1.1 BACKGROUND OF THE STUDY
According to Nwankwo (1990), since the first formal bank was established in 1656 in Sweden, the banking industry has always been a pervading institutional player in any given economy, being the only sector that thrives on other people's money. Although element of the practice of banking has always existed both In pre and post-colonial periods, the introduction of modern banking in Nigeria dates back to 1892 when the African Banking Corporation (ABC) came into existence, engaging in commercial activities. This bank was later changed to Bank of British West Africa (BBWA) in 1894, now the First Bank of Nigeria Plc. Other banks have since sprung up in the financial landscape offering a variety of innovative financial products to their everburgeoning clientele.According to Enyinnaya (1991), granting of credits is one of the fundamental and basic functions of banks and other financial institutions. By their nature, banks intermediate between savers and users of funds, i.e., banks source funds from economic sectors with surplus funds in form of deposits, and disburse the same to economic units that need them for various purposes in form of credits or loans. Aside from providing the fiduciary responsibility on depositor's funds, granting of loans appears to be the next most important function of banks since this activity represents one of the key sources of income for banks generally. However, in considering requests for loans, income or profit motivations do not and should not prevent the lending financial institution from ensuring that the loan together with associated interest income is repaid fully and timely. One of the surest ways of ensuring that a credit facility together with its related interest income gets fully and timely repaid is through a thorough credit analysis. This analysis as basis for determining worthy customers to be availed credit facility is done for all categories of customers including individuals, corporate organizations, and in some instances, governments including its agencies and parastatal. In a profit driven market economy like ours in Nigeria, the major borrowers are organizations in the private sector. Even amongst players in the private sector, the small and medium scale industries are rated as having a large appetite for credit. This is not surprising, as small and medium enterprises constitute an important segment partly due to the fact that the sub sector has been widely known as the backbone of many economies and their engine of growth and development.
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