CREDIT CONTROL - Working Capital Management

All the functions of commercial banks are governed by the Banking Regulation Acts as amended from time to time. The Banking Regulation Act defines the three terms “banking”, “banking company” and “banking policy”. In terms of the act, banking means “accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Banking company means any company which transacts the business of banking. Banking policy means any policy which is specified from time to time by the Central Bank in the interest of banking system or in the interest of monetary stability or sound economic growth, having due regard to the interest of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources. The banking regulation act has provided vast power to the Central Bank of Nigeria to control the pattern, direction and extent of credit. The specific authority vested in the Central Bank of Nigeria includes: the power to issue direction either generally to all banks or to a ban in particular as to:

  1. the purposes for which advances may or may not be made;
  2. the margin to be maintained in respect of secured advances;
  3. the maximum amount of advances or other financial accommodation which, having regard to the paid up capital, reserves and deposits of a banking company and other relevant consideration, may be made by that banking company to any one company, fir, association f persons or individual;
  4. the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantee may be given.

The credit control measures are framed by the Central Bank in line with the monetary policy of the country. The objectives of the monetary policy are in two folds:

  • to facilitate flow of adequate volume of bank credit to the various sectors with specific reference to the weaker sector;
  • to keep on inflationary pressures by ensuring restraint on credit expansion and proper economic development.

The monetary policy and the measures taken under it from time to time, assist in controlling expansion of money supply in ensuring price stability both of which are necessary conditions for planned economic development.

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Working Capital Management Topics