Usage and importance of financial analysis techniques during giving a loan

The characteristic of being leading sector in economy, of banking sector, in advanced countries and especially in developing countries is accepted beyond question. The banks, of which basic functions are credit mechanism and fund surplus by buying funds from persons and institutions, in exchange for a definite yield and to sell those to the individuals and organizations, which have funds gap in market in exchange for a definite yield, come face to face with a high degree of credit risk in other words, the risk of default. Capable to manage credit risk effectively by commercial banks depends on the effectiveness of credit management sense. On the other hand, an effective credit management has a high degree of correlation, with credit facility process, starting by credit application and ending by repayment of loan.The process of giving a loan has been reviewed under four main topics as credit application at study, credit analysis, structuring of credit and credit controlling. The credit analysis that becomes a particular concern to the subject of thesis and becomes a process of giving a loan is the vital point of an effective credit management. Thanks to the credit analysis being carried out properly during making loan credit facilities available, low credit worthiness of firm would be able to be determined during application and as a consequence thereof, and it's possible that a nonperforming loan may be prevented early. At the credit analysis we may summarize as qualitative and quantitative, while the qualitative analysis is mainly nominal part of the study, the quantitative analysis, as come up during the study in detail thereof, covers the analysis of financial statements by means of various analysis techniques and construing thereafter. But, both qualitative analysis and quantitative analysis are two different elements completing each other. At the study, it was tried to dwell upon those and their importance of these techniques has been emphasized as far as credit back payments and determining of the credit worthiness of firms are concerned.