An Examination of the Factors Influencing Commercial Banks' Acceptance of Real Property as Collateral for Loans in North-Central Nigeria

Abstract

Real property has been adjudged as financial institutions’ preferred collateral type, despite challenges attendant to its use. This leads to borrower self-exclusion from the credit market, a situation that is detrimental to economic growth. This study, therefore, examined the factors influencing commercial banks’ acceptance of real property as loan collateral, with a view to providing information that will enhance access to finance. A structured questionnaire was administered to credit officers of commercial banks in Makurdi and Minna, North-Central Nigeria based on purposive sampling. A total of sixteen (16) commercial banks were adopted for each location based on their presence, and this amounted to thirty-two (32) credit officers from whom data was obtained and analysed using descriptive statistics. The study revealed that frequently used loan collaterals include receivables, insurance policy, guarantee, cash deposit and real property, in proportions of 10%, 7.4%, 17.4%, 17.7% and 24.5%, respectively; and there is a strong positive correlation between the frequency of collateral used and the proportion of loans secured (r = .881, p (< .001) < 0.05). Furthermore, with a Relative Importance Index (RII) of 0.90 value stability is the most dominant real property collateral acceptance factor. The study findings imply that while there are alternative commercial banks’ frequently used collaterals that prospective borrowers can use to access loans, stakeholder sensitization programmes and policy interventions in the secured lending space is imperative to enabling convenience and increased loan volumes, toward poverty alleviating productive activities in Nigeria.