This document discusses the use of real estate as loan collateral in Nigeria's banking sector. It finds that real estate is the most widely used collateral instrument for bank loans in Nigeria. Banks follow due process when applying real estate as collateral, requiring documentation of borrower title and assessing property value. However, documentation and foreclosure problems present obstacles. The role of real estate as collateral is significant in developing countries due to difficulties in using movable assets as collateral. Overall title, nature of title, and property value are key considerations for banks when applying real estate as loan security.
Volume of Deposits, A determinant of Total Long-term Loans Advanced by Commer...iosrjce
Commercial banks have exponentially increased their total loans advanced over the period 2002-
2013. However commercial banks in Kenya have shown varying long term lending behavior. The main objective
of this study was to establish the effect of determinants of long term lending in the Kenyan banking industry, a
case of Bungoma County. This study was guided by the following specific objective; to determine the effect of
volume of deposit on total loan advanced, of selected commercial banks in Kenya. The target population
comprised 13 commercial banks in Bungoma County with a sample size of 52 respondents. From the findings,
for every unit increase in volume of deposits, a 10.9%, unit increase in total loans advanced is predicted. The
model hypothesizes that there is functional relationship between the dependent variable and the independent
variable. The study then recommends that commercial banks should focus on mobilizing more deposits as this
will enhance their lending performance.
EFFECTS OF MORTGAGE FINANCING ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANK...paperpublications3
Abstract: Mortgage financing over the years has been a preserve for mortgage financing companies but with time, commercial banks have started engaging in mortgage financing. An efficient housing finance system has significant importance both in meeting the housing needs of individuals and in reinforcing the development it is practiced by banks in Kitale and to figure out there short coming in mortgage financing do affect the performance of banks. The objectives of the study were to establish the effects of mortgage financing on Financial Performance of commercial banks in Kitale. The study had four specific objectives establish effects of repayment period, interest rates, income levels of borrowers and valuation cost on performance of mortgage financing in Trans Nzoia County of financial performance of commercial banks in Kitale. The study adopted descriptive research design which assists to examine the effects between mortgage financing and financial performance of commercial banks. The target population of the study was 16 Commercial Banks as they fulfil all characteristics and legally accepted by the Central Bank of Kenya. A census was applied as the method of systematically acquiring and recording information from the population. Qualitative and quantitative techniques were used to analyzing the data. After receiving questionnaires from the respondents the responses were edited, classified, coded and tabulated to analyze quantitative data using statistical package for social science (SPSS 21). Tables and charts were used for data presentation for easy understanding and analyzes.
Keywords: Repayment period, Interest rate, Mortgage valuation cost and financial performance.
Title: EFFECTS OF MORTGAGE FINANCING ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN TRANSNZOIA COUNTY
Author: Serem, Kipruto, Isaac, Prof. Namusonge, Gregory, Mr. Okwaro Fredrick
ISSN 2349-7807
International Journal of Recent Research in Commerce Economics and Management (IJRRCEM)
Paper Publications
This study examined the effect of interest rate deregulation on Nigerian banking system. The study adopted Augmented Dickey – Fuller (ADF), Bound test and Autoregressive Distributed Lag (ARDL). The correlation result indicated that of the correlation matrix that all the explanatory variables (interest rate, lending rate and deposit rate) had effect on loan and advances. The results of the unit root test revealed that interest rate and lending rate were stationary at level 1(0) while loan and advances and deposit rate were stationary at first difference 1(1). Also the results of the bound test revealed that there exist long run equilibrium relationship among the variables. The result of the ARDL indicated that interest rate had significant effect on loan and advances while lending rate and deposit rate had an insignificant effect on loan and advances. It was concluded that banks should monitor the level of loan and advances in respect to major ratios for effective performance. The study thus, recommended that banks should monitor lending rate which should be fixed in order to enhance lending performance. Regulatory authority should ensure that macroeconomic variables such as money supply, liquidity ratio, lending rate, monetary policy rate are effectively managed to enhance bank performance.
Volume of Deposits, A determinant of Total Long-term Loans Advanced by Commer...iosrjce
Commercial banks have exponentially increased their total loans advanced over the period 2002-
2013. However commercial banks in Kenya have shown varying long term lending behavior. The main objective
of this study was to establish the effect of determinants of long term lending in the Kenyan banking industry, a
case of Bungoma County. This study was guided by the following specific objective; to determine the effect of
volume of deposit on total loan advanced, of selected commercial banks in Kenya. The target population
comprised 13 commercial banks in Bungoma County with a sample size of 52 respondents. From the findings,
for every unit increase in volume of deposits, a 10.9%, unit increase in total loans advanced is predicted. The
model hypothesizes that there is functional relationship between the dependent variable and the independent
variable. The study then recommends that commercial banks should focus on mobilizing more deposits as this
will enhance their lending performance.
EFFECTS OF MORTGAGE FINANCING ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANK...paperpublications3
Abstract: Mortgage financing over the years has been a preserve for mortgage financing companies but with time, commercial banks have started engaging in mortgage financing. An efficient housing finance system has significant importance both in meeting the housing needs of individuals and in reinforcing the development it is practiced by banks in Kitale and to figure out there short coming in mortgage financing do affect the performance of banks. The objectives of the study were to establish the effects of mortgage financing on Financial Performance of commercial banks in Kitale. The study had four specific objectives establish effects of repayment period, interest rates, income levels of borrowers and valuation cost on performance of mortgage financing in Trans Nzoia County of financial performance of commercial banks in Kitale. The study adopted descriptive research design which assists to examine the effects between mortgage financing and financial performance of commercial banks. The target population of the study was 16 Commercial Banks as they fulfil all characteristics and legally accepted by the Central Bank of Kenya. A census was applied as the method of systematically acquiring and recording information from the population. Qualitative and quantitative techniques were used to analyzing the data. After receiving questionnaires from the respondents the responses were edited, classified, coded and tabulated to analyze quantitative data using statistical package for social science (SPSS 21). Tables and charts were used for data presentation for easy understanding and analyzes.
Keywords: Repayment period, Interest rate, Mortgage valuation cost and financial performance.
Title: EFFECTS OF MORTGAGE FINANCING ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN TRANSNZOIA COUNTY
Author: Serem, Kipruto, Isaac, Prof. Namusonge, Gregory, Mr. Okwaro Fredrick
ISSN 2349-7807
International Journal of Recent Research in Commerce Economics and Management (IJRRCEM)
Paper Publications
This study examined the effect of interest rate deregulation on Nigerian banking system. The study adopted Augmented Dickey – Fuller (ADF), Bound test and Autoregressive Distributed Lag (ARDL). The correlation result indicated that of the correlation matrix that all the explanatory variables (interest rate, lending rate and deposit rate) had effect on loan and advances. The results of the unit root test revealed that interest rate and lending rate were stationary at level 1(0) while loan and advances and deposit rate were stationary at first difference 1(1). Also the results of the bound test revealed that there exist long run equilibrium relationship among the variables. The result of the ARDL indicated that interest rate had significant effect on loan and advances while lending rate and deposit rate had an insignificant effect on loan and advances. It was concluded that banks should monitor the level of loan and advances in respect to major ratios for effective performance. The study thus, recommended that banks should monitor lending rate which should be fixed in order to enhance lending performance. Regulatory authority should ensure that macroeconomic variables such as money supply, liquidity ratio, lending rate, monetary policy rate are effectively managed to enhance bank performance.
