FINANCIAL STATEMENT ANALYSIS AS A BANK LENDING TOOL

By

UZODIGWE NDUBUISI

Presented To

Department of Accountancy

ABSTRACT

Banking lending is merely the assessment and evaluation of bankable proposition with the objective of extending credit facilities on terms and conditions acceptable to both lender and borrowers.

The rationale behind bank lending is presumably the desire to attain social and economic objective for the society and profit for the banks. Over the years, there has been a transition of form an area of paper profits to an area of losses. In fact, many banks no longer lend delinquent debtors to honor their obligations.

Finally in Africa, Nigeria, banks has suffer staggering losses and the questions are "Are we now in the area of bank failures ? can the bank bounce bank in the line with the traditional resilience of the over all Nigerian economy"?

TABLE OF CONTENT

COVER PAGE I

TITLE PAGE II

APPROVAL III

DEDICATION IV

ACKNOWLEDGMENT V

ABSTRACT VII

TABLE OF CONTENT 

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY 1

1.2 STATEMENT OF THE PROBLEM 4

1.3 OBJECTIVE OF THE STUDY 5

1.4 SCOPE OF THE STUDY 6

1.5 SIGNIFICANCE OF THE STUDY 6

CHAPTER TWO

REVIEW OF THE RELATED LITERATURE 8

2.1 MEANING AND IMPORTANCE OF BANK LENDING 8

2.2 OBJECTIVE OF BANK LENDING 11

2.3 CONSTRAINTS OF LENDING 12

2.4 FINANCIAL STATEMENT AND LENDING BANKERS 14

2.5 FINANCIAL STATEMENT AND ITS USEFULNESS 16

CHAPTER THREE

SUMMARY, CONCLUSION AND RECOMMENDATION 19

3.1 SUMMARY 19

3.2 CONCLUSION 19

3.3 RECOMMENDATION 20

BIBLIOGRAPHY 23

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

There have been numerous books written about bank lending but, so it is difficult for the young banker to learn the common terms and how much is tend to be reasonable to lend in a giving set of circumstances.

Lending is however, concern with giving some sums to another for a period of a time on the basis of comprehending that it will be return.

In Toley vs Hill (1848), the judge remarked that "money when paid in to the bank ceases to be the money of the principal, it is the banks responsibility to do with it as so pleases, to pay to the principal when demanded as sum equivalent to that paid to him" this ownership by the bank is however for a specific time.

Bank lending is thus concern with provision of fund for needy customers as than from the savings of the fund surplus unit paid into the bank. Due to the establish fact that the save fund is at the disposal of the bank for a specific period, the bank can thus provide those fund t their customers who may have greater use for these funds, at the time.

The reason behind banking lending is a need to attain some economic growth through lending existing business for expansion and to individuals with entrepreneur prospect to set up business and for profit making by lending banks.

Lending appears to be by far of the most intricate services than banks provide. It is corners stone of a bank create care thus has to be exercise in his activity.

The bank has to derive carefully into an analysis and use of financial statement. Before lending. This analysis involve the assessment of company's post present and anticipate future problems and to determine any strength that the company may capitalize on.

The tool of the financial statement Analysis are financial ratio which can be use to answer important question regard a company well being. Analysis of the financial statement employing financial ratio require how mathematical still. However certain analysis and use of the ratio to answer question such as the already once that require some skill and a thorough understanding of the tools. The ratio are usually compared against a standard of norm. Two such standard are normally use. The first consist of similar ratio for the company from previous financial statements analysis base on this comparison is commonly refers to a trend analysis.

The second standard come from ratio of other copies that are consider comparable in their general characteristics

The financial ratio includes the liquidity ratio which provides the basis for answering the question such as "is the company liquid"? the average ratio which answer the question, "How has the company finance its assets can the company afford the level of fixed charges that associate with its use of non owner supply funds" and other ratios with its use of non owner supply funds" and other ratios.

By standing and thoroughly analyzing a customers financial statement, a bank can properly assess the degree of risks, is taking by approving a loan. Every un repaid loan is a criticism of a bank's judgment thus only bank has to employ on analysis of financial statement which affords them the opportunity to evaluate the financial performance of a firm in a giving periods.

This research work will focus attention on the bank lending functions in union banks with a view to loaning out the factors militating the attainment of second lending which contribute in no small measure to the non-recovery of loan assessing a borrow customers.

1.2 STATEMENT OF PROBLEM

Some factors militating against attainment of non recovering of loans among which are:

1) Lack of indebt knowledge of customer operation.

2) Lending on over valued securities.

3) Misconception of bank loans by borrowers.

4) Manipulation of account records by borrowers.

5) Excessive dependence on balance sheet.

6) Connected project lending

7) Inadequate project lending

8) Change in economic policies

9) National hazards

10) Lack of adequate knowledge of project appraisal techniques.

The basic problems therefore is the inability of banks to recover potentials borrowers.

1.3 OBJECTIVE OF THE STUDY

The objective of this study is to carry out an investigation and present an appraisal of the lending function of banks.

Its main objective is to:

1. Find out why these problems have been so difficult to solve
2.  Examine the bank lending function with emphasis on the principles and importance of lending and the borrowing customers.
3. Make recommendations base research findings.
4. Rise bank to under a more critical evaluation of customer before lending.

1.4 SCOPE OF THE STUDY

The scope of this study is however limited to :

1. The influence of lending to customers on banks.
2. The advantage of employing a careful analysis of financial statement borrower have these that don't
3. The influence and importance of lending and borrowing customers.

1.5 SIGNIFICANCE OF THE STUDY

The study is highly significant because it is essentially empirical enquiring in to the deficient lending functions of banks. This study when it is being. Completed will expose the method banks do employ in assessing customer lending.

It will further suggest the efficient and effective lending means by the employment of an analysis interpretation and use of financial statement to aid the lending process. It will be however useful to banks and other financial institution. This research is further significant because it enables the banks to reconsider their lending assessment since poor assessment will certainly lend to poor lending.

Further researcher will benefit from this work by using it as a referral when it is been completed.