ABSTRACT

This research work seeks to unravel al the ambiguities and uncertainties  on the extent to  which  banks  rely on the accounting information submitted by their customers before granting  them credit,

The commercial objective  of banks  is to maximize profit, tough other social and economic functions tend to deflect banks from profits maximization and their primary objective. Banks  are acknowledge agents of  social , economic  and political  development. As agents of development, they provide loans and advances including  variety of contingent facilities, which  could either be short-term or long-term.

To keep  up their objective and avoid  the incidence of bad  debts, it is very important for the banks to make effective use of the accounting  information  for credit analysis .

When  a request  for a loan is received, it is important to ascertain the credit worthiness of  the borrowers, and if it is a limited  company,  it is necessary to pursue  its Memorandum and  Articles  of Association to see if there are proclaiming  clauses of limitations on borrowing .

The importance of credit analysis  in the decisions  making process is to  ensure that through an in-depth  analysis  of the risks and prospects involved in ac credit proposition , the right decision  is reached  which  indicates if the amount borrowed can be  repaid , by  what means and at  what time.. in order  to elicit  this  vital information, the banker uses a number of qualitative and quantitative  techniques  which are by no means  important in themselves  but which  depend mainly on the uses made by the analyst  of the accounting information provided. In some cases. The effective use of such skills and analytical tools could  open up areas of  investigation on s which  further questions should be asked  of the loan applicant. It might also necessitate the need to undertake  visit to factory sites or offices, operational centres fro additional on- investigations. The general  mistakes which most credit analyst  make is to assume that two companies  can be  exactly the same  even whine they appear on the surface  to have similar resource case. In this regard,, the use of ratios are similar do not imply that companies  have similar  financial requirements. Each  company ha s its distinct set-up and should  be treated  as such, rather than classified  into straight jackets. Once this principles  of corporate  uniqueness is accepted, the  greatest impediment to good credit analyst function designed to facilitate qualitative lending decisions will have to be removed.