Analysis Of The Effect Of Capital, Credit Risk and Profitability To Implementation Banking Intermediation Function(Study On Regional Development Bank All Over Indonesia Year 2012 )
Econometrics Analysis of Capital Adequacy Ratios and the Impact on Profitabil...iosrjce
This paper examines the econometrics analysis of capital adequacy ratios and the impact on the
profitability of Commercial Banks in Nigeria from 1980 – 2013. The objective is to investigate whether there is
a dynamic long run relationship between capital adequacy ratios and the profitability of commercial banks.
Time series data were sourced from Stock Exchange factbook and financial statement of quoted commercial
banks and the Johansen co-integration techniques in vector error correction model setting (VECM) as well as
the granger causality test were employed. The study has Return on Asset (ROA), Return on Investment (ROI)
and Return on Equity (ROE) as the dependent variables and the independent variables are Adjusted Capital to
Risk Asset Ratio (ACRR), Capital to Deposit Ratio (CTD), Capital to Net Loans and Advances Ratio (CNLAR),
Capital to Risk Asset Ratio (CRA) and Capital to Total Asset Ratio (CTAR). The empirical result demonstrated
vividly in the models that there is a positive long run dynamic and significant relationship between return on
asset and capital to risk asset ratio and capital to deposit ratio while others are negatively correlated. The
findings also revealed that there is bi-directional causality running from ROA to ACRR and ROA to CNLAR. We
therefore recommend that financial policies should be strengthened to deepen the capital base of Nigerian
Commercial banks to enhance bank profitability and sustain economic growth.
Effect of Debt Recovery Techniques on Performance of Selected Financial Insti...inventionjournals
The purpose of the was to examine the effect of debt recovery techniques on performance of financial institutions. The study objectives were to examine the effect of account transactions, guarantors, auction and the effect of collateral retention on performance of financial institutions in Eldoret town. The study was guided by customer-supplier relationship theory. The research design adopted a descriptive survey design. The study was conducted on Financial Institutions within Eldoret town, Uasin Gishu County. The target population consisted of 185 employees from the credit and management department of selected financial institutions. The study targeted five commercial banks and four micro-finance institutions. The study used purposive sampling technique to select 125 respondents. The researcher used questionnaire as data collection instruments. The data collected in the study was analyzed by the use of descriptive statistics and inferential statistics. This includes the use of descriptive statistical methods to analyze data consisting of frequency, mean and standard deviation. The relationship between variables was done using multiple linear regression models. Graphs, tables and pie charts were used to present the results. Based on the findings of the study, the study recommended among others that financial institutions should review account histories as suggestion tools for accounts such as savings accounts, investment accounts and also retirement accounts for additional information on customer ability to repay their loans. The study suggests that same study be done in other financial institutions not considered in this study to allow generalizations and also provide rich advances for future studies. Further research is also required to study the factors determining debt recovery in financial institutions.
How The Growth In Bond Market Affect The Performance Of Banks In Briics?inventionjournals
When it comes to raising capital, corporates have two major sources of external funds: Equity and Debt. Corporate debt consists of broadly two types – bank borrowings and bonds. A bond is a formal contract between a borrower and a lender whereby the borrower promises to repay borrowed money with coupons at fixed intervals and at maturity in which the participants are provided with the issuance and trading of debt securities. The main objective of this study is to understand how the growth in bond market affects the performance of the Bank in BRIICS countries. The variables like Bank’s capital to asset ratio, Domestic credit to private sector, NPA, Portfolio investment and Bond market size has been analysed and Panel regression has been used to find the results. The results showed that all the variables analysed have a positive impact on the bond market growth and a leading effect on the banks
Effect of Determinants of Financial Reporting Timeliness on Reporting Timelin...YogeshIJTSRD
This study assesses the relationship between the determinants of financial reporting timeliness of Nigerian banking industry. Specifically, Ogbodo, Cy Okenwa | Jiagbogu, Nwadiogo K "Effect of Determinants of Financial Reporting Timeliness on Reporting Timeliness: An Empirical Study of Nigerian Banks" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-3 , April 2021, URL: https://www.ijtsrd.com/papers/ijtsrd38670.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/38670/effect-of-determinants-of-financial-reporting-timeliness-on-reporting-timeliness-an-empirical-study-of-nigerian-banks/ogbodo-cy-okenwa
Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeriaijtsrd
This study examines the effect of the credit risk ratio on the financial performance of deposit money banks in Nigeria. Ex Post Facto research design was employed for the study. Sample sizes of five banks were selected from twenty banks quoted on the Nigerian Stock Exchange. Data were extracted from annual reports and accounts of the selected banks from 2010 to 2019. Using E view statistical tool to test the hypothesis, the study found that credit risk ratio significantly influences the financial performance of quoted deposit money banks in Nigeria It was recommended that bank managers should constantly engage in rigorous credit analysis, checking, default rate, the proportion of non performing loans, regularly or at least quarterly to enable them to maintain high asset quality to enhance the financial performance. Oraka, Azubike O | Ebubechukwu, Jacinta O "Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-4 , June 2021, URL: https://www.ijtsrd.compapers/ijtsrd42388.pdf Paper URL: https://www.ijtsrd.commanagement/other/42388/effect-of-liquidity-risk-on-performance-of-deposit-money-banks-in-nigeria/oraka-azubike-o
Effect of Deposit Money Bank Failure on Economic Development of Nigeria, 2009...ijtsrd
Deposit money banks plays a vital role in the in economy which involves providing capital for investment thereby improving the well being of the country as such collapse of any bank can affect the economic development of the country. Therefore the study investigated the effect of bank failure on economic development of Nigeria 2009 2019 using secondary data from Nigeria Deposit Insurance Corporation and Statistical bulletin of Central Bank of Nigeria. The research work used the Granger Causality techniques to test the effect between the independent variables Nonperforming loans, Capital Adequacy Ratio and Liquidity Ratio on the dependent variable Unemployment Rate while VAR was used to test the short run relationship. The study found that bank failure granger causes unemployment in Nigeria within the period of the study. The study therefore advocates that banks must ensure they maintain reasonable and acceptable shareholders fund unimpaired by losses at all times and avoid capital erosion. Every loan granted by each of the banks has to be adequately collateralized and the incidence of insider related credits must be deemphasized to avoid loan losses or huge non performing loans. The regulatory authorities on the other hand should engage themselves in capacity building to enable them perform their supervisory and regulatory functions as effectively as possible. The CBN must continue to emphasize and enforce the prudential regulation. Chukwu, Kenechukwu Origin | Obi-Nwosu Victoria O | Chimarume Blessing Ubah "Effect of Deposit Money Bank Failure on Economic Development of Nigeria, 2009-2019" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd46285.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/46285/effect-of-deposit-money-bank-failure-on-economic-development-of-nigeria-20092019/chukwu-kenechukwu-origin
Discusses briefly shadow banks, their role in the subprime crisis, their activities in China, and the regulations and measures taken to control or reduce the negative effects of those financial institutions on the world economy.
The purpose of this research was to empirically investigate the effect of capital structure on financial sustainability
of deposit-taking micro finance institutions (DTMs) in Kenya. The specific objectives were to determine the impact
of debt on the financial sustainability of DTMs in Kenya, to assess the influence of retained earnings on the financial
sustainability of DTMs in Kenya, to examine the effect of ordinary share capital on the financial sustainability of
MFIs in Kenya, and to investigate the impact of preferred share capital on the financial sustainability of DTMs in
Kenya. The target population of the study was all the 13 DTMs in Kenya registered with the Central Bank of Kenya.
