The Role of the Accountant in Credit and Loan Control Management
Chapter One
Purpose/ objectives of the Study
The general objective of this research work is to ascertain the fact about applying accounting control in the management of bank lending. However, its supportive objectives include:
- To ascertain the effectiveness of accounting control in the management of bank lending activities.
- To explain how this control can be used by an organization for its own benefit.
- To ascertain whether accounting control can be used to curb unnecessary/ too much lending.
- To correct the general misconception about an accountants role running pari pasu with the management of an organization.
- To emphasize that the identification and management of risk among groups of loans may be at least as important as the risk inherent in individual loans.
CHAPTER TWO
LITERATURE REVIEW
The lending function of banks is important in many ways. Bank credits form the most important sources of income to the banks; secondly, the banks lending operations affect the level of economic activities within a country in many ways. For example, the banks often choose which economic activities to support, while their influence on the contraction and expansion of credit affects the level of money supply in the economy. Thirdly their control of credit flows and distribution (sectional allocation) helps to redistribute wealth.
Most especially, commercial banks are all purpose retail bankers. They mobilize deposits of all sizes and from all and sundry in retail as well as in wholesale markets. They lend to all and sundry, both wholesale and retail for all purpose. In this way, they differ from, many other financial intermediaries, most of whom specialize in particular loan or deposits market and in particular economic sectors while the risk are similar, it follows by definition, that commercial banks lending is more diverse and the criteria for such lending more complex.
Banks credit gives rise to demand deposits which constitute a significant proportion of Nigeria‘s money supply; indicating that the quality of such credit underlies the value of the country’s currency. For this reason, the supervisory authorities must ensure that banking business is conducted in a safe and sound manner in order to maintain high international values for the naira.
Davies (1986) observes that banks have three principal assets to offer; integrity, finance and information and one flow from the other. The skill is to know how to use them under conditions of change and uncertainty.
Assessment of a Loan Request
Successful bank lending is the single art that distinguishes the banker from the loan shark such as money lender and an important step towards a successful banking career is the cultivating of successful bank lending (credit) habits.
Smart (1984) observes that the job of extending credit reduced to its basics, is the identification, measuring and managing of risks. Thus risk is at the heart of all banks lending business.
In weighing up an application from a customer for a loan, the bank manager has to consider the basic principles of bank lending. There are no rigid rules and no proposal is likely to fulfill every canon of good lending, each case is judged on its merits. In a practical competitive field, advances have sometimes to be made and risks accepted, but normally the prudent banker should expect a proposal to comply with the following principles:
Is The Borrower Creditworthy (Qualities)
5c’s of credit
The question here that must be dealt with before any other, is whether or not the customer can service the loan- that is, pay out the credit as and when due, with a comfortable margin of error. This usually involves a detailed study of five (5) aspects of a loan application.
- CHARACTER
- CAPACITY
- CAPITAL
- COLLATERAL
- CONDITION
While some banks adds a Sixth C which connotes CONTROL (bank policy)
CHARACTER
The loan officer must be convinced the customer has a well-defined purpose for requesting credit and a serious intention to pay. If the officer is not sure why the customer is requesting a loan, this purpose must be clarified to the lenders satisfaction. Here he (loan officer) must determine if the purpose is consistent with the lending institutions loan policy. Even with a good purpose, however, the loan officer must determine that the borrower has a responsible attitude towards using borrowed funds, is truthful in answering questions, and will make every effort to repay what is owed.
According to Osayameh (1986); “A banker has to know his customers based on existing banker-customer relationships, and if there are any doubts in his mind, he is in a privileged position to make references, obtain confidential information such as status or credit reports through available sources”.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
Different research projects require different methods of approach. There are no fixed formats. All the same scholars such as Nword (1998), Olaitan and Nwoke (1998) suggests the following: Design of the study, population of the study, sample and sampling techniques, instrument for data collection, validity of instrument, administration of instrument and method of data analysis.
Research Design
In this research, survey research design was used to determine both large and small population by selecting and studying samples chosen from the population to discover the relative incidences, distribution and inter- relations of the variables.
According to Dike(1998), survey methods has been established to be an effective tool in determining opinions, attitudes, preferences and perceptions of the study population, and in describing and explaining relationships between and among phenomena.
Osuala (1990) pushes Dike’s argument further by explaining that survey research design interprets, synthesizes and integrates useful data for such conclusion. Therefore, this research work tends using survey research design for its relevance.
Population of the Study
Peil as quoted in Ohoya (2003) defines population as all cases or individuals that fit a certain specification.
