IMPACT OF INTERNAL CONTROL ON BANKS CRED

IMPACT OF INTERNAL CONTROL ON BANKS CREDIT MANAGEMENT
(A STUDY OF FIVE BANKS IN BAYELSA STATE)
BY

KINGSLEY GBEKE KALAGBOR Ph.D
DEPARTMENT OF ACCOUNTING
FACULTY O F BUSINESS STUDIES
IGNATIUS AJURU UNIVERSITY O F EDUCATION
PORT HARCOURT
RIVERS STATE. NIGERIA

EMMANUEL OBI
DEPARTMENT OF ACCOUNTING
FACULTY OF BUSINESS STUDIES
IGNATIUS AJURU UNIVERSITY OF EDUCATION
PORT HARCOURT

ABSTRACT
This study primarily aims at finding out the impact of
internal control on banks credit management offive Banks
in Bayelsa state of Nigeria. The study established for itself

three purpose; To ascertain the extent to which internal
check enhance bank customer credit reporting, To examine
the extent
to which authorization/approval
enhance
security of bank credits and To ascertain the extent to
which performance evaluation enhance reduction in nonperforming
bank credits. Three research questions and
three hypotheses stated in line with the objectives of the
study was used to guide the researcher. Related literatures
on internal control and bank credit management
were
reviewed. The survey design was adopted for the study and
questionnaire was used in collecting data. The population
of the study was made up of fwe banks in Bayelsa State.
The random sampling technique was used in selecting the
sample size of the study. Pie chart was used to analyze the
research questions while Chi-square statistical
tool was
used in testing the hypotheses. The findings revealed that

Internal
control has a great impact on banks credit
It was therefore recommended
that Banks
management.
should have a clearly-established
internal control system.
Key Word: Credit, Management, Bank and Internal Control.

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INTRODUCTION

The major function of every m a n a g e m e n t in a n y organization is to
see to the success and smooth r u n n i n g of s u c h organization. In order to
achieve that, management is saddled with four m a j o r managerial
functions: planning, organizing, leading a n d controlling. Controlling
which h a s to do with the process of regulating organizational activities so

that actual performance conforms to expected organizational goals a n d
s t a n d a r d s is seen a s one of the major f u n c t i o n s of m a n a g e m e n t even
though it's the fourth (4th) stage of the f u n c t i o n s of m a n a g e m e n t .
The level of success recorded in any organization d e p e n d s majorly on its
control system, be it the internal or external. Regardless of the
thoroughness of the planning done, a program or decision still m a y be
poorly or improperly implemented without a satisfactory control system
in place. Controlling lets manager(s) tell if the organization is on t r a c k for
goal achievement or not.
Controls serve other important roles including helping m a n a g e r s
cope with uncertainty, detecting irregularities, identifying opportunities,
handling complex situations, and decentralizing a u t h o r i t y .
There are several major steps usually identified in t h e basic control
process. These are, in order, determining the a r e a s to b e controlled,
establishing the appropriate s t a n d a r d s , m e a s u r i n g p e r f o r m a n c e ,
comparing the performance against s t a n d a r d s , recognizing p e r f o r m a n c e
if s t a n d a r d s are met or exceeded or take corrective a c t i o n s a s n e c e s s a r y
if not, and adjusting e i t h e r / o r s t a n d a r d s a n d m e a s u r e s a s n e c e s s a r y . Of
course it would be impossible to control all activity in a n organization.
Consequently, it is important for the m a n a g e r to decide w h i c h activities

should have the control process applied.
The above notwithstanding, the aspect of control which requires
more attention in an organization is the internal control s y s t e m which is
the determinant of the progress of every organization including the
banking sector.
The need for proper internal control s y s t e m s in organizations,
especially banks, cannot be undermined, d u e to the fact t h a t t h e b a n k i n g
sector, which h a s a crucial role to play in the economic development of a
nation is now being characterized by macroeconomic instability, slow
growth in real economic activities, corruption a n d ri sks arising from
credit management (Olaoye, 2009).
One of the main r e a s o n s of banking failures which r e s u l t s in major
financial loss and even b a n k r u p t c y is d u e to high ri sks t a k e n by the
bank management on a n excessive scale a n d inability of controlling
them. The lack of proper internal control system which d u t y is to keep