Secondary data was collected on all the DTMs financial data from the Central Bank of Kenya reports. Data was
analyzed using multiple regression model using SPSS and R as the data analysis tool. Based on the findings 76.9%
of the DTMs did not earn enough revenue to cover the actual financing direct costs, which include the total operating
costs, loan loss provisions and the financing costs but excluding the cost of capital. The analysis of variance
(ANOVA) table indicated that the predictor variables influenced the predictor variable significantly at 5%
significance level. Among the four variables; debt and retained earnings were statistically significant variable at 5%
significance level with 1.265 and 1.630 coefficient respectfully. Whereby the financial sustainability change by
1.265 and 1.630 for every unit change of debt or retained earnings respectfully. Therefore, for the deposit-taking
microfinance institutions to remain afloat in the lending business, they should utilize any borrowing opportunity,
plough back profits to the business, and low proportion of preferred share capital. Deposit-taking microfinance
institutions should avoid usage ordinary share capital as it negatively affected financial sustainability
Analysis Of The Effect Of Capital, Credit Risk and Profitability To Implementation Banking Intermediation Function(Study On Regional Development Bank All Over Indonesia Year 2012 )
Econometrics Analysis of Capital Adequacy Ratios and the Impact on Profitabil...iosrjce
This paper examines the econometrics analysis of capital adequacy ratios and the impact on the
profitability of Commercial Banks in Nigeria from 1980 – 2013. The objective is to investigate whether there is
a dynamic long run relationship between capital adequacy ratios and the profitability of commercial banks.
Time series data were sourced from Stock Exchange factbook and financial statement of quoted commercial
banks and the Johansen co-integration techniques in vector error correction model setting (VECM) as well as
the granger causality test were employed. The study has Return on Asset (ROA), Return on Investment (ROI)
and Return on Equity (ROE) as the dependent variables and the independent variables are Adjusted Capital to
Risk Asset Ratio (ACRR), Capital to Deposit Ratio (CTD), Capital to Net Loans and Advances Ratio (CNLAR),
Capital to Risk Asset Ratio (CRA) and Capital to Total Asset Ratio (CTAR). The empirical result demonstrated
vividly in the models that there is a positive long run dynamic and significant relationship between return on
asset and capital to risk asset ratio and capital to deposit ratio while others are negatively correlated. The
findings also revealed that there is bi-directional causality running from ROA to ACRR and ROA to CNLAR. We
therefore recommend that financial policies should be strengthened to deepen the capital base of Nigerian
Commercial banks to enhance bank profitability and sustain economic growth.
Effect of Debt Recovery Techniques on Performance of Selected Financial Insti...inventionjournals
The purpose of the was to examine the effect of debt recovery techniques on performance of financial institutions. The study objectives were to examine the effect of account transactions, guarantors, auction and the effect of collateral retention on performance of financial institutions in Eldoret town. The study was guided by customer-supplier relationship theory. The research design adopted a descriptive survey design. The study was conducted on Financial Institutions within Eldoret town, Uasin Gishu County. The target population consisted of 185 employees from the credit and management department of selected financial institutions. The study targeted five commercial banks and four micro-finance institutions. The study used purposive sampling technique to select 125 respondents. The researcher used questionnaire as data collection instruments. The data collected in the study was analyzed by the use of descriptive statistics and inferential statistics. This includes the use of descriptive statistical methods to analyze data consisting of frequency, mean and standard deviation. The relationship between variables was done using multiple linear regression models. Graphs, tables and pie charts were used to present the results. Based on the findings of the study, the study recommended among others that financial institutions should review account histories as suggestion tools for accounts such as savings accounts, investment accounts and also retirement accounts for additional information on customer ability to repay their loans. The study suggests that same study be done in other financial institutions not considered in this study to allow generalizations and also provide rich advances for future studies. Further research is also required to study the factors determining debt recovery in financial institutions.
How The Growth In Bond Market Affect The Performance Of Banks In Briics?inventionjournals
When it comes to raising capital, corporates have two major sources of external funds: Equity and Debt. Corporate debt consists of broadly two types – bank borrowings and bonds. A bond is a formal contract between a borrower and a lender whereby the borrower promises to repay borrowed money with coupons at fixed intervals and at maturity in which the participants are provided with the issuance and trading of debt securities. The main objective of this study is to understand how the growth in bond market affects the performance of the Bank in BRIICS countries. The variables like Bank’s capital to asset ratio, Domestic credit to private sector, NPA, Portfolio investment and Bond market size has been analysed and Panel regression has been used to find the results. The results showed that all the variables analysed have a positive impact on the bond market growth and a leading effect on the banks
Effect of Determinants of Financial Reporting Timeliness on Reporting Timelin...YogeshIJTSRD
This study assesses the relationship between the determinants of financial reporting timeliness of Nigerian banking industry. Specifically, Ogbodo, Cy Okenwa | Jiagbogu, Nwadiogo K "Effect of Determinants of Financial Reporting Timeliness on Reporting Timeliness: An Empirical Study of Nigerian Banks" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-3 , April 2021, URL: https://www.ijtsrd.com/papers/ijtsrd38670.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/38670/effect-of-determinants-of-financial-reporting-timeliness-on-reporting-timeliness-an-empirical-study-of-nigerian-banks/ogbodo-cy-okenwa
Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeriaijtsrd
This study examines the effect of the credit risk ratio on the financial performance of deposit money banks in Nigeria. Ex Post Facto research design was employed for the study. Sample sizes of five banks were selected from twenty banks quoted on the Nigerian Stock Exchange. Data were extracted from annual reports and accounts of the selected banks from 2010 to 2019. Using E view statistical tool to test the hypothesis, the study found that credit risk ratio significantly influences the financial performance of quoted deposit money banks in Nigeria It was recommended that bank managers should constantly engage in rigorous credit analysis, checking, default rate, the proportion of non performing loans, regularly or at least quarterly to enable them to maintain high asset quality to enhance the financial performance. Oraka, Azubike O | Ebubechukwu, Jacinta O "Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-4 , June 2021, URL: https://www.ijtsrd.compapers/ijtsrd42388.pdf Paper URL: https://www.ijtsrd.commanagement/other/42388/effect-of-liquidity-risk-on-performance-of-deposit-money-banks-in-nigeria/oraka-azubike-o
Effect of Deposit Money Bank Failure on Economic Development of Nigeria, 2009...ijtsrd
Deposit money banks plays a vital role in the in economy which involves providing capital for investment thereby improving the well being of the country as such collapse of any bank can affect the economic development of the country. Therefore the study investigated the effect of bank failure on economic development of Nigeria 2009 2019 using secondary data from Nigeria Deposit Insurance Corporation and Statistical bulletin of Central Bank of Nigeria. The research work used the Granger Causality techniques to test the effect between the independent variables Nonperforming loans, Capital Adequacy Ratio and Liquidity Ratio on the dependent variable Unemployment Rate while VAR was used to test the short run relationship. The study found that bank failure granger causes unemployment in Nigeria within the period of the study. The study therefore advocates that banks must ensure they maintain reasonable and acceptable shareholders fund unimpaired by losses at all times and avoid capital erosion. Every loan granted by each of the banks has to be adequately collateralized and the incidence of insider related credits must be deemphasized to avoid loan losses or huge non performing loans. The regulatory authorities on the other hand should engage themselves in capacity building to enable them perform their supervisory and regulatory functions as effectively as possible. The CBN must continue to emphasize and enforce the prudential regulation. Chukwu, Kenechukwu Origin | Obi-Nwosu Victoria O | Chimarume Blessing Ubah "Effect of Deposit Money Bank Failure on Economic Development of Nigeria, 2009-2019" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd46285.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/46285/effect-of-deposit-money-bank-failure-on-economic-development-of-nigeria-20092019/chukwu-kenechukwu-origin
Discusses briefly shadow banks, their role in the subprime crisis, their activities in China, and the regulations and measures taken to control or reduce the negative effects of those financial institutions on the world economy.
