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
- submission of loan application
- assessment of loan application
- 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 - Closing
bank representative discuss&explain terms of loan
sign documentation
- Closing
- Funding
add fund to acc/issues cheque to borrower
- Funding
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