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Banks Lending: Policies&Procedures (Loans (Characteristics (Time to…
Banks Lending:
Policies&Procedures
Credit Policy
Roles
maintain cash flow
reduce risk of bad debt
manage asset
promote good customer relations
Objectives
good cash flow
min. bad debts
good customer service
term approach
communication to staff
Importance
ensure revenue recorded translate to cash with terms of credit
good credit management
bank should have written credit policies
bank should establish proactive credit risk management practices
bank should have system of checks and balances
bank should maintain diversified portfolio of risk assets
Guidelines how to decide customer
How to deal with delinquent acc
Loans
Credit approval process
process to become eligible for loan
process lenders undertake when
evaluating request for credit
Steps :
1.Application:
obtain complete application
2.Documentation:
doc gathered(credit report, bank acc info)
3.Processing:
build loan file credit officer verifies statement
4.Underwriting
underwrite review loan for security, application package
underwriter revuew 5C
Closing
bank representative discuss&explain terms of loan
sign documentation
Funding
add fund to acc/issues cheque to borrower
Collateral
borrower pledge specific property
Reasons
prove company is viable borrower
allow reduction of loan loss
solve problem of adverse selection
solve moral hazard
Types
marketable securities
real estate
personal assets
natural reserves
Loan application process
submission of loan application
completed loan application form
clear business plan
assessment of loan application
visit & interview by fin. institution
5C's of GOOD credit
Character
Capital
Capacity
Credit
Collateral
5C's of BAD credit
Complacency
Careless
Communication
Contingencies
Competition
Preparation of business plan
written plan outlining vision & how business achieve objectives
Problems of loans
non-performing assets
principal&interest payments
Types
Secured
car loan
mortgages
home equity loan
agricultural loan
commercial&industrial loan
lease financing receivables
Unsecured
student loan
credit cards
bank overdrafts
corporate bonds
Characteristics
Time to maturity
short, intermediate, long
Repayment schedule
monthly, semi-annual
Interest
high, low
Security
secured, unsecured