books the increasing number of this problem loans had been on grated challenges facing in particular the old generation of bank usually referred to as the “Big three. The First Bank of Nigeria Plc. The Union Bank of Africa Plc 

The problem posed by carrying large volume of bad loans or non-performing accounts was not fully recognized until in November 1990 when the central bank introduced the prudential guidelines in line with the general standard all over the world to make the s in the country assess themselves fully thereby determine how healthy or prudent they are in their loan credit management.

Most bankers cannot unequivocally declare that they have been introduced by problem loan. Certainly, it is a way of life in those tumultuous times of banking that virtually every one of them is faced problem or so-called work out loans.

Another important reason is to decline in the economic fortune which gripped the Nigerian economy.


With many banks in large proportion given out loans and overdraft to their customers. The bank is therefore, taking the risk some of the customers may never pay back the loans or overdraft given to them.

This is normal business risk and such bad debts are normal business or running expenses.

The researcher therefore will like to find reasonable solution to the following question.

i. What is the causes of bad debt

ii. Why provision for bad debt are made

iii. How bad debt are written off.

iv. How banks as financial institutions managing bad debts.

v. How banks estimate provision for bad debt.


The broadax objectives of the study is to analysis the effects of rising machine of bad debts on banks operation since 1986 when the federal government adopted SAP. The focus is largely on the credit policy on the credit policy of banks and how to manage SAP. The focus on how to manage loans and reclaim the collateral assets securing them. In specific terms the study will inquire into the rising waves of bad doubtful account in our banks in general and first bank Nigeria plc in particular. The aim is to determine the share of the major actors or factor in granting a loan.

a. Other customer

b. The banks and

c. The government or the economic environment.

Secondly, the study will examine impact of the prudential guidelines on the management of loans by banks since 1990 when the guidelines came into effect. What impact it has produced on the reporting system of banks. The study will vigorously interpret the profit reporting system of bank before and after prudential guideline and finally draw some policy lessons and predictions for the future.

Finally, the study will aspire to provide the essential strategies that may be used for loan recovery once a debtor enters bankruptcy.


The motivation for the study arises from the research interest in tracking the effect of economic reforms within the structural adjustment programme since the deregulation of financial system of the economic reforms is expected to alter the volume and pattern of lending by banks and the profitability of banks. It is necessary to investigate the extent to which profit that are being declared by banks actually reflect their true profitability position. Whether adequate precaution have been taken in their granting loans. The structural weakness of these banks is referred in the heavy bad debt portfolio, which is fact eroding their capital base. The introduction of prudential guidelines has therefore exposed the weak foundation and the misfortune arising from bank debt structure. Data generated from the annual reports of banks with regards to the volume of the bad debts have been fraught difficulties until the introduction of the prudential guidelines.

Firstly, it is a policy objectives of the monetary authority to recognize only income that is earned and not paper profits.

Secondly, it is also the objectives of the monetary authority to confirm with4t he international prudential guidelines.

Thirdly, it is to make banks more prudent in their lending decision thus reducing incidence of bad and doubtful account.

Finally, it is to encourage bankers to become solid financially able in Ibadan the customers are partially sophisticated.

Of serious limitation of the study is the problem of data collect ion. Through thus is not peculiar to this study. It must be recognized that not until the prudent guidelines came into effect November 1990. Most banks nor do they realize the need to make adequate provision of data for bad and doubtful debts. What banks did at best was a make petty provisions for those classes of debts.


The course of action employed in this research in order to achieve its objective were both a case study and survey methods.

According to Aliazu (1981) a case study involves the study of one group at a point in time and arriving at a conclusion in relation to the situation of that one group.  While the survey method is one in which the representation sample of the population is studied and the entire result generalized.

Most financial institutions and industrialist sampled preferred to remain anonymous.  One of the logs in the wheel of progress is carrying out survey studies is the difficulty encountered in data collection.

Institution and individuals are usually not ready to release information.  The strategy of anonymous was adopted in this work to enable easy access to information needed for the study.


The remaining part of work is organized into four chapters.  In chapter two, the study reviews some existing literature on bad debt management with view and conclusion as generated among the various authors.  Chapter three of the study contains the methodology.  In the chapter, I tried to present the methods by which the result which terms basis of my samples and how the questionnaires were administered.  The forth chapter derives from the third and contains my analysis of the questionnaire and my basic deductions.

Finally, chapter five contains a summary of my findings, recommendation and conclusion.



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