Abstract
The Nigerian Banker, CIBN.2010 October-December pp5-13.
The focus of the paper is to identify the problem created by poor interpretation of financial statements in the lending to corporate clients in the Nigerian banking industry, which has led to distress in the financial institutions. The distress has resulted into banks being liquidated, depositors lost their deposits, and stakeholders lost their holdings. In pre-Independence 22banks were liquidated; 1992 -3banks,1994-4banks; 1998-26banks and 2005-14banks were liquidated respectively. Financial Institutions are at the mercy of the legal system, as loan and credit defaulters run to the bank to seek for injunction against foreclosure of mortgaged properties. The paper which is analytical and descriptive explained the usefulness and interpretation of performance ratios required for credit analysis like profitability ratios, Liquidity ratio and assets utilization, Investors' ratios, Risk ratios, working capital, expenses ratios, cash flow analysis ,lending against Statement of financial position(balance sheet) Key issues in financial statements were discussed and analyzed. The paper concludes that for sustainability, performance growth and stability in the banking industry, corporate clients’ credit appraisal should be handled with high level of professionalism. That the following problems should be noted in financial statements after disbursement: earnings problems, reduced cash flows, excessive debt, overstated inventories and receivables, inventory plugging, switching auditors, inconsistency in board appointments and unconsolidated entities. The paper further added that in addition to the above, because distress is killer, the three Cs of Character, Capacity and Capital should be given high premium in analysis and interpretation.