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(he risk u n d e r control or major breakdowns within a n existing system
pose a threat against the s u c c e s s of the b a n k i n g sector.
Internal control is a system structured within the corporation
whose goal is to raise efficiency and effectiveness of activities. The system
a s s u r e s the conformity of activities within the laws a n d regulations a n d
improve the reliability of financial reporting. Internal control system
possesses vital importance for the institution to attain its ultimate
objectives. Internal control system allows b a n k s to foresee potential
problems (including credit management) which may c a u s e financial
losses a n d thereby prevent or minimize any future losses (Hayali, Yusuf,
Selin, Dizman &Gundogdu, 2012).
Credit m a n a g e m e n t provides information to on-the-job b a n k e r s
regarding how to handle credit operations. Beginning with Credit policy,
it covers the appraisal techniques for term loan, working capital & nonf u n d based loans and credit risk management techniques with c a s e s
s t u d i e s . Besides, it provides details about credit monitoring and also loan
recovery tools (Marquis, 2015)
However, this study is aimed at verifying the impact of internal
control systems on b a n k s credit management of some selected b a n k s in
Port Harcourt of Rivers State, Nigeria.
The b a n k i n g sector is faced with challenges today including

improper m e a s u r e s of credit management which is capable of leading the
c o m p a n y into liquidation if not properly managed. Some of the problems
that s t r u c k the heart of the researcher include the problem of liquidity
rate of b a n k s . Most b a n k s are liquidated d u e to poor m a n a g e m e n t of the
credit system which r u n s into bad debt. The credit system, if not the
major is a m o n g the major sources of revenue of financial institutions
(banks) through the interest which they realize from c u s t o m e r s t h a t
patronizes them on the aspect of credit, hence, if not properly managed
leads to liquidation of such bank(s).
In most c a s e s credits results to bad debts d u e to lack of proper
internal control system(s) in the banking sector. Where there is no proper
internal control system(s) to checkmate the credits issued by s u c h b a n k
to a s s e s s the procedures and processes involved in the retrieving of
credits issued, most credits issued will result in bad debts. S u d d e n
liquidation of companies (including banks) often gives birth to a
r e s o u n d i n g question s u c h a s "what went wrong?" a breakdown of the
internal control s y s t e m s are usually the causes, a n d this propelled this
r e s e a r c h work in other to find a lasting solution to the aberrant.
Conceptual Framework
This s t u d y contains two

i n d e p e n d e n t variables respectively.

major

variables:

dependent

and

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Internal control system in this s t u d i e s is t h e i n d e p e n d e n t variable which
be
measured
operationally
by
internal

check,
could
authorization/approval a n d p e r f o r m a n c e e v a l u a t i o n. While banks credit
management is the d e p e n d e n t variable w h i c h is measured in terms
customer credit report, s e c u r i ty of c r e d i t a n d reduction in nonperforming credit.
The above could be s u m m a r i z e d in figure 1.1 below:

Internal Control System
Internal Check
Authorization/
Approval
Performance
Evaluation

B a n k Credit Management
Customer Credit
Report
Security of Credit

Reduction in NonPerforming Credit

Source: Conceptualized b y t h e R e s e a r c h e r 2 0 1 6
Objectives Of The S t u d y
Basically, b a n k s a r e in place n o t only to a c c e p t deposits but also to
grant credit facilities, h e n c e they a r e e x p o s e d to credit risk. Credit risk is
by far the most i m p o r t a n t risk faced by b a n k s a n d the accomplishment
of their business d e p e n d s on a c c u r a t e m e a s u r e m e n t and efficient
management of this risk to a g r e a t e r e x t e n t t h a n any other risks
(Gieseche, 2004 a s cited in Kargi, 2 0 1 1 ) .
The objective of this r e s e a r c h i n c l u d e a m o n g o t h e r s the following:
1. To ascertain the e x t e n t to w h i c h i n t e r n a l check enhance bank
customer credit m a n a g e m e n t of b a n k s in Bayelsa.
2. To examine the e x t e n t to w h i c h a u t h o r i z a t i o n / a p p r o v a l enhance
security of b a n k credits.
3. To ascertain the e x t e n t to w h i c h p e r f o r m a n c e evaluation enhance
reduction in n o n - p e r f o r m i n g b a n k c r e d i t s .

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Research Q u e s t i o n
In order to achieve the p u r p o s e of the study, the following research
questions w h e r e formulated:
1. To w h a t extent does internal check e n h a n c e b a n k c u s t o m e r credit
m a n a g e m e n t of b a n k s in Bayelsa?
2. To w h a t extent does a ut hori z a t i on/ a pproval e n s u r e security of
b a n k credit?
3. To W h a t e x t e n t does performance evaluation e n h a n c e reduction in
non-performing b a n k credits
Research Hypotheses
The following hypotheses were formulated a n d tested in this s t u d y .
HOi: t h e r e is no significant effect of internal check on c u s t o m e r credit
m a n a g e m e n t of b a n k s in Bayelsa.
HO2: a u t h o r i z a t i o n / a p p r o v a l does not significantly e n h a n c e security of
b a n k credits.
HO3: performance evaluation report does not significantly e n h a n c e
reduction in non-performing b a n k credits.
LITERATURE REVIEW
Internal Control S y s t e m

