Credit Management And Bank Lending (A Case Study Of Hallmark Bank Ltd In Nigerian)

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A survey research was made in carrying this project, clearing department as a profit generating department in banking institution.

This research was carried out to reveal clearing as means of sustaining banks and suppressing frauds.  The population size of the study comprises of all staff of Enugu main branch of United Bank for Africa PLC (UBA), which were 98 staff.  And the sample size for the study was 79 staff.

Hypothetical statements were used to find out whether the clearing as a means of sustaining bank and suppressing fraud in banking institution.  These were about identifying whether clearing department really to describe how clearing department contribute in the profit of the banking institution, as was gotten from the questionnaires distributed to the staff..  from the result after the analysis it was concluded that clearing department should be known as one of profit generating departments in banking institution in general and United Bank of Africa PLC Enugu main branch in particular.



1.0              Introduction

1.1       Background of the study

1.2              Objectives of the study

1.3              Research questions

1.4              Statement of hypotheses

1.5              Scope and limitation of the study

1.6              Significance of the study

1.7              Definition of terms


Literature Review

2.1              Overview of milestone in the development of clearing systems

2.2              Classification of clearing cheques

2.3              The various methods of clearing cheques and other financial documents

2.4              Correspondent banking clearing

2.5              General principle of cheque presentation and clearing.

2.6              The authorized clearing system in Nigeria

2.7              Empirical framework

2.8              Summary of related reviewed literature



3.1              Research Design

3.2              Area of study

3.3              Population of the study

3.4              Sample size determination

3.5              Instrument for data collection

3.6              Validity of the instrument

3.7              Reliability of the instrument

3.8              Method of data collection

3.9              Method of data analysis.


4.1              Data presentation, analysis & Results.


5.1              Discussion of Results

5.2              Conclusion

5.3              Recommendation

5.4              Suggestion for further research result

5.5              Limitation of the study




4.1              Response rate on questionnaires

4.2              Sex of respondents

4.3              Age of respondents

4.4              Designation of respondents

4.5              Respondents work experience

4.6              Analysis of the respondents

4.7              Analysis of the respondent to questions





One of the functions of the commercial banks in Nigeria is clearing of cheques through Central Bank of Nigeria.

Clearing of cheque could be defined as the process by which the validity of cheque is confirmed before the collecting banker gave value to the value.

According to Nwabufor (1998:12): cheque clearing is necessary because some unscrupulous persons do issue cheques when they have no money in their accounts to back-up the cheque.  He opined that due to this fact, banks need to device a means by which they will use to verify whether a cheque is actually backed up by deposits in the account of the person issuing out the cheque, and also that the cheques is properly drawn before they credit the account of the person depositing the cheques (drawee), this process means that the cheque when deposited, must get the drawer bank where the drawer has an account for verification.  It is only the bank that can confirm if there is enough money to carry the cheque by looking into the customers ledger account.  They will also make sure that the cheque is properly drawn.  He argued that if that bank is satisfied that there is enough money in the bank account of the drawer before the bank can get the value of the cheque.


This function of cheque clearing is mainly carried out by clearing section of the current account department of funds transfer unit as many bank my name their own.  Every commercial bank that issues and receives cheque must carry out this function of cheque clearing.  Apart from the use of notes and coins, debts are settled between parties by other means order, bill of exchange, travelers cheque, dividend warrant, promissory note, cheque issue, and bank draft.  All these are negotiable instruments and when such instruments mentioned above are deposited into bank accounts the clearing department of the receiving bank has is as a duty to compile those instruments according to specification and passes them into the channel of the purpose of obtaining payment.

According to Anyanwaokoro (2001: 75) the processes involved in cheque clearing using single terms thus at the early stage of banking history, inter bank settlement were done directly between banks.  He said that if the customer of one bank receives a cheque from the customer of another bank and pays the cheque into his account in his bank, his bank will take the cheque directly to the banks of the customer directly to the bank of the customer who issued the cheque or the drawer of the cheque.  The drawer’s bank will confirm whether or not that drawer has enough money in his account to carry the cheque.  If these is money in he drawer’s account, they will credit the account of the presenters of the cheques bank or the drawee’s bank and drawee’s bank will in turn credit the drawee’s account; this process is too cumbersome and difficult, if for example, there are up to thirty commercial banks operating within a locality and several cheques were received by one of the banks, it will cost that bank too much time and money to go to all these banks one after the other to clear the cheques.

1.3              OBJECTIVE OF THE STUDY

For this difficulty, the central bank came to relieve from them such difficulty by introducing a clearing house where all the banks come together to clear their cheques in each working day.  Each bank presents to the central bank the cheques of their banks paid into it by their customer to the payee bank.

