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.