The s t r u c t u r e of modern banking system and the high expectation
from the investors a n d the society at large h a s called for a more
tightened internal control system. Internal control h a s been variously
defined. According to Princeton (2008) Internal Control is a process
affected by a n organization's structure, work and authority flows, people
a n d m a n a g e m e n t information system, designed to help the organization
accomplish specific goals or objective". From the definition, the objective
of a n y internal control should be directed towards the attainment of the
organizational objectives.
In the words of Okozie, (2010) "Internal Control is the whole
s y s t e m of controls, financial and otherwise, established by the
m a n a g e m e n t in order to carry on the b u s i n e s s of the enterprise in an
orderly a n d efficient m a n n e r , e n s u r e adherence to management policies,
s a f e g u a r d the a s s e t s a n d secure a s far a s possible the completeness a n d
a c c u r a c y of the records". A sound internal control system should provide
the platform for recording and processing transactions in s u c h a way
that it form a d e q u a t e basis for the preparation of the financial statement.
An efficient internal control system involved a clear definition a n d
separation of d u t i e s for various employees or groups within a company.
The intent of s e p a r a t i n g the duties is to protect against fraud, waste,
a b u s e a n d m i s m a n a g e m e n t of resources.
Effective internal control helps to a s s u r e the accuracy of reports to
m a n a g e m e n t a n d the various supervising bodies (in the case of banks).

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Asuquo (2005) postulated that "Internal Control is m a d e u p of internal
checks, internal audit, accounting controls a n d other forms of controls
such a s budgetary and physical control".
Internal Control Objectives
Internal control activities are designed to provide r e a s o n a b l e
a s s u r a n c e that particular objectives are achieved, or related progre ss
understood.
There are seven detailed objectives that a n internal control system m u s t
meet to prevent errors in the j o u r n a l s a n d records.
According to Aren &Loebbecke (2010), the client's system of internal
control m u s t be sufficient to provide reasonable a s s u r a n c e that:
Recorded Transactions are valid (Validity): The system c a n n o t permit
the inclusion of fictitious or nonexistent t r a n s a c t i o n s in j o u r n a l s or other
accounting records.
Transactions are properly authorized (Authorization): If a transaction
that is not authorized takes place, it could result in a f r a u d u l e n t
transaction, a n d it could also have the effect of wasting or destroying
company assets.
Existing transactions are recorded (Completeness): The client's
procedures m u s t provide controls to prevent the omission of t r a n s a c t i o n s
from the records.
Transaction are properly valued (Valuation): An a d e q u a t e system
includes procedures to avoid errors in calculating a n d recording
transactions at various stages in the recording process.
Transactions are properly classified (Classification): The proper
account classification according to the client's chart of a c c o u n t s m u s t be
made in the j o u r n a l s if the financial s t a t e m e n t s are to be properly stated.
Classification also includes s u c h categories a s division a n d product.
Transactions are recorded at the proper t i m e (Timing): The recording
of transactions either before or after the time they took place increases
the likelihood of failing to record transactions or of recording t h e m at the
improper a m o u n t . If late recording occurs at the end of the period, the
financial s t a t e m e n t s will be misstated.
Transactions are properly included in subsidiary records and
correctly summarized (Posting and Summarization): In m a ny
instances, individual transactions are summarized a n d totaled before
they are recorded in the journals. The j o u r n a l s are then posted to the
general ledger, and the general lodger is s u m m a r i z e d a n d used to
prepare the financial statements.

