CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Every organisation targets the attainment of its desired objectives. The organisation therefore aims towards efficiency and proper effectiveness in conducting its airs. However, the level of the efficiency and effectiveness of any organisation or the extent to which it is able to achieve its desired goals to a large extent depend on the quality of available information and on how the organisation utilize the available information. The organization always makes use of information in allocating scarce resources in different alternative used. For any business to succeed in today’s rapidly changing environment, the management must update itself with every relevant and current information that will be beneficial towards achieving the predetermined objective. It can therefore be seen that management must plan the course of action of the organisation, identifying the medium and long term goals based on detailed analysis of feasibility, bearing in mind the socio-economic and political situation around. Not only will plans be formulated, the actual performance and the end result should be compared with the plans to see whether the goals are being achieved or not. This helps the management to report appropriately as well as improving the entire process of development. A proper look at the planning process will reveal that proper information as well as its utilization is needed for the attainment of the organizational goals. A great deal of useful information comes from accounting functions as it provides data which when processed, serves as useful information to the management in its planning process. The information provided by the accounting functions serves as important and eective tool in the budgeting or planning as well as operations of the management. There are three basic types of accounting information which management needs in the information of its policies and plans. They are score-keeping method of information, attention directing information and problem solving information. The score-keeping information involves the accumulation and allocation of data collected for the purpose of performance appraisal and position evaluation. Attention directing information deals with highlighting and investigating the dierences between plans and actual for proper corrective action. Lastly the problem solving information focuses on analyzing and recommending the best course of acting among competing alternatives. It is therefore associated with the management decision making process and useful in the implementation stage. The commercial bank as business organisation that need to plan greatly need not just any information but much of relevant, current and useful accounting information for the purpose of operating their business eectively and eiciently towards the attainment of their objectives. Much of the business of the commercial banks revolves round grating of loans and advances to their customers. In fact it should be realized that the most profitable business of banks is lending. The profitability of the banks is therefore a function of how prudent the banks are as well as how eective they utilize the accounting information sourced from accounting data provided by the customers for the purpose of borrowing. The banks are therefore interested in financial accounting information, which will enable them research initial loan decisions, and also help to monitor progress aer advances have been made. The information so needed are those that deal with solvency, liquidity and profitability, the firm’s financial stand and long term viability. The banks will therefore assure themselves that the customers (companies or firms) are capable of paying interest accruable as well as repaying the loans as and when due. Some other factors are also considered concerning loan application for instance, on the duration of the loan; if it is a short term loan, the banks are interested in estimated net cash inflows over the next few months, for a long term loan the banker satisfies himself that the company is financially stable. Such that adequate profit will be earned in the foreseeable future. Similarly, the ability of the borrowing to repay both the principal and the interest should be the prime consideration of the bank. Where it cannot be guaranteed, the advance should not be made. The Nigerian economy received a great blow, which was as a result of the financial distresses in the banking sector. These distresses were as a result of lack of proper use of accounting information by the lending banks. It can be seen that this research work is timely hence the interest and attention of the researcher have been caught by it. The work therefore assess extent to which commercial banks in Nigeria do utilize accounting information presented to them by the customers in aecting loans and advances proposal.
1.2 STATEMENT OF PROBLEM
(1) Bank managers allowed their personal interest to conflict with overall objectives of the bank when loans are advanced. They consider personal benefits derivable from customers than protecting the banks interest.
(2) The managers did not emphasis on the collateral rather than on viability of the project for which the loan was being sought as a result defaulters escaped un apprehended.
(3) The bank managers failed to consider the reliability of the customers with regards to loan repayment schedule profile evidence.
(4) The profit and loss account as well as balance sheet of the intended borrower was not properly considered by the banks in lending decision.