CHAPTER ONE

INTRODUCTION

1.0 Introduction

Lending is the principal business activity for most commercial banks. The loan portfolio is typically the largest asset and the predominate source of revenue. As such, it is one of the greatest sources of risk to a bank’s safety and soundness. Whether due to lax credit standards, poor portfolio risk management, or weakness in the economy, loan portfolio problems have historically been the major cause of bank losses and failures. Effective management of the loan portfolio and the credit function is fundamental to a bank’s safety and soundness. Loan portfolio management (LPM) is the process by which risks that are inherent in the credit process are managed and controlled. Because review of the LPM process is so important, it is a primary supervisory activity. Assessing LPM involves evaluating the steps bank management takes to identify and control risk throughout the credit process. The assessment focuses on what management does to identify issues before they become problems. This booklet, written for the benefit of both examiners and bankers, discusses the elements of an effective LPM process. It emphasizes that the identification and management of risk among groups of loans may be at least as important as the risk inherent in individual loans. For decades, good loan portfolio managers have concentrated most of their effort on prudently approving loans and carefully monitoring loan performance. Although these activities continue to be mainstays of loan portfolio management, analysis of past credit problems, such as those associated with oil and gas lending, agricultural lending, and commercial real estate lending in the 1980s, has made it clear that portfolio managers should do more. Traditional practices rely too much on trailing indicators of credit quality such as delinquency, non-accrual, and risk rating trends. Banks have found that these indicators do not provide sufficient lead time for corrective action when there is a systemic increase in risk. credit risk profile and with more tools to analyze and control the risk

1.1 Theoretical Background

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent. Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

1.2 Statement of Problem

Many banks do not have an automated system specifically to manage loan lending information. This situation makes it difficult to instantly confirm loan information or get reports when needed. To solve this problem, a loan lending management system is needed to aid the easy capturing and updating of loan information of customers and verification of loan lending records.

1.3 Aim and Objectives of the Study

The aim of the study is to develop a loan lending record management system The following are the objectives of the study;

• To develop a system that will aid registration of loan records
• To develop a system that will serve a s a database of loan records
• To develop a system that will facilitate easy retrieval of loan records

1.4 Scope of the study

This study covers automated loan lending management system using Akwa Savings and loans, Ikot Ekpene as a case study.

1.5 Significance of the study

The significance of the study are:

1. It will provide an automated system that will aid the easy recording of loan lending information.
2. It will serve as a management information system.
3. The study will also serve as a useful reference material to other researchers seeking for information pertaining the study.

1.6 Organization of the Research

This research work is organized into five chapters. Chapter one is concerned with the introduction of the research study and it presents the preliminaries, theoretical background, statement of the problem, aim and objectives of the study, significance of the study, scope of the study, organization of the research and definition of terms.

Chapter two focuses on the literature review, the contributions of other scholars on the subject matter is discussed.

Chapter three is concerned with the system analysis and design. It analyzes the present system to identify the problems and provides information on the advantages and disadvantages of the proposed system. The system design is also presented in this chapter.

Chapter four presents the system implementation and documentation. The choice of programming language, analysis of modules, choice of programming language and system requirements for implementation.

Chapter five focuses on the summary, conclusion and recommendations are provided in this chapter based on the study carried out.

1.7 Definition of Terms

Debt: an amount of money, a service, or an item of property that is owed to somebody

Loan: an amount of money given to somebody on the condition that it will be paid back later.

Lending: to allow a person or business to use a sum of money for a particular period of time, usually on condition that a charge interest is paid in return

Guarantor: somebody who gives a guarantee, especially a formal promise to be responsible for somebody else’s debts or obligations.