The purpose of this research was to empirically investigate the effect of capital structure on financial sustainability
of deposit-taking micro finance institutions (DTMs) in Kenya. The specific objectives were to determine the impact
of debt on the financial sustainability of DTMs in Kenya, to assess the influence of retained earnings on the financial
sustainability of DTMs in Kenya, to examine the effect of ordinary share capital on the financial sustainability of
MFIs in Kenya, and to investigate the impact of preferred share capital on the financial sustainability of DTMs in
Kenya. The target population of the study was all the 13 DTMs in Kenya registered with the Central Bank of Kenya.
Secondary data was collected on all the DTMs financial data from the Central Bank of Kenya reports. Data was
analyzed using multiple regression model using SPSS and R as the data analysis tool. Based on the findings 76.9%
of the DTMs did not earn enough revenue to cover the actual financing direct costs, which include the total operating
costs, loan loss provisions and the financing costs but excluding the cost of capital. The analysis of variance
(ANOVA) table indicated that the predictor variables influenced the predictor variable significantly at 5%
significance level. Among the four variables; debt and retained earnings were statistically significant variable at 5%
significance level with 1.265 and 1.630 coefficient respectfully. Whereby the financial sustainability change by
1.265 and 1.630 for every unit change of debt or retained earnings respectfully. Therefore, for the deposit-taking
microfinance institutions to remain afloat in the lending business, they should utilize any borrowing opportunity,
plough back profits to the business, and low proportion of preferred share capital. Deposit-taking microfinance
institutions should avoid usage ordinary share capital as it negatively affected financial sustainability
Selected Macroeconomic Factors versus Bond Market Development in Nigeriainventionjournals
This paper examines the macroeconomic determinants of bond market development in Nigeria to address the persistent research question of whether bond market development is driven by macroeconomic factors or institutional factors in emerging markets. Time series data generated over the period of 32 years was analyzed using ordinary least square regression techniques involving multiple regressions. The aggregate bond market capitalization comprising both government bonds and corporate bonds were exploited. The major findings of the study reveals that exchange rate, interest rate, inflation rate and banking sector development have negative and significant influence on the Nigerian bond market capitalization and as such, they demonstrated strong evidence as robust macroeconomic determinants of bond market development in Nigeria. Bond market, development, determinants, economy, Nigeria
A Construct Validity of Investment Decision in the Banking Sector in Libya (A...IOSR Journals
Investment decision is an important part of strategic decision making. This is because such decision has involves the allocation of money as is known currently over a period of time, in order to make a profit in future and also be subject to different degrees of risk and uncertainty. However, this paper has an objective to validate the measurements of investment decision in the banking sector in Libya. Moreover, this paper provides comprehensive information on the investment decision in Libyan commercial banks, as well as gaining an understanding on the dimensions of customers’ decisions to invest. Structural equation modeling using 2nd order CFA was employed to validate the measurements. The findings confirmed financial ability, perceived usefulness, product and company attributes and knowledge and past experiences as dimensions of investment decision. The present study has a fundamental contribution as a role model for the investment decision measurements in Libya.
The impact of banking reforms on bank performance in nigeriaResearchWap
The main objective of the study is to ascertain the impact of banking reforms on Bank performance in Nigeria. The specific objectives are:
1. To determine the effect (s) of banking reforms on bank performance in Nigeria.
2 To assess the impact of interest rate restructuring on bank’s performance in Nigeria.
3 To determine the impact of Bank Recapitalization /consolidation on bank’s performance in Nigeria.
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
Effect of Directors’ Tunneling on Financial Performance of Selected Listed De...ijtsrd
This study investigated the effect of directors’ tunneling on financial performance of selected listed Deposit Money banks in Nigeria. A sample of 10 Deposit Money banks listed on the Nigerian Stock Exchange for a period of 9 years from 2012 2020 was selected. Secondary method of data collection was adopted data was sourced from the Nigerian Stock Exchange fact book. This study applied the longitudinal research design. Data collected were analyzed using Ordinary Least Square regression Method. The results show that for Deposit money banks in Nigeria, directors’ remuneration has a positive insignificant effect on return on asset financial performance . This study therefore concluded that directors’ tunneling have an insignificant positive effect on financial performance of selected listed Deposit Money banks in Nigeria and recommended that regulators should make it mandatory for listed banks to clearly show all the remunerations and bonuses in monetary value on the annual reports and accounts to enable stakeholders determine the extent to which shareholders wealth maximization objective is in pursuit, thereby reducing the possibility of corporate tunneling. Amaka Silver Anah | Okenwa Cyprian Ogbodo | Akinroluyo Bankole Isaac "Effect of Directors’ Tunneling on Financial Performance of Selected Listed Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-6 | Issue-2 , February 2022, URL: https://www.ijtsrd.com/papers/ijtsrd49174.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/49174/effect-of-directors’-tunneling-on-financial-performance-of-selected-listed-deposit-money-banks-in-nigeria/amaka-silver-anah
American Research Journal of Humanities & Social Science (ARJHSS) is a double blind peer reviewed, open access journal published by (ARJHSS).
The main objective of ARJHSS is to provide an intellectual platform for the international scholars. ARJHSS aims to promote interdisciplinary studies in Humanities & Social Science and become the leading journal in Humanities & Social Science in the world.
Impact of Loan Loss Provisioning On Banks Credits in Nigeria during Consolid...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Similar to The application of real estate as loan collateral in nigeria’s banking sector (20)
Attending a job Interview for B1 and B2 Englsih learnersErika906060
It is a sample of an interview for a business english class for pre-intermediate and intermediate english students with emphasis on the speking ability.
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
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Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
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The application of real estate as loan collateral in nigeria’s banking sector
1. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
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The Application of Real Estate as Loan Collateral in Nigeria’s Banking
Sector
Chukwuma C. Nwuba1*
Uche S. Egwuatu2
Babatunde M. Salawu1
1. Department of Estate Management, Kaduna Polytechnic, Kaduna, Nigeria
2. Chika Egwuatu & Partners, 113 Aminu Kano Crescent Wuse 2, Abuja, Nigeria,
* E mail of corresponding author: nwuba.chuks@gmail.com
Abstract
The recent reforms in Nigeria’s banking sector have underscored the need for due diligence in lending. The
study investigates the application of real estate as loan security to establish the extent and process of its use by
commercial banks in Nigeria. Questionnaire survey was used to elicit response from a sample of commercial
banks selected randomly. The findings demonstrate that real estate is the most widely used collateral instrument
and banks follow due process in its application as collateral. However, the use is hindered by documentation and
foreclosure problems. The findings are consistent with literature that real estate plays a significant role in secured
lending, especially in developing countries. Overall, the borrower’s title to the collateral, the nature and quality
of the title as well as the value of the real estate are important considerations when banks apply real estate as
loan collateral. Thus, real estate, and especially property values, land titles and records are significant factors in
contemporary Nigeria’s bank lending and with the greater emphasis on the security of credit, real estate is likely
to assume even more vital role.
Key words: Bank lending, Banking sector, Collateral, Real estate, Secured credit transaction.
1. Introduction
Financial sector reforms are essential not only to remove inefficiencies and strengthen the institutions but also to
keep the sector in tune with business and economic demands. In Nigeria, the sector has undergone series of
reforms concentrated mainly in the banking sector. The rationale for these reforms has been the weak structure
and ailing state of the commercial banks demonstrated in the high volume of non-performing loans and toxic
assets amid poor governance and gross insider abuse. The most recent reforms have brought due diligence in
bank lending to the centre of banking operations as the enormous size of non-performing loans and toxic assets
has become a major threat to the sector.