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Regardless of the method used to enter t r a n s a c t i o n s in the
subsidiary records a n d to s u m m a r i z e transaction, a d e q u a t e controls are
needed to m a k e s u r e s u m m a r i z a t i o n is correct.
Classes Of Internal Control
The Institute of Chartered Accountants of Nigeria (ICAN, 2006a, b)
categorized controls into three major classifications:
Preventive controls: These are controls that predict potential problems
before they occur a n d m a k e a d j u s t m e n t s . They also prevent an error,
omission or malicious act from occurring. Examples of preventive
controls includes: Using well-designed documents to prevent errors.
Establishing suitable procedures for authorization of transactions.
Employ only qualified personnel. Segregate duties.
D e t e c t i v e controls: These controls are designed to detect a n d report the
o c c u r r e n c e of a n omission, a n error or a malicious act. Examples of
detective controls includes: duplicate checking of calculations. Periodic
p e r f o r m a n c e reporting with variance error message over tape labels.
Corrective controls: These controls help to minimize the impact of a
t h r e a t , identify the c a u s e of a problem, correct errors arising from the
p r o b l e m . They also correct problems discovered by detective controls a n d
modify the processing system (s) to minimize future occurrence of the
problem. Examples of corrective controls are: contingency planning back
u p p r o c e d u r e s rerun procedures.
A d m i n i s t r a t i v e Control: This consists of the plans of a n organization
a n d all of the coordinate methods and m e a s u r e s adopted within a
b u s i n e s s to promote operational efficiency and encourage adherence to
prescribed managerial policies. Example include the formal organization
c h a r t concerning who reports to whom, departmental budgeting
p r o c e d u r e s and reports on performance (e.g. variance analysis report).
F i n a n c i a l or A c c o u n t i n g control: Accounting control comprises of the
plan of organization and all of the coordinate methods and m e a s u r e s
a d o p t e d by the m a n a g e m e n t to ensure that all transactions are
a u t h o r i z e d . Safeguard assets, and Check the accuracy and reliability of
its a c c o u n t i n g records a n d data.
A good accounting control helps maximize efficiency a s
p e r f o r m a n c e can be compared through information generated in
p e r f o r m a n c e reports. It also helps minimize waste, unintentional errors,
and fraud.
I m p o r t a n c e Of Internal Control
Internal control in any organization serve a s oil that lubricates the
s y s t e m and g u a r a n t e e proper functioning. In modern b u s i n e s s world,
b a n k s objectives a n d the environment in which they operate are
constantly evolving. As a result risk facing b a n k s are continually

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changing too. A successful system of Internal Control m u s t therefore be
responsive to s u c h changes.
A good, efficient and effective system of internal control a i m s at
preventing intentional and unintentional errors a n d f r a u d in the
operations of a company. It also a i m s at early detection of e r r o r s a n d
irregularities that may be committed by the employees. The s y s t e m of
internal control enables the organization to meet its objectives m o r e
effectively. If the system of control is effective, a n d the external a u d i t o r
evaluates it so, the cost of a n audit will be reduced to the a d v a n t a g e of
the organization.
Challenges Of The Internal Controller In The Nigerian B a n k i n g
Industry
The internal controller is often looked at a s "the Police m a n " of t h e
organization who m u s t e n s u r e that all the laws, rules a n d regulations a r e
duly complied with. He is expected to discharge his f u n c t i o n s with
highest level of dexterity, accuracy and sincerity. In the c a u s e of
discharging his functions, he is faced with a lot of challenges. S o m e of
the challenges are discussed below.
1. Independence: The greatest challenge of the internal controller is
that of independence. In the words of Clive De Paula (1983) "the
internal controller, in addition to his technical knowledge, m u s t be
above all things a man possessed of both strength of c h a r a c t e r a n d
tact. He m u s t not be easily led and influenced by others b u t ,
knowing what his duty is, he m u s t do it in spite of direct or
indirect pressure". Although the law clearly e n t r u s t the
responsibility for internal control on the b a n k s directors, this
responsibility is further delegated to a professional who is a staff of
the bank. Being a staff, he looks unto his boss for promotion,
recommendation and growth within the bank. The question is will you have the gut or courage to report his b o s s who h a s
contravened the CBN guidelines or CAMA. In theory, yes he should
report. But in practice, some internal controllers may not likely try
to do so. In an attempt to report some act or violation some
internal controllers have lost their jobs and some have missed their
promotion and some are looked at a s s a b o t e u r s of the
organization. This calls for proper protection of the internal
controller.
2. Integrity of the internal controller: It is expected that internal
controller should be a man or woman of integrity capable of
discharging his or her duty without fear or favor.

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According to Institute of Chartered Accountants of Nigeria - Rules
for professional conduct for members (2000), "Integrity implies not
merely honesty but fair dealing and truthfulness".
Therefore any report signed by the Chief internal Controller should
be capable of beings relied upon. But this is not the case.
We have had several cases of internal controllers who accepted
gratifications as an inducement to waive reporting failure to
comply with laws or regulations and sometimes not to report
discovered cases of fraud and misappropriation.
3. Qualified manpower: The duties of the internal controller are
highly technical and therefore should be carried out by
professionals, who are well verse with the operation of the banking
business. The Central Bank of Nigeria code of Corporate
Governance for Banks (2006) state that "the head of internal audit
should not be below the rank of AGM and should be a member of
relevant professional body". Note that internal audit is a veiy
important arm of internal control and therefore such office should
be manned by professional accountants.
Prior to 2006, we have had cases where nonprofessional
accountants are sent to man the internal control unit. The staff of
the internal control department should also be professional
accountants who are competent. Section 358 of the Companies
and Allied Matters Act states inter alias "a person shall not be
qualified for appointment as an auditor of a company unless he is
a member of a body of accountants in Nigeria established from
time to time".
4. Insider Abuse: There has been series of reported and unreported
cases of insider abuse in the industry such as improper granting of
loans to directors, management staff and political interest.
Insiders' conversion of banks resources to purposes other than
business interest. Granting of interest waivers on non-performing
insider credit without CBN prior to approval. Diversion of b a n k s
earnings through the use of subsidiaries to deny the b a n k s of
legitimate earnings. The internal controller is expected to report all
these to the appropriate authority but due to circumstances
beyond his control he may not report them. Where such are
reported, his report may be suppressed.
5. Falsification of accounting records: The internal controller
sometimes is guilty of aiding and abetting falsification of
accounting records. Window dressing of accounts with the
knowledge of the internal controller is a common practice in the
banking industry. Some banks are often accused of preparing
multiple financial statements in order to mislead the monetary and

