Lending Process in Commercial Banks
15/06/2013
Lending Process in Commercial Banking
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Contents
• • • • Introduction to the Lending Process Businesses Lending Consumer Lending Loan Pricing
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15/06/2013
Introduction
• Bank lending is a process in which funds are given to someone or some business to be paid back in agreed time. • Lending is one of the major functions of a commercial bank. • Banks are highly regulated entities, and the lending process is also subject to a number of regulations, policies and guidelines.
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The Lending Process
• Step1: Establish a written Loan Policy
– To make sure a bank’s loans meet regulatory standards and are profitable. – It gives loan officers and banks management specific guidelines in making individual loan decisions and in shaping banks overall loan portfolio. – It also communicates what procedures a loan officer must follow along with their responsibilities, lending authority to each officer and loan committee and the lines of responsibilities in making assignments, and reporting and reviewing information. 4
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15/06/2013
The Lending Process
Step2: Customer Contact Report
– Direct Customer Approach or thru Sales Staff – Includes basic facts sheet and details of the type of loan
Step3: Loan Application Interview Step3: Loan Application Interview
– Assessment of 6C’s of Lending: Character, Capacity, Cash, Collateral, Conditions, and Control. – Site Visits (in case of business or mortgage loans) 5 – Contact with past creditors
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The Lending Process
Step4: Supporting documentation
–C Complete financial statements l t fi i l t t t – Loan negotiation authorization letter from BoD of Corporation. – Other documents as required.
Step5: Applicants Financial Analysis
–T To ensure sufficient cash flow and backup assets to ffi i h fl db k repay the loan. – Different Process for Business and Consumer Loans – Summary and Recommendations of Credit Analysis Division 7
The Lending Process
Step6: Approval of Loan Committee
– On
Lending Process in Commercial Banking
1
Contents
• • • • Introduction to the Lending Process Businesses Lending Consumer Lending Loan Pricing
2
1
15/06/2013
Introduction
• Bank lending is a process in which funds are given to someone or some business to be paid back in agreed time. • Lending is one of the major functions of a commercial bank. • Banks are highly regulated entities, and the lending process is also subject to a number of regulations, policies and guidelines.
3
The Lending Process
• Step1: Establish a written Loan Policy
– To make sure a bank’s loans meet regulatory standards and are profitable. – It gives loan officers and banks management specific guidelines in making individual loan decisions and in shaping banks overall loan portfolio. – It also communicates what procedures a loan officer must follow along with their responsibilities, lending authority to each officer and loan committee and the lines of responsibilities in making assignments, and reporting and reviewing information. 4
2
15/06/2013
The Lending Process
Step2: Customer Contact Report
– Direct Customer Approach or thru Sales Staff – Includes basic facts sheet and details of the type of loan
Step3: Loan Application Interview Step3: Loan Application Interview
– Assessment of 6C’s of Lending: Character, Capacity, Cash, Collateral, Conditions, and Control. – Site Visits (in case of business or mortgage loans) 5 – Contact with past creditors
6
3
15/06/2013
The Lending Process
Step4: Supporting documentation
–C Complete financial statements l t fi i l t t t – Loan negotiation authorization letter from BoD of Corporation. – Other documents as required.
Step5: Applicants Financial Analysis
–T To ensure sufficient cash flow and backup assets to ffi i h fl db k repay the loan. – Different Process for Business and Consumer Loans – Summary and Recommendations of Credit Analysis Division 7
The Lending Process
Step6: Approval of Loan Committee
– On