The Application of Real Estate as Loan Collateral in Nigeria’s Banking Sector

Abstract

The recent reforms in Nigeria’s banking sector have underscored the need for due diligence in lending. The study investigates the application of real estate as loan security to establish the extent and process of its use by commercial banks in Nigeria. Questionnaire survey was used to elicit response from a sample of commercial banks selected randomly. The findings demonstrate that real estate is the most widely used collateral instrument and banks follow due process in its application as collateral. However, the use is hindered by documentation and foreclosure problems. The findings are consistent with literature that real estate plays a significant role in secured lending, especially in developing countries. Overall, the borrower’s title to the collateral, the nature and quality of the title as well as the value of the real estate are important considerations when banks apply real estate as loan collateral. Thus, real estate, and especially property values, land titles and records are significant factors in contemporary Nigeria’s bank lending and with the greater emphasis on the security of credit, real estate is likely to assume even more vital role.

Key words: Bank lending, Banking sector, Collateral, Real estate, Secured credit transaction.