The lessons from the banking sector crisis and the subsequent reforms underscore the necessity for adequate and
efficient security for loans. It is well established in modern economy that the use of credit is essential for
business and economic growth and collateral is an important factor in credit underwriting. In fact, the issue of
collateral is of great economic significance (Fleisig, 1996). Collateral is widely used in debt contracts and it is a
powerful instrument for dealing with moral hazard (Boot, et al, 1991). It is estimated that 60 – 70 percent of the
bank loans in the developed economies are collaterised (Menkhoff, et al, 2006) and in 2005 more than 50 percent
of all industrial and commercial loans made by domestic banks in the US were secured by collateral (Leitner,
2006).
Indeed, collateral plays an important role in bank lending all over the world, and real estate is considered
important collateral (Gan, 2007). Fleisig (1996) states that in developing countries, regulated banks typically
only grant loans secured on real estate or make unsecured loans to borrowers that provide evidence of ownership
of real estate on which the bank could file a lien in the event of default. He points out that in rare cases where
private lenders extend loans secured on movable assets, it is done on the condition that either the borrower owns
a real estate that the lender can attach in case of default or the borrower places the movable asset collateral
under the physical control of the lender. Thus, while a wide range of assets are used as loan collateral by banks
and financial institutions, real estate appears to occupy a leading position in collateralised transactions,
especially in the developing countries. Notwithstanding, however, real estate is required to satisfy certain
requirements before being accepted as loan collateral and the lender is expected to apply due diligence to ensure
that the object of providing security for the loan is efficiently achieved. Moreover, some issues such as poor
titling constitute barriers to using real estate as collateral (De Soto, 2000). Considering the economic importance
of collateralised lending and the role real estate plays in such transactions in developing economies, it is apparent
that the use of real estate as loan security in a developing economy merits a study.
Although there are varied works on secured lending the studies focus mostly on the developed and emerging
economies (Armour, 2008; Berger & Udell,1995a, 1995b; Leitner, 2006; Menkhoff, et al, 2006; Kozolchyk,
2007; Voordeckers & Steijvers, 2006). Thus, the literature is scanty in the study area, particularly as regards the
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place of real estate in loan collateralisation. This study is intended to fill the gap. It investigates the application of
real estate as a collateral instrument with a view to establishing the extent and process of its use by commercial
banks in Nigeria. It ascertains the requirements for the application of real estate as loan collateral and the
impediments to its use.
The rest of the paper is organised as follows: the next section presents the research questions, and then a
literature review followed by a description of the methodology applied. Thereafter, the results are presented and
discussed. The final parts of the paper contain the summary and conclusion, policy implications of the findings,
and recommendations.
2. Research Questions
Focusing on commercial banks collateral practice in Nigeria the study investigates the following research
questions:
1) What are the key requirements for real estate to be taken as loan collateral in Nigeria?
2) To what extent do commercial banks in Nigeria apply real estate as collateral for loans in comparison
with other major collateral instruments?
3) What process do commercial banks in Nigeria take in the application of real estate as collateral for
loans?
4) What are the impediments to banks using real estate as security for loan?
3. Review of Literature
Banks drive investments and facilitate growth and development of businesses through the credit underwriting
process. The financial system has become not only fundamental to the smooth operation of the modern economy,
but also dominates the real sector such that what occurs in the financial markets strongly influences the real
sector. Thus, continual reforms for sustained efficiency of the sector are universal practice.
3.1 Recent Banking Sector Reforms in Nigeria
The banking sector in Nigeria has undergone several reforms since formal banking was established in the
country. Most of these reforms have focused solely on the banking sector while others have been part of the
financial sector reforms or elements of economic restructuring. These reforms are widely reported in literature
(see for example, Anyanwu, 2010; Fadare, 2010; Iganiga, 2010; Ikhide & Alawode, 2001; Ofanson,
Aigbokhaevbolo, & Enabulu, 2010; Somoye, 2008).
Since 2004 however, the sector has undergone two major reforms that have drastically changed the face of
banking. The first was in 2004 under Professor Soludo as the Governor of the Central Bank of Nigeria, CBN.
This reform was principally bank consolidation. A number of banks had become distressed in the 1990s resulting
in widespread loss of depositors’ money, and subsequently severe erosion of the public confidence in the sector.
The situation was exacerbated by the fraudulent activities of the then so-called finance houses. In an address to
the special meeting of the Bankers’ Committee on July 6, 2004 Soludo outlined the fundamental problems of the
banks as persistent illiquidity, unprofitable operations and poor assets quality. He reiterated these problems in a
presentation at the Global Banking Conference on Nigerian Banking Reforms in London on March 29, 2006
where he stated that the financial system was dominated by weak banking system which itself had low depositor
confidence and the banks characterised by operational and structural weaknesses.
The reform had the goal of assisting the banks develop into stronger players to guarantee longevity and therefore
higher returns to shareholders over time and greater impact on the Nigerian economy (Soludo, 2004). Suludo
further explained that consolidating and strengthening the banking system were the first phase of the reforms
designed to make the banking sector strong, reliable, and diversified to play active development roles in the
Nigerian economy and ensure the safety of depositor’s funds; and to make them be competitive and competent
players in the African regional and global financial system. The reforms raised the minimum capital base from
one billion naira (US $7.53 million at the then exchange rate) and two billion naira (US$15.06 million) for
existing and new banks respectively to 25 billion naira (US$188.25 million).
The first stage of the bank consolidation was the attainment of this minimum capital base by December 2005.
The CBN encouraged banks to achieve this either through raising fresh capital in the capital market or through
mergers and acquisitions. One of the main objectives of the consolidation was to strengthen the capital base and
the loanable funds of the banks to enable them compete favourably in the international market and to be able to
single-handedly fund large ticket transactions. The second stage was voluntary action by most banks which
having met the minimum capital base, went further to increase the base through public offers and mergers and
acquisitions. Consequently, the capital base of the top banks ran into hundreds of billions of naira. The
consolidation process reduced the number of commercial banks from 89 to 25 through regulatory merger and
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acquisition and later to 24 through market induced merger and acquisition. Perhaps the most notable merger
during the consolidation period was the fusion of the then Standard Trust Bank and the UBA, with the new entity
retaining the name UBA plc.
In a public lecture at the convocation ceremony at the Abubakar Tafawa Balewa University Bauchi in December,
2010, the succeeding Governor of the CBN, Mallam Sanusi noted that consolidation programme had some
positive impact on the banking sector with bank branches growing from 2,900 in 2005 to 5,500 in mid-2009, the
deepening of the capital market and the positioning of the banks to actively participate in a wider range of
activities. Some other writers agree that the bank consolidation programme has been beneficial both to the
banking and financial services sector and the economy at large (Anyanwu, 2010; Iganiga, 2010). Other
researchers however found that previous financial sector reforms in Nigeria which began in 1987 were failures
as the health of banks worsened subsequent to the reforms (Ikhide & Alawode, 2001).
The sharp increase in international oil prices and inflow of foreign direct investments in the post consolidation
era resulted in excess liquidity in the economy, which enabled the banks to raise more capital. The banks
channelled the excess liquidity mainly into the stock market through margin lending and to the oil and gas sector.
Banks doubled their gross earnings and their lending capacity improved considerably (Somoye, 2008). Sanusi
(2010a, 2010b) asserts that the real sector and indeed the economy were incapable to absorb the excess liquidity.
The development, he says, put pressure on the banks to create risk asset amid limited product innovation and
diversification, and coupled with poor risk management practices put the banking sector at serious risk,
eventually leading to concentration of assets in oil trading and marketing and margin lending.
