THE IMPACT OF ACCOUNTING INFORMATION ON
BANK LENDING DECISIONS
CASE STUDY OF UNITED BANK FOR AFRICA (U.B.A), ENUGU
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
TABLE OF CONTENT
1.1: Background of the
1.2: Statement of the
1.3: Objective of the
1.4: Research Question
1.5: Significance of the
1.6: Scope and Limitation
of the Study
1.7: Definition of terms
2.0: LITERATURE REVIEW
2.1: Theoretical review of
Information – an Overview
2.3: Commercial Bank
2.4: Role of Accounting
information in bank lending decision
2.5: Basic types of
2.6: Empirical review literature
3.0: Researcher Design
3.1: Research Design
3.2: Method of Data
3.2.1: Primary Data
3.2.2: Secondary Data
3.3: Sampling size
3.4 Source of Data
presentation analysis and interpretation
Recommendation and conclusion
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
1.3OBJECTIVES OF THE STUDY
The major objectives of the
Ø To determine the type of
accounting information made available to commercial banks by their loan
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.
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
1.5HYPOTHESIS 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.
1.6SIGNIFICANCE OF THIS STUDY
There are two (2) significance
of the study. They are Academic and practical 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
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
1.7DEFINITION 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
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
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
p. Motivation: The factors which influence an individual
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
t. System: A system can be defined as a set of
parts Co-ordinated to accomplished a set of goals.
TERMS AND CONDITIONS APPLY
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