THE IMPACT OF ACCOUNTING INFORMATION ON BANK LENDING DECISIONS

A CASE STUDY OF UNITED BANK FOR AFRICA (U.B.A), ENUGU

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.             

TABLE OF CONTENT

CHAPTER ONE:

1.0:  INTRODUCTION

1.1:  Background of the Study

 1.2: Statement of the Problem    

1.3:  Objective of the Study     

1.4:  Research Question and Hypothesis

1.5:  Significance of the Stud

1.6:  Scope and Limitation of the Study

1.7:  Definition of terms

CHAPTER TWO:

2.0:  LITERATURE REVIEW     

2.1: Theoretical review of literature

2.2   Accounting Information – an Overview

2.3:  Commercial Bank Lending

2.4:  Role of Accounting information in bank lending decision

2.5:  Basic types of ratios

2.6: Empirical review literature

CHAPTER THREE:

 3.0: Researcher Design and  Methodology

3.1:  Research Design

3.2:  Method of Data Collection      

3.2.1: Primary Data

3.2.2: Secondary Data

3.3:  Sampling size

3.4  Source of Data

CHAPTER FOUR

4.0:  Data presentation  analysis and interpretation

CHAPTER FIVE

5.0:  finding, Recommendation and conclusion      

5.1:  Findings

5.2: Recommendation    

5.3:  Conclusion    

RESEARCH QUESTIONNAIRE

BIBLIOGRAPHY:

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

Accounting Information is a Quantitative Information of a financial nature. Information according to Authony C. Reeco in Management Accounting Principle is defined as any fact that adds to knowledge. The accounting Information is a Quantitative financial data, which adds to knowledge. Information is the current that runs through the communication network of an organization. It is therefore very vital for the survival of business organization making as regards the allocation of scarce resources among competing ends. The business environment is never stable and for business organization to survive in a rapidly changing environment, management must keep a breast with trends and information that would enable it plan for this attainment of predetermined objectives.

The accounting function helps in the accumulation of accounting data which help management in the planning process. It also provide management with financial accounting information which serves as an important tool for projecting into the future.

In order to make a desired projections for planning purposes, management need three basic types of accounting information which are integrated in the different stages of the planning process. They are score-keeping information, Attention, Directing information and Problem solving information.

Commercial banks have to a great extent the need to plan as the financial environment in which the operate is dynamic. They require adequate information for the purpose of operating their business efficiently since their profitability depends principally on the amount of loans and advices granted.

The study therefore aims at accessing the extent to which commercial banks in Nigeria utilize accounting information presented to them by their customers/clients.

1.2      STATEMENT OF THE PROBLEM

Studies were shown that commercial bank do not place as much emphasis on the viability of projects as on collaterals and chattels presented by customers. It suffices to say that not much use is made by commercial banks of information on the viability of propose projects as could be observed from the financial statement provided by prospective borrowers.

1.3      OBJECTIVES OF THE STUDY

The major objectives of the study are:

Ø To determine the type of accounting information made available to commercial banks by their loan applicants.

Ø To find out the extent to which banks are utilizing these information.

Ø To find out the extent to which the incidence of bad-debt be reduced.

1.4      RESEARCH QUESTIONS

The Research Questions are:

Ø What type of accounting information made available to commercial banks by their loan applicant?

Ø To what extent does banks are utilizing these information?

Ø How can the incidence of bad debt could be reduced

1.5      HYPOTHESIS FORMULATED FOR THIS STUDY

There are null form (H0) and Alternative form (H₁)

H₀:   There is no way to determine type of accounting information made available to commercial banks.

H₁:   There are types of accounting information made available to commercial banks.

H₀:   There is no way the incidence of bad debt could be reduced.

H₁:   There is a way the incidence of bad debt could be reduced.

1.6      SIGNIFICANCE OF THIS STUDY

There are two (2) significance of the study. They are Academic and practical significance.

ACADEMIC SIGNIFICANCE

        It will be beneficial to students because it will help them to know the important of the study and also to determine the usefulness of the study in their academic.

PRACTICAL SIGNIFICANCE

        This work will be beneficial to government, individual and customers, because it could afford them the necessary knowledge of what guides commercial banks in assessing their credit worthiness. Again, another important significance of this research work is to broader the research knowledge and experience together with the merit of practically meeting various people who are professional in their field.

1.7      DEFINITION OF TERMS

a.     Accounting:    Accounting has been defined as the process of identifying, measuring and communicating economic information to permit informed Judgement and decisions by the users of the information.

b.     Accounting Information: This is data organized for the a special purpose, that is, decision making.

c.     Central Bank: Central bank known as bankers bank may be defined as an apex financial institution which is charged with the responsibility of managing costs. Volume availability and direction of money and in an economy with a view to achieving desired economic objectives.

d.     Control: control is concerned with the efficient use of researches to achieve a previously determined objectives or a set of objectives, contained within a plan.

e.     Data: The term data can be defined as groups of non-random symbols, which represent quantities event, actions and things.

f.      Decision Making: A decision-making can be defined as making choices between futures, uncertain alternatives.

g.     Effectiveness: The accomplishment of a desired objective as goal or action

h.   Efficiency: The accomplishment of a desired objective goal or action with the minimum, resources.

i.      Financial Management: This is the managing of the funds of the firm most wisely with a view to maximize the wealth of shareholders.

j.      Financial Accounting: This is concerned with such matters as financial record keeping, the preparation of final account, the raising of financial and dealing with all aspects of taxation

k.     Financial Risk: The uncertainty as to the future ventures to a firm’s owner resulting from the use of debt.

l.      Information: Information is data which have not been processed into a form which is meaningful to the recipient purpose which, as far as the management account is concerned, is likely to be for planning, control or decision making.

m.    Investment: Investment is referred to as the amount of current output that adds to the national stock and productive resources.

n.     Long-term Strategic Planning: Long term planning or strategic planning which covers periods is defined as “The formulation evaluating and selection of objectives of an organization, the environment in which it is to operate, an assessment of its strengths, weaknesses, opportunities and threats for the purpose of preparing a long term strategic plan of action which will attain the objective set.

o.     Liquidity: This refers to the firm’s ability to its maturing obligation.

p.     Motivation: The factors which influence an individual to act.

q.     Organization: An organization is net work of interacting control system which, in the ideal would, should complement one another and should help to steer the activities of the organization towards meeting the corporate objectives.

r.      Planning: Planning can be defined as “the establishment of objectives, and the formation, evaluation and selection of policies, strategies, tactics and action required to achieve these objectives.

s.     Risk: This variability firm is expected returns.

t.      System: A system can be defined as a set of parts Co-ordinated to accomplished a set of goals.