slike bài giảng quản trị ngân hàng chương 5 l ending policies and procedures - managing credit risk

William Chittenden edited and updated the PowerPoint slides for this edition. CREDIT POLICIES AND PROCEDURES: MANAGING CREDIT RISK Chapter 5 Key topics 1. Types of loans banks make 2. Factors affecting the mix of loans made 3. Regulation of lending 4. Creating a written loan policy 5. Steps in the lending process 6. Loan review and loan workouts 16-2 Types of loans made by banks  Real estate loans  Commercial and industrial loans  Loans to individuals  Financial institution loans  Agriculture loans  Miscellaneous loans  Lease financing receivables 16-3 Loans outstanding for U.S. Banks (2007) 16-4 Factors determining the mix of bank loans  Characteristics of market area: most lenders are chartered to serve selected markets where they are located as suburban community (residential real estate loans, automobile loans, credit for home appliances) or central city (business loans for inventory, equipment purchase, business payrolls)  Lender size: legal lending limit to single borrower.  Larger banks → wholesale lenders  Smaller banks → retail credit 16-5 Factors determining the mix of bank loans (cont.)  Experience and expertise of management and loan policy: commercial banks tend to have experience and lending policy to make large numbers of commercial and industrial (business) loans  Expected yield of each type of loan: lenders prefer to make loans bearing the highest expected returns (highest net yields: real estate & commercial loans)  Regulations: any loans made are subject to examination and reviewed and many are restricted or even prohibited by law. 16-6 Regulation of lending: CAMELS rating system  Capital adequacy  Asset quality  Management quality  Earnings record  Liquidity position  Sensitivity to market risk 16-7 Asset quality  Criticized loans: performing well but lender have minor weakness  Scheduled loans: containing significant weakness or showing dangerous concentration of credit in a borrower/industry 16-8 Asset quality  Adversely classified loans: carrying risk of not paying out as planned  Substandard loans: margin of protection is inadequate due to weakness in collateral of the borrower’s repayment abilities  Doubtful loans: carrying a strong probability of loss  Loss loans: uncollectible or unsuitable to be called as bankable assets 16-9 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 (e.g. borrowing costs, stock prices) to monitor bank behavior. 16-10 [...]... does loan meet written loan policy and how would loan be affected by changing laws and regulations 1 6-1 7 1 6-1 8 Common types of loan collateral  Reasons for taking collateral:  Proceeds of collateral sale is to cover loans  Collateralization gives lenders a psychological advantage over the borrower  The lender’s perfected claim: a lender holds claim standing superior to claims of other lenders and. .. invoices, and advances cash to you company  Normally conducted in a recourse basis: factors can recover payment from the sellers if the buyers refuse to pay  Factoring provide liquid assets to small business http://www.tapchiketoan.com/ngan-hang-tai-chinh/thi-truong-tai-chinh/phat-triennghiep-vu-factoring-nham-da-dang-hoa-hoat-dong-cua-ngan-hang-o-vie.html Personal Property and Personal guarantees... procedures for soliciting, evaluating and making loan decisions 5 Required documentation for all loans 6 Lines of authority for maintaining and reviewing credit files 1 6-1 4 Bank’s written loan policy (cont.) 7 Guidelines for taking and perfecting collateral 8 Procedures for setting loan interest rate 9 Statement of quality standards for all loans 10 Statement of upper limit for total loans outstanding 11... considered uncollectable after all collection options (such as the realisation of collateral or the institution of legal proceedings) have been exhausted 1 6-1 3 Establishing a good written loan policy 1 Goal statement for bank’s loan portfolio 2 Specification of lending authority of each loan officer and committee 3 Lines of responsibility in making assignments and reporting information 4 Operating procedures. .. would represent a significant violation of loan agreement  Actions that the lender is legally authorized to take in order to secure the loan 1 6-3 2 Loan review  Examination of outstanding loans to make sure borrowers are adhering to their credit agreements, the bank is following its own loan policies and to handle problem loans  Loan review should be kept separate from credit analysis, execution, and. .. Fitch  Web 1 6-2 4 Lending the old fashioned way? (box)   Traditional lending model Deregulation of the 1980s and 1990s    New lending model Financial innovations, such as securitization, and their effect on lending mix and policies (“streamlined” loans) Mortgage market problems, 2007   Newer lending paradigm or back to the basics? An increased coordination among financial regulators in different... the role of a loan policy to a lending institutions? 2 What are the differences between Accounts receivable and Factoring as loan collateral? 3 What are the differences between Personal Property and Personal guarantees as loan collateral? Accounts receivable  Account receivables are used as collateral and loans are repaid when the buyers pay their debts  Most lenders do not require a business plan... bank’s principal trade area 12 Procedures for detecting, analyzing and working out problem loans 1 6- 15 Steps in the lending process 1 Finding prospective loan customers 2 Evaluating a customer’s character and sincerity of purpose 3 Making site visits and evaluating a customer’s credit record 4 Evaluating a customer’s financial record 5 Assessing possible loan collateral and signing the loan agreement... experiencing difficulties and which may threaten the authorized institution's position Substandard: Loans in which borrowers are displaying a definable weakness that is likely to jeopardise repayment Doubtful: Loans for which full collection is improbable, the authorized institution expects to sustain a loss of principal and/ or interest, taking into account net realisable value of collateral Loss: Loans that... Assessment as to whether loan fits with lender’s loan policies 1 6-3 4 Loan review procedures (cont.) 3 Reviewing largest loans most frequently 4 Conducting more frequent reviews of troubled loans 5 Accelerating the loan review schedule if economy or industry experiences problems 1 6- 35 Warning signs of problem loans 1 2 3 4 5 6 7 8 Unusual or unexpected delays in receiving financial statements Any sudden . types of loan collateral  Reasons for taking collateral:  Proceeds of collateral sale is to cover loans  Collateralization gives lenders a psychological advantage over the borrower  The lender’s. loans  Commercial and industrial loans  Loans to individuals  Financial institution loans  Agriculture loans  Miscellaneous loans  Lease financing receivables 1 6-3 Loans outstanding for U.S collateral. 5. Loss: Loans that are considered uncollectable after all collection options (such as the realisation of collateral or the institution of legal proceedings) have been exhausted. 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