Financial Statement Analysis and Credit Decision-Making in Nigerian Commercial Banks

Credit decision-making in commercial banking relies heavily on the quality and interpretation of borrowers' financial statements, making financial statement analysis a core competency for lending officers. This study examines the role of financial statement analysis in credit decision processes at selected commercial banks in Nigeria, focusing on how analysts use ratios, cash flow analysis, and trend assessment to evaluate creditworthiness. Primary data are gathered through structured questionnaires and interviews administered to 80 credit analysts and relationship managers across ten commercial banks with branches in Lagos, Kano, and Enugu. The study assesses which financial statement analysis tools are most frequently applied, how qualitative adjustments are made for information quality gaps, and whether formal financial statement analysis training improves loan approval accuracy. Loan performance data for a subset of approved credits are used to test whether analysis quality predicts repayment outcomes. Data are analysed using regression analysis and qualitative content analysis. The theoretical framework integrates information asymmetry theory, credit risk theory, and the lending technology literature. The study also evaluates the effect of the introduction of the Credit Risk Management System and the national credit reporting infrastructure on the depth of financial statement analysis applied in credit decisions. Existing literature identifies the prevalence of informal and incomplete borrower financial records as a major challenge for Nigerian credit analysis, a finding this study updates with current evidence. Findings are expected to benefit bank credit training programmes, the Central Bank of Nigeria's supervisory guidelines, and the Nigerian Credit Risk Management System's data quality improvement initiative. Keywords: financial statement analysis, credit decision, commercial banks, credit risk, Nigeria