Banks Lending:
Policies&Procedures

Credit Policy

Loans

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

Credit approval process

Collateral

Loan application process

Problems of loans

Types

Characteristics

Time to maturity

Repayment schedule

Interest

Security

short, intermediate, long

monthly, semi-annual

high, low

secured, unsecured

Secured

Unsecured

  • car loan
  • mortgages
  • home equity loan
  • agricultural loan
  • commercial&industrial loan
  • lease financing receivables
  • student loan
  • credit cards
  • bank overdrafts
  • corporate bonds
  1. submission of loan application
  1. assessment of loan application
  1. Preparation of business plan

written plan outlining vision & how business achieve objectives

completed loan application form
clear business plan

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
  • 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
    1. Closing
      bank representative discuss&explain terms of loan
      sign documentation
    1. Funding
      add fund to acc/issues cheque to borrower

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
  • non-performing assets
  • principal&interest payments