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1.0     Introduction

1.1     Background to the Study

Accounting ratios is primarily designed to meet the information needs of equity investors, bankers, analysts, lawyers, government and creditors.

The objective of the ratio analysis includes the comparative measurement of the risk and return facilitating intelligent investment on credit decisions.

Accounting ratios generally, can be seen as a process that involves standardization in the use of standardized report methods. Financial statement and other relevant variable allowing for comparison, overtime and cross-sectional between firms to access their performance. Therefore, accounting can be define as firms critical relationship by relating input (cost) with output (benefits) and facilitating comparisons of those relationship overtime, (White Chat, 1994: 1998).

The implication of these accounting ratios is the proportionality assumption that the relationship between numerator and denominator should be similar, irrespective of the size. Ratio cannot be used simply to produce a scaling factor standardization but rather to develop insight into the economic characteristic of different industries and of the different firms in the same industry.

Distressed banks, one banks with problem relating to liquidity. Poor earnings on performing assets and liability to pay debts or meets maturing obligations as they become due. Bank classification as distress is based on banking examination rating system with acronym camel.

C       Capital Adequacy

A       Asset Quality

M      Management Competences

E       Earnings Strength

L       Liquidity Sufficiency

The cognizance of ratio is to give the analysis a very useful assessment of a firm’s financial condition.

After gaining political independence in 1960, there was a need for gaining economic independence to enable Nigeria to judge ahead in developing her economy through production, manufacturing and commerce.

For these activities to be fully participated in Nigeria there was a need for financial institutions to control and facilitates these services.

Although, there were banks operating in Nigeria, they were of foreign based. But there was need for indigenous banks to go round Nigeria and develop her economy by identifying her domestic problem and solving them. The government encouraged and established banks. The government joined in this development with the introduction of Structural Adjustment Programme (SAP) in 1986.

UBA Plc has been at the forefront of economic diplomacy, cultivating deep strategic relationship with key international financial institutions who seeks to do business with Nigeria such as, the international finance corporation. Neitherlands FMO, European International Bank and U.S. EXIM.

1.2     Statement of the Problem

Accounting research has clearly not proven that financial analysis as a futile exercise on the contrary. It is trying to get better understanding of its modus operandi while the financial market have become increasingly sophisticated in recent years and it is believed that superior financial analysis is still rewarding.

Firms, that do not prepare and analyze, their financial statement and up having problems, little knowledge of what is happening in the firm, poor accountability, poor records, to determine the earning power of the firm, is it financially strong or weak?

Most management do not use financial ratio to compare the present and the previous year to forecast the future performance and that, is why we are having distress in the financial institutions.

Recent financial history clearly provides many examples of companies where at least in retrospect the financial market ignored warning signal consequently suffered significant financial losses.

Management needs a proper analysis to judge ahead, inability to understanding the impact of alternative accounting method, places the investors at competitive disadvantages in the world of increasing sophisticated analysis techniques.

1.3     Objectives of the Study

The main objectives of this study are to evaluate financial ratio techniques of analyzing the financial reports of banks and to ascertain their performance.

Specific objectives include:

  1. To evaluate accounting ratio in predicting and analyzing financial report of banks (UBA bank in particular).
  2. The research intends to use accounting ratio as a qualitative tool in analyzing financial reports.
  3. To use accounting ratio to predict bankruptcy.
  4. To demonstrate the use of accounting ratio on the expansion of a sound banking industry and,
  5. To highlight the paramount importance of ratio analysis in forecasting banking trends.

1.4     Research Hypothesis

H1:    Accounting ratio is an effective instrument for comparison in          predicting bank distress.

H0:    Accounting ratio is not an effective instrument for comparison in   predicting bank distress.

1.5     Significance of the Study

The research is concerned with the implication of accounting ratio in analyzing financial reports of corporate banks UBA) of the Nigerian Economy. The study will immensely help us to have a clear picture of events that happened in the financial years of United Bank for Africa (UBA) Plc from 2010-2013 enable us forecast for the future.

Ratio is a scientific model used by management in assessing, evaluating, and determining the performance of managers, firms, department and banks among two or more in the same reporting period for policy implementation.

The study will be of immense significance to the financial institution especially commercial banks that are at the speculative levels.

