The Impact Of Accounting Information On Lending Decision Of Commercial Banks In Nigeria
Abstract
utmost banks operating in Nigeria moment are chancing an adding number of loans in their portfolios that have gone sour. The reasons for this undesirable situation vary as a result of bad loan decision at commencement, deterioration latterly on or simply the goods of the frugality. still, literature in the field of account has shown that counting information is helpful in decision making not only in all spheres of business but also at all situations of operation. This study, thus investigates the impact of counting information on advancing decision in Nigerian marketable banks. To this end, two suppositions were developed and tested at 5 position of significance using the nonparametric ki-square test. also data used in the tests of the suppositions were deduced substantially through the administration of structured questionnaire to the 25 marketable banks that fall within the sample frame. These data supplemented by particular interviews with the repliers, were used to support the analysis to arrive major findings. Interviews with lending officers were held with a view to Seeking practical sapience into lending in marketable banks which only similar interviews could give Gather information for refining lending principles and ways in an trouble to make them more applicable in marketable banks. Examine current practices as an aid in judging the applicability of counting information that were allowed to be applicable in banking lending. Following a detailed analysis of the responses to the questionnaire, the major findings of this study are epitomized as follows Accounting information is a necessary component in bank lending decision. Account rates enriches the decision making capability of lending officers, by furnishing them with material information. The lending policy of Nigeria marketable banks revolve around the minimization of cargo defaults and the maximization of profit. Eventually, other important areas for farther exploration were suggested.
Recommendation; the experimenter was of the view that if they’re enforced by Nigerian marketable banks their lending opinions will ameliorate significantly.
Chapter One
Preface
Background Of The Study
In marshaling savings and allocating scarce coffers
between contending ends, marketable banks and other
fiscal institutions enthrall a veritably important position in the
Nigerian frugality In contemporary Nigeria, banking is one
assiduity which has witnessed unknown upsurge in
conditioning as a result of reforms in the frugality by the civil
government. In the once times, there were about 89 banks
with 3,389 branches located in both pastoral and civic centres
civil. These banks were characterized by structural
and functional sins similar as
-Low capital base; Dominance of a many banks
– Bankruptcy and illiquidity
– Over reliance on public sector deposits and foreign exchange trading.
-Weak commercial governance; A system with low depositor confidence
– Banks that couldn’t effectively support the real sector of the company at 24 of GDP, compared to
Africa normal of 78 and 272 for advanced countries, Morgan( 2010 10).
The recapitalization and connection exercise in the
banking diligence by the former Central Bank of Nigeria
Governor Professor Charles Soludo has needed the need
for different association to engage in commercial connection
Combinations and accession). The conception of recapitalization
refers to the current trend of compelling all marketable
banks to raise their capital base from 2billion to 25 billion
naira by the Central Bank of Nigeria on or before 31st
December, 2005.
The effect of the recapitalization exercises are to
grease elaboration of a strong and safe banking system;
Ameliorate translucency and responsibility in the sector;
Drive down the cost structure of banks and make them more competitive and development acquainted;
A new banking system that depositors can trust and investors can calculate upon usher in a new frugality.
The capability of the marketable banking system to perform
its tasks efficiently and in harmony with our requirements and
profitable pretensions depends in large measure an effective
operation. There’s too important at stake to do else.
still, the effectiveness of a marketable bank as well as its
overall success depends to a great extent on the quality of information available to its operation in its decision making process. Effective planning and control of an association requires good information system. Logical decision making requires an understanding of the circumstances girding on issue and knowledge of the druthers available. The more material and timely the information the better the performing decision.
The account function helps in the accumulation of account data, which help operation in the planning process. BenjaminC.( 199 6) define “ account as process of dimension and communication in which the major liabilities are recording, assaying, reporting and interpreting fiscal information of an profitable reality ” Account is further than this; still, it permits informed judgements and opinions to be made by the druggies of the information. Perry,F.E( 1973 2) describe the druggies of counting information as “ possessors and prospective possessors of a business enterprise, bankers and inventories of credit and government agencies ”.
