A bank loan is a form of credit which is extended for a specified period of time, usually on fixed-interest terms related to the base rate of interest, with the principal being repaid either on a regular installment basis or in full on the appointed redemption date. Depending upon the nature of the loan and the degree of risk involved, a bank loan may be unsecured or secured. Bank loans in Nigeria are provided by deposit making institutions regulated by the central bank of Nigeria.
FORMS OF BANK LOANS IN NIGERIA
Bank loans to customers may be made in the following ways:
- Discounting bills
- Asset Financing
- Salary Advance
ROLE OF BANKS
Banks play important roles in the economic life of a country particularly a developing nation like Nigeria through the provision of banking service. As agents of development, they provide loans and advances including a variety of contingent facilities, which could either be short-term or long-term.
This explains why credit guidelines contained in government’s monetary circulars stipulate the aggregate ceiling on credit creation as well as the sectoral allocations which banks and other financial institutions must comply with during a fiscal year.
The type of bank, (commercial, merchant or development) and its deposit base, coupled with the existing credit guidelines, will determine the credit creation potential of that bank. Commercial banks, because of their traditional role and the nature of their deposit funds, lend short and will be more inclined to providing short-term facilities to meet seasonal peaks by industries.
The financing of industrial projects has assumed greater proportions with the country’s economic development plan involving private investment to the tune of ₦12 billion. In recent times, banks have witnessed a phenomenal growth in term loans in their portfolios as a result of equity interest which the Federal Government has in most banks and the need to finance industrial projects in line with the nation’s rapid industrialization.
REASONS AS TO WHY NIGERIAN BANKS PROVIDE LOANS
In general banks obtain most of their income from charging interest on the money they lend. A bank does, of course, have to pay interest to many of the depositors who have provided the money, but even when this is deducted from interest earned the profit left over is, for most banks, more than the profit from all of the rest of the bank’s business.
In a sense the importance of lending has declined as income from other sources has become relatively more important, but the actual amounts of money earned by the major Nigerian banks from lending have continued to rise. The rise in interest income generally exceeded the rate of inflation, and therefore represents a real increase in profit.
It should also be emphasized that deposit-taking is a counterpart to lending. One cannot exist without the other, and since a bank’s depositors are often also the customers who buy other financial services like insurance it would be a mistake to see lending as a separate and distinct activity unconnected with the rest of the bank’s business. A loan is a service like any other financial service and needs to be marketed in an appropriate way.
PROVIDERS OF BANK LOANS IN NIGERIA
- First Bank
- Stanbic IBTC
- Access bank