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Banking and Financial Institutions > Topic 7: Lending > Flashcards

Topic 7: Lending Flashcards

1
Q

Describes the arrangement made by the banner with its clients to secure credit facilities

A

Bank Lending

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2
Q

As a result, the borrower must pay interest on the amount borrowed

A

Bank Lending

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3
Q

Typically offers a way to save extra money to people. The surplus deposits are then made available in loans, advancements, and overdrafts to individuals, cooperation bodies, and business customers

A

Banks

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4
Q

Banks act as ________________ between the demand sector (which requires credit for financing projects) and the supply sector (which supplies such loan-able money for such investments)

A

Key Intermediaries

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5
Q

It is an undisputed truth that in commercial banks’ balance sheets, most essential assets are ___________________

A

loans and advances

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6
Q

What are the largest sources of income from the bank’s standpoint?

A

loans and advances

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7
Q

What is the importance of bank lending?

A
  • It’s essential to the economy
  • It allows the economy to expand and helps every individual
  • Consumers would be able to raise their living standards as a result of economic expansion
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8
Q

a multi-step process, where a borrower applies for a loan and the application will be processed by the lender, in this case the bank

A

Origination

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9
Q

a process in obtaining mortgage/home loans

A

Origination

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10
Q

The loan origination fee is usually about ___ of the loan

A

1%

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11
Q

The origination process is overseen by

A

the Federal Deposit Insurance Corporation

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12
Q

are responsible for managing the loan origination process from application to granting of a loan

A

Loan Originators

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13
Q

may work for a lender or be independent

A

Loan Originators

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14
Q

In origination, borrowers must submit various types of _______________ and _________ to a lender including tax returns, payment history, credit card information, and bank balances

A

financial information and documentation

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15
Q

it is the filling out of a loan application form

A

Loan Application

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16
Q

this is where the applicant submits documentation to substantiate income, employment and financial status, either during the initial application or after pre-approval

A

Documents

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17
Q

where the lender verifies the borrower’s credit score whether he is a good payer or not, and determines if the borrower’s income and financial status qualifies for the loan

A

Screening

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18
Q

Depending on the lender’s approach and the borrower’s financial status, there may be an opportunity to negotiate favorable loan terms

A

Negotiation

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19
Q

Once the terms are agreed on, the loan application is processed by the lender, going through several departments, such as underwriting and documentation processing

A

Finalize Loan Application

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20
Q

After final processing, the lender decides to approve or reject the loan application

A

Loan Approval

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21
Q
  • the lender wants to know that you will be able to repay the loan
  • you give the lender permission to check your credit history
A

Capacity to Repay

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22
Q
  • when you sign your loan documents, you give the bank permission to establish a lien on any assets you pledge as collateral
  • real estate, company assets, equipment, cars, and accounts are some examples
A

Collateral for Leverage

23
Q
  • the bank also wants to know how much cash you’ve put into your company
  • this demonstrates to the bank that you are devoted to developing the business and makes you more appealing as a possible borrower
  • if your financial situation is substantially stronger than the business’s, the bank may still proceed with the loan as long as you guarantee it
A

Capital Holdings

24
Q
  • the history, references, and reputation of your firm all play a role in the decision to issue a loan
  • if your firm has a history of debt nonpayment, as well as a bad reputation and poor service, banks may be hesitant to do business with you, even if you fulfill the other conditions
A

Character or Reputation

25
Q
  • banks look for in loans is beyond the borrower’s control
  • even if your company has the necessary capacity and collateral, a bank may decline your loan if you operate in a high-risk industry
  • this is not because the loan is wrong in and of itself, but because the industry is prone to a rapid downturn, placing the bank at risk
A

Conditions of the Market

26
Q

this is where your application will be determined if it is rejected, accepted, or handed out back to you to discuss some more options

A

Approval

27
Q

is the process that is under the approval process, that refers to handling out the pre-approved loan application to the group of experts that digs deep beyond the basic Five C’s and decide whether to lend you or not

A

Quality Checking

28
Q
  • is the process of pursuing payments of debts owed by individuals or businesses
  • collecting payments from the borrower
A

Collection

29
Q
  • they are the ones in charge of the borrowing and lending that exist in both parties
  • they are the one who funds the lender, and they collect payment from the borrower with interest
A

Financial Intermediaries

30
Q

Another term for Financial Intermediaries

A

Middle-Man

31
Q

it is the management of problem accounts, where early detection plays a major role

A

Remedial Management

32
Q

What are the goals of Remedial Management?