Other druggies are workers who requires information about the fiscal results of the enterprise conditioning on which their
remuneration will be grounded and the operation which has responsibility for the survival of the enterprise on behalf of the possessors.
It must be noted that lending is presumably the most important service handed by marketable banks, advances are the most important means held by banks, and bank lending provides the bulk of bank income. Over the times, marketable banks loan to the private sector have increased significantly.
Obviously, inflationary presumes had important to do with this phenomenal increase, but the gain are veritably large, indeed when aptitude for the rise in prices.
Although, the Structural Adjustment Program led to stiff competition in the banking assiduity, it inversely made new openings manifest in all sectors of the Nigerian frugality.
In order to maximize available lending openings in the frugality, marketable banks requires acceptable account information to estimate the probability of loan prepayment, estimate the implicit loss if the borrower doesn’t pay, and decide on, the terms of the backing if a loan is to be made Konter, O’Donnell( 1989 12) The information frequently needed are those that deal with solvency, liquidity and
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profitability of the establishment seeking credit. Gohen Gerald( 1998 4) states that, the evaluation procedures involve three affiliated way
i) carrying information on the aspirant,
ii) Analysing this information to determine the aspirants credit- worthiness and
iii) Making the credit decision.
This study is specifically aimed at the applicability and
prophetic power of counting rates in taking lending decision. This is grounded on the supposition that fiscal statements are handed or made available by the credit candidate.
Statement Of The Problem
Credit operation is the core of the entire operations of the banking assiduity. still, “ the multitudinous and varied pitfalls in lending system form numerous factors that can lead to the non payment of scores when they’re due ”, Edward Lee( 1976 9). In fact the prompt prepayment of loan and interest thereon determine the profitability of a bank. numerous problems are encountered in marketable banks advancing, some of these which this study is concerned with are
1. Because of the high rate at which loans go bad.
2. Due to ineffective regulations guiding against loan defaulters in Nigeria.
In the recent times, advancing officers complain plaintively about the rate at which loans go bad. Some bank principal directors do give out loans to their guests and cousins on the ground of trust, which if it goes bad boomerangs on the bank and its operations,e.g. Oceanic-international bank, Union bank and others.
Being literature in banking fete the ‘ significance and applicability of counting information in bank lending decision timber. The relationship between counting information and bank lending system form the fact that fiscal statements are among the most important sources of credit information available to bank lending officers.
Objects Of The Study
In a developing country like ours the part of banks is more pronounced in the sense that piecemeal from performing their traditional banking functions, they also pay a experimental part of icing the overall growth of the frugality. The primary end of this exploration is to probe and estimate the account information in the
decision of Nigerian marketable banks. It’s also aimed at empirically examining the extent to which counting information is employed by advancing officers. More specifically these work intends to probe the following issues-
i) Whether Nigerian marketable banks request for counting information from enterprises in hunt for loans
ii) The extent to which they use counting rates in amending credit aspirants.
iii) The quality and trustability of information deduced from
reckoned rates
iv) Whether Nigerian marketable banks advance on the base of counting information or on the base of collateral
security offered.
farther, this work will aim to
i) Make recommendation in line with the findings and
ii) give a spring board for farther exploration on the design content.
Exploration Questions.
The exploration questions are as follows;
– To what extent do Nigerian marketable banks calculate on counting information in their lending decision?
– How can a advancing officer assess the credit worthiness of a establishment seeking a loan?
– Should a bank advance on the base ofpro-positions or on the base of contributory securities?
Suppositions Of The Study
In line with the problem statement and the objects of the study, the following suppositions are formulated.
H1. marketable banks advancing depend on the extent of trustability of counting information.
Ho. marketable banks advancing doesn’t depends on the extent of trustability of counting information.
H1. Accounting rates are useful tools to a lending officer on
determining the credit worthiness of a prospective borrower.
Ho. Accounting rates aren’t useful tools to a lending officer on determining the credit worthiness of a prospective borrower.
H1
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