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tax authority. This is always done in collaboration with the internal
controller.
The Concept Of Credit
According to Gopi (2012), the word "credit" comes from the Latin
word "credo" which means "I believe". Hence, credit is based upon belief,
confidence, trust and faith. The loan is based upon the confidence of
borrowers future solvency and repayment. Hence, credit m e a n s ability to
command the other's capital in return for a promise to re-pay at some
specified time in future. Besides, credit is the combination of "ability to
borrow" and "willingness to borrow". In fact, credit is an individual's
borrowing capacity, often being considered as an "economic good" to be
produced, managed and marketed.
Credit is the trust which allows one party to provide money or resources
to another party where that second party does not reimburse the first
party immediately (thereby generating a debt), but instead arranges
either to repay or return those resources (or other materials of equal
value) at a later date. The resources provided may be financial (e.g.
granting a loan), or they may consist of goods or services (e.g. consumer
credit). Credit encompasses any form of deferred payment. Credit is
extended by a creditor, also known as a lender, to a debtor, also known
a s a borrower.
Types Of Credit
There are many types of credit, including but not limited to b a n k
credit, commerce, consumer credit, investment credit, international
credit, public credit and real estate.
Trade credit: The word credit is used in commercial trade in the term
"trade credit" to refer to the approval for delayed payments for purchased
goods. Credit is sometimes not granted to a person who h a s financial
instability or difficulty. Companies frequently offer credit to their
customers a s part of the terms of a purchase agreement. Organizations
that offer credit to their customers frequently employ a credit manager.
Consumer credit: Consumer debt can be defined a s 'money, goods or
services provided to an individual in lieu of payment.' Common forms of
consumer credit include credit cards, store cards, motor (auto) finance,
personal loans (installment loans), consumer lines of credit, retail loans
(retail installment loans) and mortgages. This is a broad definition of
consumer credit and corresponds with the Bank of England's definition
of "Lending to individuals".

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Credit Management
There are many definitions given for credit management by
different scholars. Among these some are here cited a s follows:
Credit management is implementing and maintaining a set of policies
and procedures to minimize the amount of capital tied up in debtors and
to minimize the exposure of the business to bad debts.
(http://www.smallbusiness.wa. gov.au/assets/SmallBusinessBriefs/smal
1-business-brief-credit-management.pdfl.
Credit Management, from a debtor's point of view, is managing finances
especially debts so as not to have a tail of creditors lurking behind your
back. Credit management is a responsibility that both the debtor and the
creditor
should
seriously
take
(httD://www.selfgrowth.com/articles/Tabiie3.html).
When it functions efficiently, credit management serves a s an excellent
instrument for the business to remain financially stable.
Credit management is the process of controlling and collecting payments
from customers. This is the function within a bank or company to control
credit policies that will improve revenues and reducefinancialrisks.
According to investorsword.com credit management is a function
performed within a company to improve and control credit policies that
will lead to increased revenues and lower risk including increasing
collections, reducing credit costs, extending more credit to creditworthy
customers, and developing competitive credit terms
Process of Credit Management
The process of credit management begins with accurately assessing
the credit-worthiness of the customer base and his/her business viability.
This is particularly important if the company chooses to extend some type of
credit line or revolving credit to certain customers. Hence, proper credit
management is setting specific criteria that a customer must meet before
receiving the proposed credit arrangement. As part of the evaluation
process, credit management also calls for determining the total credit line
that will be extended to a given customer.
Several factors are used as part of the credit management process to
evaluate and qualify a customer for the receipt of some form of commercial
credit. This includes gathering data on the potential customers current
financial condition, including
credit track record that discloses the
character of a customer in meeting obligations as well as collateral value.
The current ratio between income and outstanding financial obligations will
also be taken into consideration.
Competent credit management seeks to not only protect the bank or any
financial institution involved from possible losses, but also protect the
customer from creating more debt obligations that cannot be settled in a
timely manner.