However, the growth in the banking sector was apparently superficial and unsustainable. Some have argued that
the bank consolidation has made only marginal contribution to the growth of the real sector and has not
significantly improved the performances of the banks (Somoye, 2008). Subsequent developments in the Nigerian
economy and the consequences of the global financial meltdown badly affected the gains of the consolidation
programme. Thus, the slump in the international oil price and the collapse of the Nigerian stock market in 2008
saw many commercial banks in the country struggling to survive, apparently due to over exposure to these
sectors. As at December end 2008 banks’ exposure to the stock market was over N754 billion, representing over
27 percent of the shareholders’ funds and over 10 percent of the industry total while exposure to the oil industry
stood at N1.6 trillion and there was re-emergence of extremely fragile financial system similar to the pre-
consolidation era (Sanusi, 2010b). The situation made another major reform in just about five years inevitable.
Sanusi explains that a stress test subsequently carried out by the CBN, and the Nigerian Deposit Insurance
Corporation, NDIC on the country’s 24 banks found nine banks to be in a grave situation because of capital,
liquidity, and corporate governance concerns. Subsequent investigations, he said, found these banks to be
‘technically’ insolvent with considerable negative asset value.
In line with the recent trend in government interventions in the financial sector in times of major financial crisis,
the CBN under Mallam Sanusi stepped in with another set of reforms in 2009 introducing drastic measures. The
measures included sacking and replacement of the CEOs and executive directors of eight ailing commercial
banks and injecting 620 billion naira into the system to bail out the nine banks in grave situation, in order to
stabilise the system and return confidence to the market and the investors (Sanusi, 2010a, 2010b). Sanusi further
explains that the blueprint to reform the Nigerian financial system in the next decade is built around four pillars,
namely, enhancing the quality of banks, enabling healthy financial sector evolution, establishing financial
stability, and ensuring the financial sector contributes to the real economy.
3.2 Secured Credit Transaction
Credit contracts often require borrowers to pledge collateral as a way of providing security for the debt. Such
credits are described as secured. Secured credit transaction therefore refers to the practice in which the debtor or
a third party creates an interest in an asset in favour of the creditor, as a guaranty to pay a loan, which upon the
debtor’s default entitles the creditor to possess and sell the asset to satisfy the obligation (Eyre, 2010). In
contrast, unsecured credit transaction has no pledge of asset but considers the personal integrity, the social status
and record of accomplishment of the borrower as well as guarantee of a third party.
A prudent lender will grant credit only if he is convinced the loan will be repaid. This prospect of repayment
depends on the ability of the borrower to secure the necessary cash flow and his integrity to keep to the terms of
the transaction. However, uncertainties characterise the business environment and even the most sincere debtor
may lack financial capacity to repay his debt. Accordingly, the practice of providing additional security in the
form of pledging of assets of the debtor for the exclusive benefit of the creditor is commonplace. These assets
pledged as loan securities are generally referred to as collateral. The widespread practice of secured lending is a
demonstration that it is beneficial to business operations and the economic system. Indeed access to commercial
credit is one of the necessary elements of business and economic growth and secured lending reduces
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commercial risks and as such increases access to credit by the borrower (Kozolchyk, 2007). Findings from
empirical literature tend to suggest that overall secured lending is socially beneficial and that any social costs
associated with it are very likely to be outweighed by these benefits (Armour, 2008).
3.3 Use of Real Estate Assets as Loan Collaterals
Loans may be secured on a wide range of assets such as real estate, equipment, motor vehicles, receivables,
financial instruments, or business stock. However, while in the industrialised countries movable property is
widely used as collateral, in the developing and emerging countries of Africa, Asia, Latin America, and Eastern
Europe real estate is preferred against movable assets (Fleisig, 1996). Fleisig asserts that the use of movable
assets as collateral is prevented in these counties by three main barriers, namely; the difficulty, uncertainty and
high cost in creating security interest; the slow and expensive process of enforcing security interest; and the
flaws in the perfection of security interests. Thus, although secured lending is the most common credit contracts
in the formal financial sector and firms possess assets that could be used as loan security; yet in the developing
countries insufficient collateral is the most common reason why firms’ applications for loans are rejected
(Safavian, et al, 2006). Safavian, et al argue that contrary to the belief that lack of sufficient collateral is the
reason why many firms cannot access credit, firms have assets that could easily be used as loan collaterals but
the problem is in the mismatch between the assets banks accept as collateral and the assets firms own. They also
contend that in countries with unreformed legal system regarding the use of collaterals, undue restrictions are
placed on the creation of collateral such that most of the assets firms own, especially movable property could not
be used as security for loans. The authors estimate for example that only about 10 percent of movable property
that could be used to secure loans in the United States would be acceptable as such in Nigeria. Consistent with
these arguments, an International Trade Centre technical paper in 2010 observed that the problem of SMEs in
accessing credit in developing countries does not lie with their asset composition but with the unreformed
collateral systems which unlike the reformed systems do not accept as collateral wide range of assets. The paper
pointed out that movable assets rather than land and buildings constitute the majority of the capital stock of
businesses especially for the MSMEs and while most lenders in the industrialised countries with the most
advanced collateral systems would consider these assets excellent collaterals, the situation is different in most
other countries. It further stated that only urban real estate and to a lesser extent new motor vehicles could serve
as collaterals in most low and middle income countries.
The importance of real estate investments in the economy and the role of secured credit transaction in business
operations underscore the vital place of real estate collateral in the economic system. In a study on the influence
of shock in collateral value on firm’s debt capacity and investment in Japan, Gan (2007) demonstrated that the
bursting of the bubble in the land market had enormous impact on investment behaviour and credit allocation.
Gan’s results showed positive association between collateral value, debt capacity, and investment and
highlighted an economically significant collateral channel through which booms and bursts in collateral asset
markets are transmitted to the real economy. Gan believes that the results suggest that collateral could be potent
channel in passing on a decline in the real estate market into the economy due to the significance of real estate as
collateral.
3.4 Requirements and Impediments to the Use of Real Estate as Loan Collaterals
Although real estate has gained universal acceptance as an important loan collateral instrument, there are some
important impediments to its use. Quigley (2001) has argued that the rampant speculation in real estate markets
in the South Asian economies in the 1990s contributed considerably to the Asian financial crisis in 1997. Banks
competed to lend to real estate developers and investors to the extent of committing short term capital inflows
into real estate in anticipation of continued strong economic growth in the emerging economies until real estate
prices crashed (Tan, 2000). Market collapse ultimately affects real estate collaterals.
Moreover, low level of land titling and poor documentation of transactions in most developing countries
constitute a great challenge to the economy. In his famous book, The Mystery of Capital, Peruvian economist,
Hernando de Soto, asserts that the third world and the former communist countries are undercapitalised because
assets in those countries are not represented by titles as in the West. He contends that because the rights to assets
are not adequately documented, the assets could not be used as loan security or readily be turned into capital. De
Soto refers to these assets as dead capital. In contrast, he argues, a mortgage on the entrepreneur’s house is the
single most important source of funds for new businesses in the United States, a situation made possible by
representation of assets with title.
However, the importance of title in secure lending particularly with micro and commercial loans has been
questioned (Kozolchyk, 2007). Kozolchyk argues that it is the liquidating nature of the collateral and the lender’s
right to its possession as protected by public notice rather than the borrower’s title to the collateral that prompts
the lender to extend credit. He contends that with commercial lending, De Soto’s claim of widespread
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representation of assets in property document and particularly, that “every piece of equipment, or store of
inventory is represented in a property document” is false. Citing the Harvard University works of Erica Field and
Maximo Torero and other studies in Argentina and South Africa, Kozolchyk maintains that with loans secured
on real estate, the role of title was not as sufficient and necessary as could be deduced from De Soto’s writings.