In effect, the populations of this study are people in the accounting control department / unit of Diamond Bank Nigeria plc, keffi branch.
CHAPTER FOUR
DATA PRESENTATION AND DISCUSSION OF FINDINGS
Introduction:
In this chapter, the data collected by the researcher through the use of the questionnaire would carefully be analyzed. Ten questionnaires were administered, seven returned back by the bank and eleven items were given for meaningful and collective objective.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary of findings
This research work tried to give an insight into how an accounting control measure established by a bank can be an effective strategy for the unit in either curbing excessive lending or recovering loan in the long run In case of any pitfall .Questionnaires were administered to the account control unit of diamond bank Nig plc keffi and from the data gathered/obtained, it can be deduced that to a large extent, the bank has been into account controlling and its effectiveness has been proved beyond reasonable doubt.
Chapter one of this research tries to provide the background of the study, statement of problem, its objectives, its scope/limitations, its significance and the definition of related terms in that order.
Chapter two is chiefly concerned with the review of related literature and an in depth look into how account control can be used by the internal control unit and how effective is the former when used by the latter.
Chapter three is majorly concerned with the procedures of data collection and treatment.
Chapter four is said to be the heart of any research as it analyzes and interprets data gathered. It goes further to discuss account control as a measure/tool used by the internal control department.
Chapter five which is known as the last is mainly concerned with summary, where a detailed research work provides solution to the problem concerned.
From the research work, it was established that account control has been, and will be a reliable tool in the hands of the internal control units of Diamond bank plc in carrying out its lending control function towards creating a favorable relationship between it and the borrowers. The measure, if adequately used, has been realized to help the bank system and maintain their existing customers in the lending business and also to increase them, thereby maximizing profit.
Conclusion
Having looked at the relevance and effectiveness of accounting control as a ready tool in the hands of the internal control unit, one could conclude that if an organization i.e. a bank in this context can see to the use of a control particularly the one preferable; the result could be outstanding. Also if banks that are currently suffering from lending problems, crisis, loss of customers, and misunderstanding in terms of their plans and policies e.t.c can make use of these measures, the effectiveness on their activities is bound to be high.
Another important thing to note here is the importance of a particular measure that is relevant to the banks structure and customer. They may at first not be appreciated by the customers or even be too rigorous to perform at the face of those in the unit respectively. It is also important to note that we have other control measures; other banks/organization could be interested in such measures as audit, credit policy management and so on. The measure/control preferred/used is not all that matters here provided the bank is consistent and sure of its relevance to the targeted customers as well as its intended purpose (lending activities).
Finally, the accountant at its best must have a play-out close relationship with the measures used. It won’t be accurate to say that without the contribution of all accountants, the measure will not be nearly be as accurate or as well grounded in structure as they are. Professional accountants provide a necessary link between the measure and many specialized areas of activities in the bank, a link that this control usually would not be able to provide just by itself. Therefore, they are responsible for presenting their companies and banks/institutions in the best possible posture/image.
Recommendations and Suggestions for Further Studies
From the research conducted, the following recommendations are thus made:
- Most Nigerian banks/financial institutions lack effective internal control unit/system. Some do not even have this unit at all, while some are just figure heads (fillers). How then can this problem of loan-breakdown be tackled when there is no proper follow up? How can the plans and policies of this institution be made known, when there is no effective internal control unit to that effect? How can there be understanding between the banks and the borrowers when the control percentage of lending activities is at zero level. This little careless attitude, but a significant one, can lead to a bad reputation which directly leads to a loss in customers. The banks/financial institutions that are guilty of this fact should amend where necessary.
- In selecting in between a control measure, the banks/organizations internal control unit as the case may be should ensure that the policies are written, down to earth and precise. This is because when policies are not documented/written down for borrowers, they may not know exactly in clear terms what is required of them.
- Account control units should not just fold their hands until crisis creeps in or when there is a loan breakdown(work out) before trying to place a curbing strategy in form of control, because where problems and crisis are dealt with beforehand, it could save the bank/institutions structure, image, resources, stress, and even loss of reputation.
- Where there is an adjustment in policy, the unit should always update their clients by providing written documents for them to that effect.
- This written adjusted loan policy should be communicated to borrowers (intended/previous) to guard against any deviation in the long run.
- An account control unit should at least organize customer’s forum to enlighten them (organization’s shareholders as well as major customers and the public’s in general) so as to make them understand the plans, policies and regulations of the organization as it affects lending activities.
- Account control unit or rather put the internal control unit should not just hide its head in the sand and hope its financial institutions problems will go away but rather it should face the issues squarely with all sincerity.
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