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Overview Of Nigerian Banking S e c t o r
Banking Industry in Nigeria s t a r t e d d u r i n g t h e colonial era with
the establishment of Colonial B a n k s with t h e p r i m a r y aim of meeting the
commercial needs of the Colonial G o v e r n m e n t . The historical
development of Banking in Nigeria is linked with t h e increase in the
intensity of international trade between Nigeria a n d Britain. It is worthy
of note that the establishment of b a n k a s s i s t e d in facilitating, trade
transactions. This was because Nigeria h a d a m a j o r t r a d e relationship
with a country which as her colonial m a s t e r . T h i s created the enabling
environment for the importance a n d u s e f u l n e s s of b a n k i n g for many
years. Banking in Nigeria started in 1892 with t h e establishment of a
branch of African Banking Corporation in Lagos.
Banking system in Nigeria is regulated t h r o u g h the Central Bank
of Nigeria. This apex bank started operation on J u l y 1, 1959.
In 1892, African Banking Corporation a n d British West Africa, now First
Bank of Nigeria, were established in Nigeria. In 1925, Anglo-Egyptian
Bank and National Bank of South Africa gave b i r t h to Barclays Bank in
Nigeria. In 1948, the British and F r e n c h B a n k for Commerce and
Industry started operations in Nigeria, which m e t a m o r p h o s e d into the
United Bank for Africa. The first d o m e s t i c b a n k In Nigeria was
established in 1929 and called Industrial a n d Commercial Bank. The
bank liquidated in 1930 and was replaced by Mercantile Bank in 1931.
The African Continental Bank w a s c r e a t e d in 1949 a s the only
sustainable indigenous bank after the liquidation of t h e Industrial and
Commercial bank. The year 1947, s h o w s t h e e m e r g e n c e of agricultural
bank called Nigeria Farmers and Commercial B a n k .
Establishment of Commercial Banks
Willi an increase in the intensity of i n t e r n a t i o n a l trade between
Nigeria and Britain, the establishment of a b a n k to a s s i s t a n d facilitate,
trade transactions was imperative. This w a s b e c a u s e Nigeria had a major
trade relationship with a country which h a d already known the
importance and usefulness of b a n k i n g for m a n y years. Banking in
Nigeria started in 1892 with the e s t a b l i s h m e n t of a b r a n c h of African
Banking Corporation in Lagos.
The main function of the b a n k w a s t h a t of importing and
distributing silver coins from Royal Mint a n d implicitly regulating their
circulation. The activities of the b a n k with r e s p e c t to import of coins were
monopolistic in nature. This was b e c a u s e o t h e r i n s t i t u t i o n s had to pay a
premium of 1 per cent for any importation.
In 1893, barely a year from its e s t a b l i s h m e n t , the African Banking
Corporation (ABC) was folded u p a n d its i n t e r e s t s therein transferred to
Elder Detester and Company". The v a c u u m in b a n k i n g activities left by

THE BUSINESS MASTER

79

African Banking Corporation w a s filled in 1894 when an office of the
British Bank for West Africa (now First Bank) was established in Lagos.
The functions of BBWA were the same a s the defunct African
Banking Corporation but it recorded greater s u c c e s s e s than its
predecessor. The b a n k helped a lot in providing the needed banking
services to both the colonial government and the agricultural producers,
who were the major exporters. Through the import/export services
offered by the bank, t h e tempo of trade transactions w a s increased. The
establishment of this b a n k also helped in sending to Nigeria the wealth of
experience in b a n k i n g operations which was already in a n advanced
stage in Britain a n d the s a m e time improve the conditions then inherent
in the economy for a take-off of a near complete monetary type of
economy. This w a s because, when the West African Currency Board
(WACB) w a s established, the BBWA became its main currency agent
which took charge of the WACB currency, receiving, storing and issuing
of w i n s tendered in, exchange for drafts on London Another commercial
b a n k of British origin w a s established in 1925. The Barclays Bank
D.C.O. (Dominic, Colonial a n d Overseas) as it was then called her helped
in developing the b a n k i n g b a s e of the economy. One may be pied to ask
w h e t h e r these b a n k s had interest and confidence in both the Nigerian
e c o n o m y and the indigenous b u s i n e s s affairs.
The first of these b a n k s - ABC - did not have m u c h confidence in
the Nigerian economy a s it had in the South African economy. This was
b e c a u s e of a combination of many factors - weather, mosquitoes, social
u n r e s t d u e to resistance by the Nigerian ruling kings, Obas a n d Chiefs,
to t h e penetration of Europeans into their kingdoms and the seasonal
n a t u r e of the export crops.
Moreover, the Nigerian indigenous b u s i n e s s m e n u p to recent
periods suffered from lack of financial assistance from the expatriate
banks.
There was therefore, the need to establish indigenous b a n k s to
s t i m u l a t e and facilitate indigenous participation in the process of
economic development in terms of the diversification of the productive
p a t t e r n of the economy which w a s mainly agricultural.
The export-based agricultural production was dominated by large
foreign panics which operated on large scale basis - the plantation
system. The scale export oriented productions were mainly restricted to
export crops palm Oil, palm kernel and rubber. It is on record that a s far
back a s 1917 the BBWA h a d granted loans to the export crop farmers
which might have been these foreign companies. The b a n k however,
faced stiff competition with the major trading companies in respect of
credit operations to p r o d u c e r s since they had a more extensive network
of b r a n c h e s than the BBWA.