He emphasised the place of culture and legal system and especially the business culture in commercial lending.
It can be argued that land titling is not sufficient in itself to provide efficient and secured lending practice.
Moreover, the borrower’s title to the collateral may not be the factor that prompts the lender to grant credit as
argued by Kozolchyk but it is an essential back-up and the proof of its existence, nature, and availability for
collateral is necessary to the lender, and it is only an efficient titling system that will provide such proof. The
lender’s right to possession of the collateral may not be useful if the title to it is defective. So, the borrower’s
title can be a significant factor in real estate collateral and more so in societies characterised by corruption and
several forms of business malpractice as in many developing countries.
4. Research Methodology
The study is a cross-sectional survey research. The survey was conducted in January, 2011 using semi-structured
questionnaire administered online on a sample of 19 commercial banks selected by simple random process from
the 24 operating in the economy at the time. Responses were obtained from nine banks representing 48.4% of the
sample and all nine were used in the analysis. Mean and percentages were employed in the data analysis.
The extent of application of real estate as a collateral instrument was measured by the response of the banks on
the assets they accept for collateral and the percentages of their loans that were secured on real estate during the
period 2005 to 2009. The period covers the year following the first of the two recent reforms and the latest year
data were available. On the other hand, the requirements for the application of real estate as collateral instrument
were determined by the types of mortgage they operate, the titles they accept for loan security and other
requirements for the process to go through. A measure designed to assess the impediments to the use of real
estate for collateral has six collateral impediment variables (CIV) each rated on a 4-point Likert format scale
ranging from ‘strongly disagree’ to ‘strongly agree’
5. Results
The results of the study are presented in the sections that follow.
5.1 Requirements for Real Estate to be used as Collateral
The results indicate that the key requirements for a piece of real estate to be used as collateral are the borrower’s
possession of a valid and verifiable title, that the title is one of those acceptable to the bank, the real estate is
marketable and indeed possesses some market value, and the consent of the Governor is obtained. The survey
determined that legal mortgage is the dominant type with all the responding banks accepting it in their credit
transactions. However, about 44% of them also operate equitable mortgage but with caution. In addition, the
statutory right of occupancy is the principal title the banks accept for collateral and it is accepted by all the
banks. The statutory right of occupancy is the title granted by the Governor of a state in whom all the land in the
territory of the state is vested as a trustee by the Land Use Act, 1978. It is much more common with urban land
than rural and is generally considered more secure than the other forms of title. About 33% also accept deed of
sublease by housing authorities while only about 22% accept deed of conveyance by private persons. A small
minority of about 11% accept customary rights of occupancy. The customary right of occupancy is the title
granted by the Chairman of a local government under the Land Use Act.
Findings also demonstrate that banks consider the professional valuation of collateral assets an important aspect
of the lending process. All the banks always require the valuation of real estate assets offered as collateral before
applying such assets as collateral, and approving the loan application. Also, all the respondents require that the
consent of the relevant State Governor be obtained for the mortgage transaction as required by law.
5.2 Extent of Application of Real Estate as Collateral
The results reveal that real estate is the most widely used collateral instrument in bank lending in Nigeria. All the
responding banks accept real estate as collateral instrument. In addition, about 89% of the respondents accept
bank deposit certificate, thus placing it as the second most widely used collateral. The findings also indicate that
66.7% of the banks use capital market instruments (bonds and shares), business stock inventory, and third party
guaranty respectively. However, in third party guaranty the banks focus mostly on government guaranty in form
of irrevocable standing payment order (ISPO) while in the capital market instruments, the emphasis is on
government bonds. The least widely used collateral instrument is money market instruments (Treasury bills, etc)
used by about 44.4%, followed by personal properties employed by about 55.6% of the respondents.
Nevertheless, the use of personal properties is mostly limited to where banks grant loans for the purchase of
properties such as cars. These properties serve as collaterals for the loan.
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The findings also show that during the five- year period, 2005 to 2009, the responding banks secured about 66%
of their loans on real estate. However, the percentage of the loans secured on real estate declined from about
68% in 2005 to about 63% in 2009 (Table 1).
5.3 Process of Application of Real Estate as Collateral
The findings suggest that the banks follow due process to apply a real estate for collateral. They first determine
the nature of title to be mortgaged to ensure it falls into the group acceptable to them for mortgage. Then they
carry out title verification to ascertain the nature and validity of the title and obtain a valuation of the collateral
asset. In addition, they obtain Governor’s consent as required by law and when necessary carry out foreclosure to
recover outstanding debt. Before eventually applying the asset as collateral instrument and approving the loan all
the banks always carry out title investigation and valuation of the real estate asset. Surprisingly, however, the
determination of the collateral value is not important to the banks for foreclosure purposes. Only 22% of the
responding banks revalue the collateral instrument before foreclosure notwithstanding that they often carry out
foreclosure to recover debt when there is default. In general, as an assurance of the security of the loan the
respondents carry out collateral integrity test involving legal/asset security test, collateral financial quality test,
and the integrity of the borrower.
5.4 Impediments to the Use of Real Estate as Loan Collateral
The respondents agreed that high cost of documentation, cumbersome documentation process, and cumbersome
foreclosure process are impediments to using real estate for loan collateral, with mean scores of 3.38, 3.29, and
3.0 respectively on a 4-point Likert format scale. Foreclosure itself is hindered by several factors that include
legal bottlenecks in the process. On the other hand, the respondents disagree that the other CIVs, namely,
unreliable valuations from valuation firms, difficulty in the verification of titles, and incidence of fake title
documents are impediments.
6. Discussion
With about two in every three collateral instruments being real estate in Nigeria’s banking sector, the findings
are consistent with existing literature that real estate is an important collateral instrument (Gan, 2007) and that its
use is preferred against movable assets in developing countries (Fleisig, 1996; International Trade Centre, 2010;
Safavian, et al, 2007). However, the issue of preference for real estate against movable properties does not seem
to lie just with the unreformed collateral system of the developing countries as argued by these researchers but
also with the poor documentation of titles to assets. As argued by De Soto (2000) the rights to assets are not
adequately documented making it difficult to use them as collaterals. In fact, keeping track over movable assets
is difficult. These assets can easily change location or ownership without the lender having trace of them.
Lenders are not likely to be interested in an extensive application of such assets as collateral. The fixed location
of real estate provides a good level of security and therefore makes it more attractive than movable assets.
The findings also imply that more than the possession of a title by the borrower, the validity as well as the nature
and quality of the title are essential to the lender. These are demonstrated in the widespread investigation of titles
before using them as collateral and the discrimination in the types of titles accepted. Thus, contrary to Kozolchyk
(2007) contentions, with loans secured on real estate the role of title is very essential. In fact, the borrower’s
provision of evidence of title is a precondition for such secured credit transactions. Unfortunately however, only
a small proportion of the nation’s land holdings are backed by title and most of them are in the urban areas.
When considered with the requirement for the real estate asset to be marketable and the preference for the
statutory rights of occupancy, the secured lending practice ensures that in most cases only urban real estate are
accepted as collateral.
