4. Credit And Lending

Question 1

Why do banks use standardised lending application forms?

Answer 1

Ensure all necessary info captured

Easier storage and retrieval

Audit trail

Question 2

What three aspects need to be considered prior to a lending decision?

Answer 2

Person

Amount, purpose and term

Repayment

Question 3

What three aspects need to be considered once a decision to lend has been taken?

Answer 3

Security

Reward

Other services to customer

Question 4

What are the ‘three Cs’ regarding the person being lent to?

Answer 4

Character

Capacity

Commitment/Capital

Question 5

What personal information should be taken into account besides the three Cs?

Answer 5

Marital status

Dependants

Employment

History with bank

Assets and liabilities

Question 6

What are tree aspects of desirable security?

Answer 6

1. Simplicity of title
2. Stability of value
3. Realisability

Question 7

What are the two main ways a bank generates income from customers?

Answer 7

Product arrangement fees

Interest payments

Question 8

What are the main advantages of credit scoring?

Answer 8

Speed and volume of cases processed

Consistency

Question 9

What are the main disadvantages of credit scoring?

Answer 9

Dehumanising

Won’t capture exceptions

Assumptions may become invalid in a rapidly changing environment

Question 10

What are the 6 key commitments of the lending code?

Answer 10

1. Fair and clear advertising
2. Clear product information
3. Regular statements and warning of changes
4. Lend responsibly
5. Quick and sympathetic complaint response
6. Respect private information