KINGSLEY G. K. P h . D & EMMANUEL O.

80

The first indigenous b a n k (o b e e s t a b l i s h e d a s a n attempt to bring
indigenous businessmen into t h e h e l m of e c o n o m i c activities in Nigeria
was the Industrial and C o n t i n e n t a l B a n k (ICB) established in 1929. The
bank however failed in 1930 b e c a u s e of i n a d e q u a t e capital base, poor
management and stiff competition with t h e well-established and
experienced expatriate b a n k s a n d t r a d i n g c o r p o r a t i o n s which diversified
into financing business. In 1930, a g r o u p of o t h e r enterprising Nigerians
founded the Mercantile B a n k w h i c h w e n t i n t o liquidation in 1936 barely
five years front its e s t a b l i s h m e n t b e c a u s e of t h e s a m e factors that caused
the failure of the first indigenous b a n k . In 1933, a third indigenous bank
was established by n a m e the NaUonal B a n k of Nigeria.
In 1945 and 1947, t h e A g b o n m a g b e (now Wema Bank) a n d the
African Continental Bank were e s t a b l i s h e d , respectively. These last
groups of b a n k s were able to s u s t a i n t h e m s e l v e s irrespective of
competition with the well m a n a g e d e x p a t r i a t e b a n k s . It may be that they
learnt from and overcame t h e difficulties t h a t befell the earlier '
established indigenous commercial b a n k s . T h e s a m e b a n k s are in
existence today although s o m e exist with o t h e r n a m e s and some
attendant problems. The survival of i n d i g e n o u s b a n k s may not be
attributed entirely to their m a n a g e m e n t efficiency b u t also on patronage
by the different regional g o v e r n m e n t s a n d q u a s i - g o v e r n m e n t agencies.
The popular c l i e n t / p a t r o n s of t h e African C o n t i n e n t a l Bank were, for
example, the Eastern Region F i n a n c e C o r p o r a t i o n a n d Marketing Board:
that of the National B a n k of Nigeria W a s t h e Nigerian Marketing Board
(appointed bankers to the b o a r d in S e p t e m b e r . 1950), a n d that of the
Agbomagbe Bank was the W e s t e r n Region M a r k e t i n g Board.
Functions Of The Central Bank Of Nigeria (CBN)
CBN Ordinance of 1958 s u b s e q u e n t a m e n d m e n t s base the
functions of the CBN a s follows:
1. Issuance of legal t e n d e r c u r r e n c y n o t e s a n d coins in Nigeria.
2. Maintenance of Nigeria's e x t e r n a l r e s e r v e s to
3. safeguard the i n t e r n a t i o n al v a l u e of t h e n a t i o n ' s currency.
4. Promotion a n d m a i n t e n a n c e of m o n e t a r y stability a n d a sound and
efficient financial s y s t e m in Nigeria.
5. It acts a s b a n k e r a n d financial a d v i s e r to t h e Federal Government
of Nigeria.
6. Acting a s a b a n k e r a n d l e n d e r of l a s t r e s o r t to b a n k s
7. Acting a s the apex r e g u l a t o r a n d s u p e r v i s o r of all financial
activities in Nigeria

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81

The Modified Universal Banking Model
In 2010. Central Bank of Nigeria re-modified the existing Universal
Banking Model that permits the holder of commercial banking license to
operate in other non-core banking either directly or indirectly through
designated subsidiaries. The introductions of these schemes classify
banking
licenses
into
commercial.
Merchant
and
Specialized/Development Banking Licenses.
RESEARCH METHODOLOGY

The population for this study comprises of five (5) selected banks. This
work adopted the random sampling technique to achieve its sample size. Due to
the nature of the research work, the sample size for this work is one hundred
(100) which is made up of one hundred (100) workers from the five selected
banks with twenty (20) workers from each bank.
The instrument used for the data collection in this study in order to find
out the impact of internal control on banks credit management is a closedtyped questionnaire structured in Likert method which responses involves four
(4) responses ranging from positive through negative feelings of the
respondent(s).
The instrument used for data collection for this research work was
structured in the Likert Method which comprises of four various levels of
responses ranging from strongly agreed (SA), agreed (A), strongly disagree
(SD)and disagree (D), hence, Chi-square is used for data analysis, which is
represented with "X2" with the formula given below:
X2 =
Where:
X2 = Chi-square
Fo = Observed frequency
Fe = Expected frequency
Decision Rule

