CHAPTER ONE
INTRODUCTION
    The financial structure of any economy constitutes one of the most important if not the most vital sector of the economy. An ideal financial system is needed for linkage between economic development and the existence of a good and efficient financial system. The financial system, which constitutes a forum which serves to channel loanable funds from the excess of one sector to the lacking sectors in the economy.
    The Nigerian financial system comprises of the money and capital market, at the top of bother market is the central bank which operates as an active participant in the money and capital markets.
    A money market is a market for short term funds. It allows borrowing or lending on short term basis, there include commercial banks and savings and loan houses. The instrument used in this market in transferring funds from savers to borrowers are Treasury Bills. Treasury certificates and Bill of Exchange.
    In addition, the money market consist of two markets which are (1) Coordinated and centralized market (2) Non centralized market.
    The coordinated and centralized market includes all commercial banks, merchant bank, development banks, while non-centralized market includes group of individuals of the same profession e.g landlords, Retailers e.t.c the feature which distinguishes the coordinated and centralized market from the non centralized market are, flexibility of interest charges, mode of transaction, form of keeping record of account6 and its maintenance and harmonizing money lending with either economic activities.
    The coordinated market is competitive with rigid financial laws that go for all and sundry, even with institution dealing or operating in the market. The capital market on the other hand is a market for long term funds. The market which finance long term investment. The main dealer in the market are development banks, serving banks and stock exchange houses, building societies, insurance companies, merchant banks and investment banks. The main instruments used in the market are stock and shares, company bonds and government bonds.
    In conclusion, the two nation. The market help to mobilize the savings of a country for development, encourage growth of one another, mobilige the general public to participate in running the private sector of the economy and give the government the opportunity to borrow long term capital regained for development.       
BACKGROUND OF THE STUDY
    Financial institutions play a dominant role in the allocation of funds to individuals and business organization in the society. Among several role performed in the banking institution is credit creation. This involves the distribution, the disbursement of funds to potential users at favourable terms sure that funds are effectively utilized to ensure the anticipated benefit to the borrower and the lending banks.
    Credit analysis in financial institutions cannot be viewed without trying to consider the risk to lender from such credit relationship. Credits are based on future payment, the future is uncertain and this form of uncertainty implies or entails an element of risk. Even with the level of risks involved in credit management, the function of granting loans and advances cannot be overruled by financial institutions.
    Financing business operation involves risks and they are risks, which automatically transmit or cbb its way into the operations of the financial institution that exist to finance the business. The risk of repayment await the lender for such risk to be cleared or be reduce to a reasonable level banks should strictly adhere to the lending rules and regulations laid down by the Central Bank of Nigeria Deposit insurance corporation.
    In addition, lending principle should be followed. As an illustration, the three (3) basic principles behind all banks lending that should serve as a guide for banks.
One of the principle is safely, this which entails the safely of loans     and advances as should be of paramount importance to the bank.
Suitability here banks should ensure that the purpose of loans not in     conflict with the economic and monetary policies of the business.
Profitability since banks are profit oriented, all facilities granted are     expected to yield profit or interest for the banks
    The central bank of Nigeria (CBN) which is the apex banking institution in the country is responsible for stipulation guidelines and directives on banking operations in the country.
    The credit portfolio of banks are directed by the CBN Guideline individual bank’s credit policy and carious statues of the federal Government of Nigeria regulating the banks industry. Despite the monetary policy guidelines of the CBN and various security and collateral put in place by banks for lending, a portfolio of bid and doubtful debt does exist. These are major area of concern among credit analysts, bankers investors, businessmen and the government.
    The success of a bank depends on solely sound corporate loan portfolio policy and a well-articulated lending portfolios are in line with the objectives and aspirations of government and the immediate community the bank serves.
    Banks have been described as giving among other functions as institutions that regulate the flow of money and credit in economy and channeling savings into productive uses. From the origin of banking, it is evident that banks primary business consists of getting money from depositors in form of savings and thereby lending it out borrowers in form of loans and advances.