Lending Process in Commercial Banks

Topics: Debt, Interest, Finance Pages: 12 (1878 words) Published: June 21, 2013
15/06/2013

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 recommendation of the Credit Analysis Div.

Step7: Collateral setup (Perfecting the claim)
– Check the state of property or other assets pledged  as collateral. as collateral – Ensure that bank has immediate access to the  collateral or can acquire one if the loan defaults. 8

4

15/06/2013

The Lending Process
Step8: Signing of Loan Agreement
– When proposed loan and collateral are checked and  sound. – Loan agreement documents are prepared and signed  by all parties.

Step9: Loan Monitoring & Control
– Monitoring Payments of Principal and Interest. – Site Visits to check progress in case of corporations. – Maintenance of Customer Profile. 9

Business Lending
• Business Lending is a process in which funds are  given to business borrower’s to meet their  i t b i b ’ t t th i business needs, to be paid back in agreed terms  and time. • Types of Business Loans: – Short Term Loans; (like Working capital loans, retailer Short Term Loans; (like Working capital loans, retailer  financing, Asset based loans etc) – Long Term Loans; (like Term loans, project loans,  acquisition support loans etc) 10

5

15/06/2013

Business Lending
• Financial Analysis for business lending is a  complicated and time consuming process li t d d ti i • Several Major Techniques for financially  analyzing business loan applications 1. 2. 2 3. 4. Composition Analysis of Financial Statements. Financial Ratio Analysis. Financial Ratio Analysis Analysis of Cash Flows Future Forecasting of Financial Statements and  Balance Sheet. 5. Investigating for Contingent Liabilities 11

Analyzing Business Loan Applications
• Objective ‐ Multiple Layers of Loan Protection
– The business borrower’s earnings or cash flows. – Business Assets pledged as collateral behind the loan. – Strong balance sheet with ample amounts of  marketable assets and net worth. – Guarantees  given by the business, like personal  g y p...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Bank Lending Essay
  • Commercial Banks Essay
  • commercial banks Essay
  • Commercial Banks Essay
  • A Commercial Bank Essay
  • Commercial Bank Essay
  • Essay about commercial banks
  • Essay about Commercial Banks

Become a StudyMode Member

Sign Up - It's Free