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Full Project – THE ROLE OF FINANCIAL INSTITUTIONS IN THE MANAGEMENT OF LOAN SYNDICATION IN NIGERIA ECONOMIC

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Financial institutions occupy a vital position and play a landable role in the economy of the nation. Their major purposes are proper mobilization of find as well as provision of capital for industrial development, which is aimed at enhancing economic growth and development.

In the early year of banking operation in Nigeria, banks performed their intermediary function by giving loan mainly on individual basis (i.e separately) but as the country entered the threshold of development and more investment opportunities opened up, industrialist started demanding large sums of money which is provided by bank on medium or long term basis.

However, banking is a highly regulated industry the world over with restrictive monetary and credit guideline in loan growth and reserve requirement, sectoraol allocation to priority sector of the economy, and excess liquidity mop-up through the assurance of stabiclation securities to the bank to mention a few due to these restrictions, it is difficult for a bank to meet up with the huge loan demanded of their customers. Also, it is well know that lending is not risk free, and that bank prefer to spreas their risk with others in the banking industry.

Against this background, banks come together forming what is know as “Consortium” to advance finds is called loan syndication and is sometimes called “Cosortun”. Lending it can also be define as the agreement between two or more lending institution to provide a borrower with credit facility utilizing common loan documentation.

Loan syndication is now being practiced in Nigeria starting formteh 1960’s when a constrtuim of commercial banks and acceptance houses discounted trade bills for marketing boards under the produced bill finance scheme. Formalized loan syndication came into being during the oil boom of the 70s when there was need for adequate capital of finance the industrialization programmes. During this period, few merchant bank had been incorporated.

Loan syndication has assumed international dimension because of the need to provide adequate capital to finance the fast growing world economy. An international syndicated credit is manage and under written by one or more finance. Institution normally from a location other than the domicile of the borrower, lenders from different countries could provide the borrower with access from their countries or to move its own currency from other contracts of domicile.

1.2 STATEMENT OF THE PROBLEM

To investigate why Loan syndication is not properly managed given priority attention by monetary authorities. Despite it’s strategic place in financing viable projects, capable of injecting foreign currency, creating employment, and facilitating grapid economic development.

To examine critically the place of financial institutions in the management of Loan syndication in the economy.

Loan syndication is a child of circumstances arising from legal lending restrictions, risk sharing and liquidity problems. The researcher would like to know despite the constrains prevailing is it still a supplementary option for business financing.

1.3 OBJECTIVES OF THE STUDY

For an economy to develop, there must be a supplemtary source of financing viable investment projects beyond the limits of an individual financial institution, it is on this basis that we would like to define the objectives.

The research study is to include the followings:

i. To identify those fundamental problems confronting Loan syndication and suggest how much problems can be solve.

ii. To ascertain the effect of Loan syndication in the economic development.

iii. To highlight the potential s of Loan syndication in the economy

iv. To recommend that syndicated loan is not deferent from other loan. Rather it is subject to conditionalities, attracts higher interest rate, subject to default, and time lapses in packaging as a result of bureaucracy involved by consortium banks.

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