Lending Process in Commercial Banks

 Essay regarding Lending Procedure in Commercial Banks

15/06/2013

LendingВ ProcessВ inВ CommercialВ Financial

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Articles

• • • • Introduction to the Lending Process Businesses Lending Consumer Lending Loan Pricing

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15/06/2013

Intro

• 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 restrictions,  policies and guidelines. 3

TheВ LendingВ 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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TheВ LendingВ Process

Step2: В CustomerВ ContactВ Report

– Direct Customer Approach or thru Sales Staff – Includes basic facts sheet and details of the type of bank 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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TheВ LendingВ Process

Step4: В SupportingВ documentation

–C Complete financial statements l t fi we l to t capital t – Loan negotiation authorization letter from BoD of Corporation. Other documents as required.

Step5: В ApplicantsВ FinancialВ Analysis

–T To ensure sufficient cash flow and backup assets to ffi i they would fl db k repay the loan. Different Process for Business and Consumer Loans – Summary and Recommendations of Credit Analysis Split 7

TheВ LendingВ Process

Step6: В ApprovalВ ofВ LoanВ Committee

– On recommendation of the Credit Analysis Div.

Step7: В CollateralВ setupВ (PerfectingВ theВ claim)

– Check the state of property or other assets pledged as collateral. because collateral – Ensure that bank has immediate access to the collateral or can acquire one if the loan defaults. 8

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TheВ LendingВ Process

Step8: В SigningВ ofВ LoanВ Agreement

– When proposed loan and collateral are checked and sound. Loan agreement documents are prepared and signed by all parties.

Step9: В LoanВ MonitoringВ & В Control

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

BusinessВ Lending

• Business Lending is a process in which funds are given to business borrower's to meet their i t n i n ' to t th i business needs,  to be paid back in agreed terms and time. • Types of Business Loans: – Short term installment loans; (like Seed money loans, store Short Term Loans;  (like Working capital loans,  retailer loans,  Asset based loans etc) – Long Term Loans;  (like Term loans,  project loans,  acquisition support loans etc) 15

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BusinessВ Lending

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

AnalyzingВ BusinessВ LoanВ 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 con p...

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