A

● Incorporate monitoring processes to detect when accounts begin to deteriorate.
● To classify problem accounts before they become hardcore delinquent.
● Maximize collection efforts through assigning a specialized unit to manage the recovery process.

33
Q

a specialized trained and responsible unit for managing the collection and recovery of written-off or hardened accounts in a multi-branch bank

A

Remedial Management Unit (RMU)

34
Q

What are the functions of Remedial Management Unit?

A

● Transfer the responsibility of recovery to a specialized unit that it has trained.
● Responsible solely for the recovery of hardcore delinquent accounts.

35
Q

What are the responsibilities of RMU?

A

● Recovering written off accounts from the branches. The RMU relieves branches of uncollectible accounts so that the branch can engage in more productive activities.
● Providing information and analysis of problem accounts. This helps management to formulate and revise credit-granting policies

36
Q

The staff should also display the ability to be __________ but not __________ in the collection

A

assertive; abrasive

37
Q

What is the Remedial Management Process

A
  1. Classify Accounts & Recommend to RMU
  2. Evaluation of Accounts by RMU
  3. File Transfer
  4. Pre-collection Preparation
  5. Collection Process
  6. Developing Payment Plan
  7. Creating Incentives
  8. Internal Control
  9. Performance Monitoring Reports
38
Q

➢ Account officers alert MF Supervisor/Branch Manager when an account becomes difficult to collect or “hardened”.
➢ All possible measures are taken in the field to recover the account.
➢ MF Supervisor/Branch Manager evaluate the status of the account.
➢ When collection options are exhausted, microfinance supervisor/branch manager recommends loan write offs to RMU.

A

Classify Accounts & Recommend to RMU

39
Q
  • This activity is conducted when written-off accounts are endorsed from the branches
  • validates each referred account to determine what collection arrangements have been made previously
  • status and whereabouts of clients; assets surrendered by clients, if any, and other repayment and credit history
A

Evaluation of Accounts by RMU

40
Q
  • When accounts are “turned over” to the RMU, the RMU retains full management control of the accounts
  • When accounts are “turned over” to the RMU, the RMU retains full management control of the accounts
A

File Transfer

41
Q
  • The primary activities of the remedial management unit is the process of account identification and classification
  • After the written-off accounts are endorsed to the unit, the first activity is to classify the accounts: collectible and/or uncollectible
  • involves the review of individual credit folders, including the notes of AOs who handled those accounts and supervisors and branch managers that supervised those accounts and recommended them to the RMU
A

Pre-collection Preparation

42
Q

Immediate attention should first be placed on recovery efforts of accounts classified as ___________

A

collectible

43
Q

● RMU staff visits borrower with written off or hardened accounts at least twice a month
● RMU staff follows up on collection agreements and propose an approach to recover the account;
● Recovery activities are organized per area to maximize the minimum target of 15-25 clients per Collection Officer.

A

Collection Process

44
Q

This process presents payment terms that the bank can consider in restructuring delinquent accounts, and encouraging clients to settle their accounts as soon as possible

A

Developing Payment Plan

45
Q
  • to motivate staff to collect accounts

- should reflect realistic goals in recovering collectible and uncollectible accounts

A

Creating Incentives

46
Q
  • The RMU is assigned accounts that have been written off the books of the bank
  • Any collection from these accounts goes directly to the bank’s revenues
A

Internal Control

47
Q

Why should the bank establish internal control mechanisms?

A

To protect against fraud

48
Q
  • This involves transferring written-off accounts from the bank’s outstanding portfolio
  • This transfer can be automated through the use of the bank’s MIS and/or manually through subsidiary ledgers
A

Creating a separate loan listing for written-off accounts

49
Q

__________________ of restructured payment plans with clients (i.e. dates of expected payments) and monitor client credit files

A

Maintain detailed records

50
Q

(i.e. official receipts) to validate all financial transactions

A

Require a paper tail

51
Q

to monitor collection efforts

A

Require weekly performance collection reports

52
Q

The last step and they need to give this to the management on a regular basis

A

Performance Monitoring Reports

53
Q
  • to collect and recover hardcore delinquent accounts
  • must be a separate, specialized unit with its own portfolio of hardened accounts
  • mist have goals, targets, and reporting mechanisms
  • should provide performance monitoring reports to management on a regular basis
A

Remedial Management Unit

Banking and Financial Institutions (7 decks)

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