Журнал бизнеса и финансов

Optimal Loan Portfoli of Commercial Banks: A Case Study of Zenith International Bank (Nigeria) PLC

Abstract

Kayode Peter Akinyemi*and Adaramola Anthony Olugbenga

This study examines the application of linear programming (LP) to the loan portfolio of Nigerian commercial banks taking Zenith International Bank (Nig) Plc (ZIB) as a case study. The bank engages in diverse financial services as a commercial bank, chief of which is the advancement of loans to different classes of customers and on different tenors. The data on loan portfolio collected from the annual financial reports of the bank for 2017 were categorized and analyzed using a linear programming analytical technique embedded in LINGO software. The findings of the analysis reveal that it would have been better for ZIB to concentrate on granting of loans and advances for overdraft and term loans. By doing this, the bank can optimize returns from its loan portfolio. However, the study notes that statutory loans, particularly, on-lending which the bank cannot but advance since it is statutorily required to do so, impaired on (reduced) the value of optimal solution derived from the linear programming model. Similarly, the bank financed leases, which contradicts the optimal feasible solution of the LP model. The study recommends that the bank pays particular attention to controllable loan facilities (overdrafts and term loans) which in turn will lead to optimal revenue.