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Bank Lending

 Primary Function of a bank: give loans to

its customers
 To fund consumption and investment of

Business, Individuals and Units of

Government
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 Loans for economic health

 Major source of profit for banks
 Creditworthiness for borrowers
 Risk for banks
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Types of Loan

 According to their purpose

 Real Estate Loans
 Financial Institution Loans

 Agricultural Loan

 Commercial and Industrial Loan

 Loans to Individuals

 Other Loans

 Lease Financing receivables

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Factors determining
Growth and Mix
 Characteristics of market area it serves
 Credit Derivatives
 Bank Size
 Wholesale Lending
 Retail Lending

 Experience and expertise of management

 Expected Yield
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Lending Regulation

 Loan influenced by Regulation

 Some loans restricted by law
 Regulators look at
 Quality of loan portfolio
 Soundness of lending policies

 CAMELS Rating
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Lending Policy

 Banks need to establish a written loan policy

 Guideline in making individual loan decision
 Shape bank’s overall loan portfolio

 Revisions / proper enforcement required if

desired portfolio is not achieved
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Loan Policy Contents

 Goal statement for loan portfolio
 Lending authority
 Lines of responsibility
 Operating procedure
 Documentation requirement
 Line of authority
 Guideline for taking, evaluation, perfecting security
 Interest rate / Fees / Repayment Terms
 Quality standards
 Loan limits
 Principle trade area
 Handling problem accounts