1 / 22

Chapter Sixteen

Chapter Sixteen. Lending Policies and Procedures. Types of Loans Made By Banks. Real Estate Loans Financial Institution Loans Agriculture Loans Commercial and Industrial Loans Loans to Individuals Miscellaneous Loans Lease Financing Receivables. Loans Outstanding for U.S. Banks.

bbrisson
Download Presentation

Chapter Sixteen

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter Sixteen Lending Policies and Procedures

  2. Types of Loans Made By Banks • Real Estate Loans • Financial Institution Loans • Agriculture Loans • Commercial and Industrial Loans • Loans to Individuals • Miscellaneous Loans • Lease Financing Receivables

  3. Loans Outstanding for U.S. Banks

  4. Factors Determining the Mix of Bank Loans • Characteristics of Market Area • Lender Size • Experience and Expertise of Management • Expected Yield of Each Type of Loan • Regulations

  5. CAMELS Rating System • Capital Adequacy • Asset Quality • Management Quality • Earnings Record • Liquidity Position • Sensitivity to Market Risk

  6. Asset Quality • Criticized Loans • Scheduled Loans • Adversely Classified Loans • Substandard Loans • Doubtful Loans • Loss Loans

  7. Regulators’ Use of Market Forces Because the Quality of Examination Information Decays Very Quickly Regulators are Starting to Use Market Forces and Private Market Discipline to Monitor Bank Behavior

  8. Bank’s Written Loan Policy • Goal Statement for Bank’s Loan Portfolio • Specification of Lending Authority of Each Loan Officer and Committee • Lines of Responsibility in Making Assignments and Reporting Information • Operating Procedures for Soliciting, Evaluating and Making Loan Decisions • Required Documentation for All Loans • Lines of Authority for Maintaining and Reviewing Credit Files

  9. Bank’s Written Loan Policy (cont.) • Guidelines for Taking and Perfecting Collateral • Procedures for Setting Loan Interest Rate • Statement of Quality Standards for All Loans • Statement of Upper Limit for Total Loans Outstanding • Description of the Bank’s Principal Trade Area • Procedures for Detecting, Analyzing and Working Out Problem Loans

  10. Steps in the Lending Process • Finding Prospective Loan Customers • Evaluating a Customer’s Character and Sincerity of Purpose • Making Site Visits and Evaluating a Customer’s Credit Record • Evaluating a Customer’s Financial Record • Assessing Possible Loan Collateral and Signing the Loan Agreement • Monitoring Compliance with the Loan Agreement and Other Customer Service Needs

  11. The Six Basic C’s of Lending • Character – Specific Purpose of Loan and Serious Intent to Repay Loan • Capacity – Legal Authority to Sign Binding Contract • Cash – Ability to Generate Enough Cash to Repay Loan • Collateral – Adequate Assets to Support the Loan • Conditions – Economic Conditions Faced By Borrower • Control – Does Loan Meet Written Loan Policy and How Would Loan Be Affected By Changing Laws and Regulations

  12. Common Types of Loan Collateral • Accounts Receivables • Factoring • Inventory • Real Property • Personal Property • Personal Guarantees

  13. Information About Consumers • Consumer-Supplied Financial Statements • Credit Bureau Reports • Experience of Other Lenders • Verification of Employment • Verification of Property Ownership • The Web

  14. Information About Businesses • Financial Reports Supplied by the Borrowing Firm • Copies of Board of Director’s Resolutions or Partnership Agreements • Credit Ratings – Dun & Bradstreet, Moody’s, Standard & Poor’s • New York Times, Wall Street Journal, Other Business Publications • Risk Management Associates, Dun & Bradstreet Industry Averages • Web

  15. Information About Governments • Government Budget Reports • Credit Ratings Assigned to Government Borrowers By Moody’s, Standard & Poor’s, Fitch • Web

  16. Parts of a Typical Loan Agreement • The Note • Loan Commitment Agreement • Collateral • Covenants • Affirmative • Negative • Borrower Guaranties and Warranties • Events of Default

  17. Loan Review • Examination of Outstanding Loans to Make Sure Borrowers are Adhering to Their Credit Agreements and the Bank is Following Its Own Loan Policies

  18. Loan Review Procedures • Carrying Out Review of All Types of Loans on a Periodic Basis • Structuring the Loan Process • Record of Borrower Payments • Quality and Condition of Collateral • Completeness of Loan Documentation • Evaluation of Borrower’s Financial Condition • Assessment as to Whether Fits with Lender’s Loan Policies

  19. Loan Review Procedures (cont.) • Reviewing Largest Loans Most Frequently • Conducting More Frequent Reviews of Troubled Loans • Accelerating the Loan Review Schedule if Economy or Industry Experiences Problems

  20. Warning Signs of Problem Loans • Unusual or Unexpected Delays in Receiving Financial Statements • Any Sudden Changes in Accounting Methods • Restructuring Debt or Eliminating Dividend Payments or Changes in Credit Rating • Adverse Changes in the Price of Stock • Losses in One or More Years • Adverse Changes in Capital Structure • Deviations in Actual Sales from Predictions • Unexpected and Unexplained Changes in Deposits

  21. Loan Workouts The Process of Resolving a Troubled Loan So the Bank Can Recover Its Funds

  22. Loan Workout Process • Goal is to Maximize Full Recovery of Funds • Rapid Detection and Reporting of Problems is Essential • Loan Workout Should Be Separate From Lending Function • Should Consult With Customer Quickly on Possible Options • Estimate Resources Available to Collect on Loan • Conduct Tax and Litigation Search • Evaluate Quality and Competence of Management • Consider All Reasonable Alternatives

More Related