The study will also be beneficial to the government in policy implementation, and the smooth operation of banks in the financial markets. The study will be of help to potential researchers and the general public at large.

With adequate care and more determination and coverage to thing through ways and means of overcoming the constraints and difficulties, ratio will continue to be one of the invaluable aids to management.

1.6     Scope of the Study

 The study is covered in Nigeria banks and UBA in particular. The study will cover three years of operation of the bank, that is, from 2011-2013 using the United Bank for Africa (UBA)’s annual reports as the main source.


1.7     Historical Background of United Bank for Africa (UBA) Plc

The history of United Bank for Africa is as far back as 1949 when the British and French Bank Ltd (BFB) commenced business in Nigeria and the erstwhile STB and CTB both in 1990. Following Nigeria’s independence from Britain, UBA was incorporated in 1961 to take over the business of BFB. Although today’s UBA emerged at a time of industry consolidation induced by regulation, the consolidated UBA was borne out of a desire to lead the domestic sector to a new era of global relevance by championing the creation of the Nigerian consumer finance market, leading a private/public sector partnership at supporting the acceleration of Nigeria’s economic development, and growing the institution from a banking to a one-stop financial services institution, while spreading its footprints across Africa to earn the reputation as the face of banking in the continent.

Today, United Bank for Africa Plc, is one of Africa’s leading financial institution s offering universal banking to more than 7.2 million customers across 700 business offices in 19 African countries as well as in the United States, United Kingdom and France. United Bank for Africa has the largest distribution network in Nigeria with over 600 branches, more than 1,580 ATMs and 8,000 POS terminals. At the end of December 2013, the company had about 12,900 staff worldwide. UBA currently operates in Benin, Burkina Faso, Cameroon, Chad, Gabon, Ghana, Guinea Conakry, Cote d’lvoire, Kenya, Liberia, Senegal, Sierra Leone, Tanzania, Zambia, Uganda, USA, France, Cayman Islands and the UK. In addition to these, UBA have obtained licenses to operate in Mali, Democratic Republic of Congo, Mozambique and Congo Brazzaville. UBA is a full service bank offering a broad range of financial services including corporate, commercial, consumer and international banking, trade services, cash management, treasury and capital market services, trust services, pension management stock-broking, issuing service house services, securities underwriting, security registration and custodial services. In 2005, UBA acquired Continental Trust Bank (CTB) and subsequently Trade Bank, Metropolitan Bank, City Express Bank, African Express Bank, Gulf Bank and Liberty Bank. The Bank’s shares are widely held by local and foreign individuals, as well as institutional investors. Except First Dominion Investment Limited and the Bank of New York Mellon, who owned 6.5% and 5.7% of the bank’s shares respectively, no single investor owned more than 5% of the bank’s shares. At March 31, 2014, UBA Group had total assets of over N 2.613 trillion, total deposits of N 2.189 trillion, total loans of N 1.010 trillion and shareholders’ funds of N246.279 billion. As of May 26, 2014, the Bank’s market capitalization was N237.5 billion.

1.8     Definition of Terms

Acronym: Means a word made up from first letters the name of something for example camel is firms capital, adequacy, asset, quality, management competence, earnings strength, liquidity, sufficient of basic programming is from – beginners all purpose, symbolic instruction code, programming or Cobol from common business oriented language.

Comparison: The result of comparing a statement of the point of likeness and different between two things.

Criterion: Established rule of standard or principle on which judgment is based.

Corporate: This means banks with problems relating to liquidity, poor earnings and non-performing assets, inability to any debts or meet maturity obligations when they become due.

Financial statement: This is the statement of financial position, income statement, statement of cash flows, statement of retained earnings, and stock holders, equity footnotes and supplementing schedules, comparing a compete financial reports.

Ratio: This is measure of 2 or more variables in their relationship either in degree or numbers. Financial/accounting ratios represent an attempt to standardize financial information and it is the measure of 2 or more financial variables in their relationship.

Solvency: The quality of state of being solved having enough money, not indebted.

Trend analysis: This is sense of direction either upward or downward.

The UBA Plc integration model is the model for integration in the banking industry.

The merger in has propelled UBA Plc to rank amongst the top 8 banks in Nigeria with assets in excess of N 200 billion and a net worth of approximately N 30 billion.