Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Introduction to credit > 1 - Principles of lending > Flashcards

1 - Principles of lending Flashcards

1
Q

What are the principles?

A
  • The person
    -Amount and purpose
    -Repayment
    Viability
    -Security -
    Remuneration
    -Services
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How many years is short, medium and long term lending?

A

Short - up to 3 years
Medium - 3 - 10 years
Long - Over 10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Who set bank of England base rates?

A

Bank of England Monetary policy committee.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How is 3% over base rate written?

A

3/BR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What does LIBOR stand for?

A

London inter bank offered rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What reasons are different loans charged at different rates?

A
  • Market rates generally
    -Supply and demand at the time the facility is agreed
  • Duration of borrowing
    -Type of customer
    -Whether there is security
    -The amount being borrowed
    -Risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q
  • Why are personal lending applications used?
A
  • Verify identity of the customer as required by regulations
    -No important info is missed
  • Set out in a standard format
    -Shows that all relevant information has been taken into account
    -Easy for others to read
    -
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

In a lending application what is being assessed and taken into consideration?

A
  • Risk and reward
    -Is it viable - i.e is the customer able to make repayments.
    -Have all factors been taken into account
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

When approached by an existing customer for lending what information can be used?

A

-Customers accounts
-Standing orders/direct debits
-Evidence of regular savings
-Do they use other areas in the organisation?
-Lending files
-Customer profile - personal info saved on them.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

When you have built a profile on an existing customer using previously stored information what should you do?

A

Use the information to confirm with the customer what aspects of the information are still relevant and update the parts that are not.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Having made the decision to lend, what should you then think about?

A
  • Security
  • Reward
  • Other services that we could offer.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the 3 c’s?

A

Character, capacity and commitment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What characeristics do you look for in a customer?

A
  • respectable/ trustworthy
    -Honest
    -Dependable
    -High integrity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What factors should you look at for a customers capacity?

A
  • Age of customer
    -Experience
    -Reputation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What typical assets could a customer own?

A
  • Property
    -Stocks and shares
  • Government securities
    -Life assurance policies
    -Bank accounts
    -Antiques, paintings, classic cars, boats.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What liabilities could a customer have?

A

-Outstanding mortgage
-Loans/credit cards
-Guarantees

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How is a customers ‘net means’ figure calculated?

A

Customer assets - Customer total liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the consequences if a customer does not borrow enough money?

A

Could complete half a extension on their home and not be able to complete. May struggle to get the additional funds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Why do banks need to know the purpose of the loan?

A

-To ensure that the lending is consistent with the banks credit policy.
-The Bank of England also has rules restricting the amount that a bank can lend to one customer or industry.
-No suspicions of money laundering

20
Q

What is loan to vaule?

A

The ratio of the size of the borrowing compared to the value of the asset.

21
Q

What factors could effect a customers means to make repayments?

A

-If borrowing with a variable rate , interest rates increase meaning customer could struggle.
- Unstable employment/ income.

22
Q

What 3 things should you look for in security?

A
  • Simplicity of title
  • Stability of value
  • Realisability
23
Q

Why is simplicity of title good in regards to security?

A

can be taken easily, quickly and cheaply

24
Q

Why is stability of title good in regards to security?

A

The value of the security needs to remain the same and be easy to value.

25
Q

What can you do to help with stability of title?

A

Ensure that the differences between the borrowing you grant and the value of the asset is sufficient to allow for depreciation in value.

26
Q

What are the easiest types of security to value?

A
  • cash deposits
  • assignments of life policies
  • quoted stocks, shares and gilts
  • real property – land, houses, etc.
27
Q

What are difficult types of securities to value?

A
  • specialised or commercial property
  • unquoted shares.
28
Q

How do financial services make profit?

A
  • Differences in interest rates
    -arrangement fee’s
    -Charges for services
    -Commission
29
Q

What can influence the margin a customer is charged on lending?

A
  • Whether or not the borrowing is secured
  • Whether the advance has been agreed before hand - i.e unauthorised overdraft.
30
Q

Why was credit scoring introduced?

A

-To improve the trade off between writing new business and bad debt.
-For decision making to be faster and consistent.

31
Q

What is a credit policy?

A

High level internal document stating a banks credit framework and objectives.

32
Q

What are the reasons a credit policy is issued?

A
  • Gives a consistent approach
  • Improves customer service
  • Lending managers understand clearly what the parameters of their lending authority is.
33
Q

What is covered off in the credit policy?

A
  • Objectives and scope of the policy
  • Sanctioning authorities
  • Credit approval process
  • Product parameters
  • Monitoring process
  • Aggregation policy ( total exposure)
  • Management of problem accounts
34
Q

What is the credit policy structure?

A
  1. Board
  2. Credit risk Committee
  3. Divisional Risk Committee
  4. Business area risk committee
    5.Business Areas
35
Q

What do the divisional risk committee do?

A

-High level monitoring.
-Approve policy changes
-Sanction high credits that are outside credit policy guidelines.

36
Q

What do ‘business area credit risk committee’ do?

A
  • Refine policies
  • Full portfolio monitoring
  • Collections and write-offs
    -Controlling credit policy breaches
37
Q

What do ‘business areas’ do for the credit policy?

A

Develop policies and procedures for approval from committee’s. They must demonstrate compliance to credit policy guidelines.

38
Q

When considering a person who is looking to borrow money, a bank will examine their:
A character, capacity and commitment
B character, capacity and capital
C character, capacity and conduct
D character, capacity and capability

A

A character, capacity and commitment

39
Q

The restrictions laid down by a bank that limits their exposure to lending in certain sectors are
called:
A lending limits
B sanctioning authority
C sector limits
D portfolio limits

A

D portfolio limits

40
Q

If a customer wishes to borrow £100,000 to help finance the purchase of a yacht costing £150,000,the loan to value is ?

A

67%

41
Q

Many lenders maintain that the most important area for consideration when considering a lending request is?

A

Repayment

42
Q

Which one of the following security items would be the most difficult to value:
A cash lodgement
B commercial property
C a life policy
D BP shares

A

B commercial property

43
Q

The definition of “long term lending” is a loan period in excess of:
a) 5 years
b) 7 years
c) 10 years
d) 15 years

A

c) 10 years

44
Q

The document that states a bank’s credit framework and objectives is called a:
a) lending limit
b) credit framework
c) lending guideline
d) credit policy

A

d) credit policy

45
Q

Which of these security items would be the most difficult to value?
a) cash lodgements
b) unquoted shares
c) life policies
d) quoted shares

A

b) unquoted shares

46
Q

If a customer is self employed, you could verify their ability to repay by looking at their:
a) P60
b) annual accounts
c) P45
d) past borrowing record

A

b) annual accounts

Introduction to credit (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions