• No results found

The objective of this is to address the issue of loan management in the Banking industry it is shown that Banks around the world are found to manage their earnings, loans and Banks’ managers are motivated to minimize the earnings volatility overtime.

Current literature provides evidence that loan loss provisions (UP) are used by Banks as an instrument for long term earnings management (Collins et al., 2005, 2007; Taktak et al., 2010a). Most existing studies have concentrated on conventional Banks in the Middle Eastern region.

Recent studies such as Zoubi and Al-khazali (2007) and (Taktak et al., 2010b) addressed the issue of the use of LLp in Islamic Banks. Zoubi and Al-khazali argued that Islamic Banks do not use LLP to smooth their results. Although a few studies have provided some evidence on the use of LLP by Islamic Banks, the discretionary component of this variable remained unexplored.

25

Lending money is one of the basic functions of a Bank. It is the interest earned from Banks that brings in most of the revenue to pay expenses, including staff salaries of the Bank and give a sufficient surplus to pay shareholders a divided and retain funds in resumes accounts for expansion of the Bank.

For the Nigerian Banks, there are the following sources of funds.

- Bank deposits

i. Short term Bank deposits ii. Long term Bank deposits - Borrowed funds including

i. Loans borrowed from other Banks

ii. Refinance of the central Bank of Nigeria - Own funds including

i. Own capital (paid up capital, reserve fund, profit and other funds ii. Supplementary capital (risk funds, other funds)

It should be remembered that the funds that are put on loans belongs to customers.

It is their money that is put at risk, so that if a Bank is continually making bad or profitable loans, this will sooner or later be reflected in the deposits.

Before giving an advance, it is necessary for the manager to know the purpose of the loan. The lending officer may wonder whether the loan is for a legal purpose, or not. A loan means immediate possession of resources in exchange for a future payment promise involving also an interest payment that rewards the lender.

The composition and quality of a Bank’s loan should be reflected in its loan policy. The policy sets out the Bank’s lending philosophy and specifies

26

procedures and means of monitoring lending activities. A written loan policy should seem to obtain three results.

- Produce sound and collective loans

- Provide profitable investment of Bank fund

- Encourage extensions of credit that meet the legitimate needs of the Banks market. There are various kinds of loan or credit facilities.

Generally Banks have their specific lending policies, which may change from time to time due to the market conditions or government regulations. Their policies are essentially based on the evaluation of the related risk such as credit risks interest rate risk and concentrated risk. The lending may be also authorized at a branch level if the branch portfolio allows that.

In order to make proper lending decisions, Banks purposely observe a set of general lending principles such as age and state of health, stability, integrity and honesty, sources of income, regular expenditure, existing connections, ability to manage financial affairs as well as margin, purpose, amount repayment capability and security.

As corporations, companies, individuals or the government represents the category of Bank customer; the type of loans very accordingly and can be generally divided into, country loans, business loans and personal loans.

Country loans: So as to be able to achieve national political, social and economic goals, governments may need finance and, in this respect, the international financial institutions are expected to grant them a large variety of loans including apex, distressed, economic recovery, emergency reconstruction, sovereign, stand

27

by loans as well as balloon, call, carryover, equity, hard and soft loans, colors, indexed, outstanding, jeopardy, jumbo, non-accruing or non-performance loans, overage, participation and package loan pipeline, pooled, premature, program, project and sector loans, senior, subsidiary, syndicated time-slice, top-rated, revolving, working capital loans, sub loans etc.

Personal loans: They are of affixed amount for a fixed period of time and at fixed interest rates and they are usually spent on the purchase of personal items, travels, holidays.

These are rather similar to loan accounts with regular payments, mentioning that the interest on the total loan is calculated before the advance is given, then once it has been accepted, the principal and interest are debited to the loan account and the customer repays the total sum of regular instalments. No security is required for a personal loan as most Banks will incorporate some form of insurance, so that in the event of the customers death there will be no change to his dependants.

Business loans/corporate loan: A corporation and companies represent the major category of client, for the corporate lending banks do analyse a set of basic and additional criteria such as the ability of continuing business, the expected future cash flow, security and collateral, the rate of return of the Bank as well as the level of the whole business which the Bank has done with them.

The usual procedures which Banks apply in the loan granting to corporate borrowers specifically include submission of the application and required information evaluation of the information, initial evaluation of the proposed

28

security, negotiation, approved, legal examination of the security signing of the contract, disbursement of the amount and recovery of the capital/interest.

The credit granted to companies, whether public or private, generally comprises loans for working capital and for fixed assets, financing such as over draft, term loans, syndicated loans and revolving credit and working capital loans.

Facility lending/facility management: Facility management is a type of loan carried out by Jaiz Bank; Jaiz Bank is a purely Islamic oriented Bank and so take the doctrine of Ribah being Haran seriously, the Bank engages itself in facility management or facility lending. Facility management is an interdisciplinary field devoted to the co-ordination of space, infrastructure, people and organization, often associated with the administration of office blocks, avenues, school, sporting, complexes, conventional centres, shopping complexes, hospitals, hotels etc.

Facility management facilitates on a wide range of activities than just business services and these are referred to as non-core functions they vary from one business sector to another in a 2009 global job task analysers the international facility management Association (IFMA) identified eleven core competences of facility management. These are communication, emergency preparedness and business; human factors; leadership and strategy; operations and maintenance;

project management; quality real estate and property management and technology.

Facility management is subject to continuous innovation and development, under pressure to reduce costs and to add value to the core business of the public or private sector client organization. Facility management is supported with training

29

and professional qualifications often co-ordinated by facility management institutes or associations and a limited number of final degree programs exist at both undergraduate and graduate levels. Facility management in general can be seen as a field of study for individuals. Facility management from the Banking perspective is slightly different from the facility management as a field of study.

Facility management from the point of view of Jaiz Bank is how the Bank manages its facility or leasing such as its.

Jaiz auto Ijarah: This product is ideal for individuals or corporate customers looking for car financing. It enables the customer to acquire a car on the principle of Ijarah (lease) for rental payments. Under this arrangement the Bank purchases the car and leases it out to the customer for a period not more than four years.

After the lease period the customer gets ownership of the car against his initial security deposit.

Hire purchase with shirkatul-mulk (Jaiz home acquisition plan): this is a home finance product that enables customers acquire, build wa-Iqtina (a lease to one).

The asset/property is purchase/constructed and owned by both the Bank and customer jointly. The Bank then leases its part to customer against agreed rental plus Banks share one an agreed period with the flexibility of a monthly, quarterly, biannual or annual repayment plan.