Full Project – LOAN SYNDICATION AS AN ALTERNATIVE BUSINESS FINANCING STRATEGY IN NIGERIA

Finding a solution to this problem of providing fund for capital investment has been a major  pre-occupation of financial institutions in Nigeria. Beyond the traditional term loan; share offers; bonds and on; business organizations and   financial institutions alike have sought out avenue to tackle the problem of insufficient fund for capital investment. One of the solutions they have come up with is syndicated load or multiple  credit facilities , which is aimed at spreading risks and weakening the impact of restricting laws and regulation on lending by financial institutions .

Syndicate has been defined as an association of industrialist , or financial or banking consortium forced to carry out some industrial projects .

Accordingly, loan syndication is basically defined as an agreement between two or borrower with credit facility utilizing common loan documentation.

The spectacular growth of loan syndication as an alternative financial instrument for business organization occurred as response to several economic factors in Nigeria. Notable among these were:

• The National industrial policy of 1989, which is aimed at achieving, accelerated pace of industrial growth in Nigeria economy. 
• The Introduction of structural adjustment programmed in 1986, culminating in the establishment of foreign Exchange market (F E M) and depreciation of the aria, This made imported machinery and equipment very expensive and requiring hung capital outlays which most companies or financial institution can not comfortably afford.
• Restriction on credit expansion by government and monetary authorities to minimize inflation. Central bank of Nigeria dose not included syndicated loan finance with in the credit checking, banks are there fore, able to syndicate loans with out interfering with the credit ceiling.
• The scrapping of import license regime which enabled more users of imported equipment and machineries to source and bring into the country.
• Deregulation of interest rate made loan syndication attractive to both business organizations and financial institutions. The above factors concerned with the persistent domestic inflation and arising cost of domestic production have increased the magnitude of credits demand by vanoys users of fund particularly the industrial producers.

In addition, there are certain legal and regulatory limitations on lending activities of commercial and merchant banks such as the statutory lending limit as provided in the banking act of 1969s. 13 (1) , the liquidity requirement ,e t c . In order to surmount these legal and regulatory limitations on lending activities of commercial bank (union bank) and merchant banks, loan syndication has become an attractive credit delivery technique aimed at spreading risks reducing the impact of the restricting laws and regulations.

Currently, there exists no comprehensive enacted law on loan syndication in the country as to regulate the activities of the financial institution that lead and participate in the syndication. What is perhaps significant about loan syndication in the country is not the rapid growth of the financial institutions involved loan syndication, but their activities which have been quite remarkable over the years.

Also, the study of the extent to which union bank of Nigeria plc. Employ syndicated loan as an alternative financing means with particular reference to Anambra and Enugu states respective financing means with loan as an alternatively have been carried out in this study. The researcher carefully appraised all aspects of loan syndication as financing alternative in the country from the point of view of the borrower. It is also made clear in this work that consideration of numerous merits of syndicated loan financing as against its demerits. It is not to be used as a last resort but should be considered alongside with equivalent alternatives. All these notwithstanding the most important of this study (it empirical study) is to know the popularity of syndicated loan financing among business organization in the country and the extent to which they employ it as financing alternative, no such study has been carried out in Nigeria.

For the empirical study, Anambra and Enugu State respectively have been chosen due to constraint imposed by cost and short-term on the researcher, otherwise the researcher could have conducted the survey throughout the country.

In Nigeria loan syndication can be trace to the 60’s. When a consortium of the commercial bank and the acceptance house discounted trade bills for the marketing board under the produce bill financial scheme, formalize loan syndication came into been during the oil boom of 70’s where there was need for adequate capital to finance the industrialization programme.

During the programme, few of the merchant banks have been incorporated.

Loan syndication has assumed international dimension because of he need to provide the capital to finance the fast growing world economy.

An international syndication credit is managed and was under written by one more financial institution normally from access t more than its currencies of domicile

STATEMENT OF THE PROBLEMS

There are conflicting views as to whether business organizations should be financed by syndicated loan or not. The opposition to the use of this alternative, especially in Nigeria, argues that syndicated loan is expensive and involves much administrative work. Also, there is need to point  out in every clear terms the advantages inherent in syndicated loan as medium and long term financing alternative. Besides, a review of the role of financial institutions in financing N9igeria business organization through syndicate loan is of paramount importance. In addition to the above, the extent to which syndicated loan financing is embraced by Union bank of Nigeria Plc. In the country need to be studies to know actually whether the much emphasized syndicated loan financing is being employed as financing alternative in Nigeria.

OBJECTIVE OF THE STUDY

1. To ascertain the adequacy of the syndicated loan provided by the bank to the industrialist.
2. To assertion the effect of long term syndicated loan on the liquidity position of the bank in Nigeria.
3. To ascertain the extent to which management structure has affected loan syndication business in Nigeria.
4. To determine the increase of disagreement between the lead bank and the participating bank in loan syndication business
5. To identify the problem encountered in the documentation process of syndicating loan.
6. To highlight the prospect of loan syndication to both the users of the loan and the bank that extend the credit.

SIGNIFICANCE OF THE STUDY

This study will be of crucial benefit to the borrowers. The attention of the researcher was drawn by the need for loan syndication in Nigeria especially in the area of providing the borrower with credit facilities. This becomes obvious that will be a need to grant study that could examine loan syndication as it affects the investment and capital project outlays.

Therefore, the significant of this study is to look into ways of making it easy for financing a capital project outlays which requires a syndicated loan, and also to encourage financial firms to jointly finance project which one financial firm cannot single handedly finance. It is hoped that after this study. It will be useful to every bank especially those in merchant banking and development banking. It will also provide information to general public on how to employ loan syndication as alternative business financing.