The banks will thereby debit and credit each other’s account accordingly.  With this process, payment by the use of negotiable instruments is made easy for the banks and cost is minimized.

Barley (1998: 62) reports that the banking institutions make money in clearing activities by charging commission on any cheque cleared.  He made clear that the bank situated in an area where there is Central Bank branch do clear their cheques through his Central Bank Clearing System.  This system enables cheques to be used for the settlement of debt between customers banking in different banks.  He also made it known that for the banks’ cheque clearing system is a cheap and conveniented way of exchanging each other’s cheques.  He opined also that there are some procedures, which is adopted by a bank which intends to clear cheques through the Central Clearing Houses.

1.4              SCOPE OF STUDY


(i)                 The bank will first receive cheques drawn on other banks but paid in by its customer.

(ii)               The banks will list the cheques by maching them.

(iii)             The cheques will then be sent to the clearing department of bank.

(iv)             The following day after the cheques have been received and machined, the cheques are sent to the Central Bank for clearing by the banks representatives.

(v)               The cheques will be exchanged with those cheques presented by other banks representatives that is, bank A will collect from the banks that brought bank A’s cheques and bank A will present to them all the cheques belonging to them which they received from their customers.

(vi)             Presentation forms are completed and the respective debit and credit entries are made by the representative of every bank that comes for clearing at the Central Clearing House.

(vii)           These cheques brought from the bank’s clearing house are sorted and sent to the respective branches of the same bank on whom he cheques are drawn.

(viii)         The cheques are processed at the branch offices.

1.5              RESEARCH QUESTION

1.      Is clearing department necessary in banking industries?

2.      Do thy really waste time in the clearing house

1.6              HYPOTHESIS OF THE STUDY


Ho:       The clearing department does not generate sufficient profits to banking institutions.

HI:       The clearing department generates sufficient profit to the banking institution.


H0:       Full computerization of the clearing department will not reduce the period if takes to clear cheques.

HI:       Full computerization of the clearing department will reduce the period it takes to clear cheques.

There are some basic assumptions of this research which include:

(1)        All the banking institution in the country have a clearing department.

(2)        All the banking institution in the country are victims of problem of delays of the clearing houses during cheque clearing.

The main purpose of carrying out this research as initially stated is to pin point and discuss the major functions of the clearing department in the banking institutions in Nigeria and to show their contribution to the profit of these institutions.

This research study aims also at suggesting the ways of improving the operations of clearing department in banking institutions in Nigeria.

1.7              SCOPE

This research study is concerned with the clearing departments of the banking organization in Nigeria and on their cheque clearing.  It will be limited to the staff of (UBA) United Banks for Africa PLC Enugu main Brach precisely.


The findings of this study will be of immense benefit to the bakers their customers, the government and the countries economy in general with the improvement of the clearing system that will be suggested in this research, the delays and frustrations of the clearing exercise will be reduced.  This will quicken the operations of the banks thereby generating more profits for the banks.  In addition to this, the banks customers will be cleared and certified before collecting their money since these will be done as soon as the cheques are presented in clearing operations thereby increasing the capital base and profit of the banks.

The government will benefit from this increase in profit by taxing the increased profit of the banks and more revenue generated to the government.  The government, when invested this revenue, there will be more money in the economy and more businesses thereby reducing unemployment.

In this write up, the researcher encountered a number of problems and constraints.  The limited foreign literatures on the subject is the major problem among other problems encountered in this bank’s research study, other problems encountered are the cost of materials and transportation.

1.9              DEFINITION OF TERMS

(1)     Banking Institutions: These are all types of financial institutions that do banking works to the customers.  These banks include Central Banks, merchant banks, development bank, agricultural banks.

(2)     Central Bank: This is the apex financial institution in Nigeria, which is responsible for printing and issuing Nigeria currency.  They also do the work of clearing cheques for the commercial banks.  Therefore, cheque clearing is done through the Central Bank of Nigeria

(3)     Commercial Loans: These are the banks that deal with accepting deposits from customers and give bank credits to them also.  They receive cheques from customers and clear them through Central Bank of Nigeria.

(4)     Clearing Department: This is a department in the commercial banks where cheques are compiled, sorted and arranged for going to the clearing house where they are shared to the owners’ banks.

(5)     Cheques Clearing: This is process of confirming validity of  cheque before the collecting banker gives value to the cheque.

(6)     Profit generating Department: This is any department in an organization that contributes to the profit of that organization.

(7)     Profit: Profit could be defined as the surplus which becomes due to the owner or owners of the business as a result of a successful period of trading.

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