BACKGROUND OF THE STUDY

        The banking industry has been known for its intermediary role in proving financial assistance (credit) needed in the economy. This role of financial intermediation is carried out in so many ways. First to be mentioned is the granting of loans and advances to customers which constitute the major part of bank lending apart from loans and advances them are other form of bank credit like bond issued by banks for or on behalf of the customers.

        In providing credit for business venture bank should as a matter of importance take all necessary  steps to ensure that advances are granted to those customer who can make judicious use of them so that repayment will not be a problem. Therefore bank as a matter of importance must make use of the “five Cs” of credit which are character, capital, capacity, condition and collateral to asses their customer before granting them loans. Affairs of the bank can explained by reference to the fact that “loan and advances are the largest asset structure of Nigeria commercial Banks; it also constitute  the major source at the operating income of bank and also the most profitable asset for the employment of bank funds.

        Credit (loans and advances) are important to the bank balance, they account for the large portion of bank income; such operating income produce from sound investment and effective management enables the bank to:

i.      Pay depositors intrerest

ii.     Pay investors dividend

iii.    Pay government tax

iv.    Have further investment and

v.     Maintain adequate reserves.

        However, irrespective of how prudent a bank may be in its lending, the fact remains that every year provision for bad and doubtful debt should be provided for. Not all loans should be granted, a profitable loan which is not safe should not be granted.

        For banks to be successful their corporate credit policies most be of sound procedure for monitoring and repayment, must endure adequate credit appraisal disbursement.