If the calculated Chi-square (X2) value is less than the critical value, the
tested null-hypotheses will be accepted.
Data Presentation, Analysis And Interpretation

One hundred (100) questionnaires were administered to the respondents
of the five (5) selected banks for this study. Ten (20) copies each to the live
banks
Out of the one hundred (100) questionnaires administered in total, a
total of ninety-two (92) questionnaires were retrieved. This in other words
represent 92% retrieval. Data from the ninety-two (92) retrieved questionnaires
were used for this study.
The table below shows the number of questionnaires distributed to the
banks and the numbers retrieved including their percentage of retrieval.

KINGSLEY G. K. P h . D & EMMANUEL O.

Table
s
/
N

1 Distribution Table
NAME
NO OF
S OF
QUES.
BANK ADMINISTE
RED

First
20
Bank
2 Eco
20
Bank
3 Fidelity 20
4 Access 20
5 Diamo 20
nd
Total
100
Source: Data Survey, 2016
1

NO OF
QUES.
RETRI
EVED

% OF
QUES.
RETRI
EVED

NO. NOT
RETRI EV
ED

%
OF
NOT
RETRIE
VED

17

17

3

3

18

18

2

2

18

18

2

20
19

20
19

0
1

2
0
1

92

92

8

8

82

Research Question 1: To what extent does internal check e n h a n c e b a n k
customer credit reporting?
To answer the above question, question 5 in the q u e s t i o n n a i r e will be
used which states: Internal checks e n h a n c e quality c u s t o m e r credit
report. Below is the analysis based on the r e s p o n s e given by the
respondents.
= 38.04
Strongly agreed: — •
Agreed:
Strongly disagree: —
Disagree:

i l « i l l = -J5
= 17.40%

T H E BUSINESS MASTER

83

% OF RESPONDENTS

• STRONGLY AGREED

• AGREED

• STRONGLY DISAGREE • DISAGREE

Source: Data Survey, 2016
Analysis:
From the above pie chart, we can deduce t h a t 38.04% strongly agreed
t h a t internal check e n h a n c e bank customer credit reporting t h a t brings
a b o u t quality customer credit report. 25% of the r e s p o n d e n t s hit agreed,
while 17.40 % hit strongly disagree, while 19.56% disagreed.
Research question 2:To what extent does authorization/approval
e n s u r e security of b a n k credit?
To answer the above research question, question 10 in the questionnaire
will be used which states "Authorization/approval p r o c e d u r es e n s u r e
provision of adequate security for b a n k credits" a s analyzed below.

Strongly agreed:

^ x^

=

Agreed:

92 x

= 40 21O//

Strongly disagree: ^ x ^

Disagree:

32.61%

-

=

°

13.04%

— x — = 14.13%
92

1

KINGSLEY G. K. P h . D & EMMANUEL O.

84

% OF R E S P O N D E N T S

• STRONGLY AGKfctD

• AGKbhD

• STR0NGIY DISAGRfr • DISAGRff

Source: D a t a Survey, 2 0 1 6
Analysis:
The pie chart shows t h e percentage of t h e r e s p o n d e n t s b a s e d on
their opinion. 32.61% strongly agreed t h a t a u t h o r i z a t i o n / a p p r o v a l
e n s u r e s security of b a n k credit, 4 0 . 2 1 % agreed to t h e fact t h a t
Authorization/approval p r o c e d u r e s e n s u r e provision of a d e q u a t e security
for b a n k
credits,
thereby
strengthening
the
assertion
that
a u t h o r i z a t i o n / a p p r o v a l e n s u r e s security of b a n k credit. While 13.04
strongly disagreed a n d 14.13% disagreed for t h e said a s s e r t i o n .
Research Question 3:To What extent does p e r f o r m a n c e evaluation
e n h a n c e reduction in non-performing b a n k credits?
To a n s w e r this question, question 15 in t h e q u e s t i o n n a i r e will be
u s e d which was s t r u c t u r e d a s follows: Performance evaluation report
help in reduction of non-performing credits. And it's analyzed a s follows:
Strongly agreed:
Agreed:

21 x 222 = 36.96%
~ x — = 32.60%
92

1

Strongly disagree: 22 x 222 = 14.130/0
Disagree:

22x222= 16.30%

THE BUSINESS MASTER

85

The above is summarized in the diagram below:

% OF R E S P O N D E N T S

• STP'MI