Furthermore, the requirement for professional valuation of prospective real estate collateral by the respondents
implies that the value of the asset is a significant factor in secured lending decisions. With the widespread use of
real estate as loan security, valuers occupy important place in secured lending in Nigeria’s banking sector. Thus,
as asserted by Gallimore and Wolverton (2000) valuers play essential role in the mortgage lending process and
error on their part could jeopardise prudent lending decision. Also, the low level of revaluation of collateral
instruments before foreclosure is similar to what obtains in the US where most mortgage servicers do not always
obtain updated valuations before initiating foreclosures (Appraisal Institute, 2011). This implies that foreclosed
property may be undersold thus treating the defaulting mortgagor unfairly.
Moreover, the requirement of the land law for Governor’s consent for mortgage of land is a major factor in the
impediments imposed by the documentation process. The bureaucratic documentation procedure in public land
registries constitute substantial delays in processing transactions involving real estate and may even frustrate
them. In addition, the identification of documentation problems as a hindrance to the use of real estate as
collateral highlights the documentation deficiencies, not only in land transaction but also in virtually all aspects
of public business in the country. On the other hand, finding the foreclosure process an impediment appears to
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confirm the problem of unreformed collateral system of developing countries as argued by the International
Trade Centre (2010) and Safavian, et al (2007). Coupled with legal bottlenecks as barriers to foreclosure
proceedings the findings suggest that inefficient contract enforcement procedures could be a constraint to the
application of real estate as collateral instrument. The results underscore the need for reforms in land registration
and documentation as well as foreclosure process to make them more efficient.
7. Policy and Practical Implications of the Research Findings
The findings of the study have some strong policy and practical implications for the government and the banking
sector.
1. Since real estate is the most widely used collateral instrument in the country and the possession of a
valid and verifiable title is fundamental to its use, land administration practices that make land titling
process difficult are detrimental to bank lending and business expansion and should be checked. On the
other hand, policy measures to expand land titling and especially granting of statutory rights of
occupancy will generate growth to secured credit transaction and contribute to economic growth in the
country.
2. Policies aimed at improving the efficiency of land registries in providing records of land titles and
transactions are essential to the efficient operation of secured credit transactions in the country. The
practice of computerising the key operations of the land registries and land departments in the country
should be encouraged.
3. Policy measures that streamline the processes for foreclosure and documentation of mortgage
transactions and reduce documentation costs will also contribute to the improvement of the efficiency
and growth of secured bank lending.
4. Recognising the importance of land titling and documentation of land transactions to bank lending, the
banking sector should collaborate with government at all levels to modernise the land departments and
in land titling and cadastral projects.
8. Summary and Conclusion
The paper investigated the use of real estate as collaterals in secured credit transactions by commercial banks in
Nigeria. The findings confirm that real estate is the most widely used collateral instrument and that banks apply
due process in its collateralisation. However, factors such as documentation and foreclosure problems constitute
hindrances to its use. For banks to apply real estate as collateral the borrower must possess a valid and verifiable
title, the real estate must possess market value, and Governor’s consent is obtained. Legal mortgage is the
generally operated form of mortgage and the statutory right of occupancy is the title generally accepted by the
banks. In addition, banks carry out title search and valuation of the collateral instrument before employing real
estate as loan collateral. When necessary, the lenders carry out foreclosure to recover outstanding loans from
defaulting customer.
Overall the findings suggest that the borrower’s title, its nature and quality, and the value of the real estate are
important considerations when commercial banks in Nigeria apply real estate as loan collateral. We can conclude
that real estate and in particular property values, land titles and records are significant factors in bank lending in
Nigeria.
9.0 Recommendations
From the findings certain measures are necessary to improve and expand bank lending secured on real estate.
The paper accordingly makes the following recommendations:
1. Land titling should be vigorously pursued and considerably expanded.
2. The procedures and costs of title registration and documentation of land transactions should be
substantially reduced to make them easier and more affordable.
3. The Land Use Act should be amended to remove the requirement for Governor’s consent to be obtained
for the mortgage of land.
4. Banks should obtain updated valuations of real estate collaterals before initiating foreclosures.
With the greater emphasis on security of credit in contemporary banking in Nigeria, real estate is likely to
assume a more significant role in secured credit transaction. Every policy measure to enable it perform this
important economic role more efficiently is worth the while.
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Acknowledgements
This paper is a revised version of a portion of a research paper presented at the 41st
Annual Conference of the
Nigerian Institution of Estate Surveyors and Valuers in Kaduna, Nigeria, 8th
– 12th
March, 2011. We are grateful
to Godfrey O. Udoh, Emeka Nwuba, and Patrick O. Ezepue for their comments on the initial drafts, and to the
participants at the conference for their comments on the conference paper. We are also grateful to the banks that
participated in the survey.
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Table 1: Percentage of Loans of Responding Banks Secured on Real Estate
(2005 – 2009)
Year Percentage
2005 68.3
2006 68.3
2007 65.0
2008 63.33
2009 63.33
Average (2005 – 2009) 65.67
Chukwuma C. Nwuba obtained a B.Sc (Hons) degree in estate management from the University of Nigeria,
Nsukka in 1981 and a Masters degree in construction management from the University of Jos, Nigeria in 2004.
He is at the completion stage of his thesis for PhD research degree in estate management at the University of
Nigeria.
Chukwuma qualified as a professional Associate of the Nigerian Institution of Estate Surveyors and Valuers
(ANIVS) in 1985, and in 1995 became a Fellow (FNIVS) of the Institution. He became a Registered Estate
Surveyor and Valuer (RSV) in 1988 and in 2006 he was registered as a Certified Teacher by the Teachers
Registration Council of Nigeria. Chukwuna worked with the UAC of Nigeria from 1982 to 1986 before joining
the Kaduna Polytechnic, Kaduna where he currently works as a lecturer. He rose to become a Chief Lecturer in
the polytechnic and served as the Head of its Department of Estate Management from 2005 to 2010. Chukwuma
also serves as consultant to practicing firms of estate surveyors and valuers
Uche S. Egwuatu: Born in Nigeria, Uche has a B.Sc. degree in estate management from the University of
Nigeria, Nsukka in 1983, Master of Science degree in Property Valuation and Management from Sheffield
Hallam University in Sheffield, England, United Kingdom in 2003. She is awaiting examination of her thesis for
PhD research degree at the Sheffield Hallam University titled “Pedagogy and Practice of Real Estate
Management in Nigeria: Entrepreneurial perspective” Uche had a lecturing career with Oko Polytechnic in
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Anambra State, Nigeria (1986-1988), Kaduna Polytechnic Kaduna (1988-2008) and rose to the rank of Principal
Lecturer. She took a voluntary retirement in 2008 for a full time career in real estate surveying and valuation
practice. She is presently a Senior Partner in the firm of Chika Egwuatu and Partners (Estate surveyors and
valuers) with head office in Abuja, Nigeria.
Uche is a registered member of the Financial Reporting Council of Nigeria (FRCN, 2012), Fellow of the
Nigerian Institution of Estate Surveyors and Valuers, (FNIVS, 2004) and a Registered Estate Surveyor and
Valuer (RSV) with the Estate Surveyors and Valuers Registration Board of Nigeria (1996).
Babatunde M. Salawu was born in Ibadan, Western Nigeria on the 14th
day of October 1968 and attended the
University of Nigeria Nsukka between 1988 and 1992 where he obtained a B. Sc in estate management at
Second Class (Honours) Upper Division level, and in 2006, he obtained his M. Sc. in estate management from
the University of Lagos.
Babatunde became a professional Associate of the Nigerian Institution of Estate Surveyors and Valuers (ANIVS)
in the year 2000, a Fellow (FNIVS) in 2013 and a registered Estate Surveyor and Valuer in the year 2003 (RSV).
He is currently a Senior Lecturer in Kaduna Polytechnic, Kaduna and serves as consultant to practicing firms of
estate surveyors and valuers.
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