Lending Policies & Procedures by M Hashaam

7/27/2019 Lending Policies & Procedures by M Hashaam

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Credit Management

Topic: Lending Policies & Process

Presented To : Mr.Bilal ButtPresented By : M.Hashaam

Roll no. : AM552381


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McGraw-Hill/IrwinBank Management and Financial Services, 7/e

2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

Introduction

Making loans is the principal economic

function of banks. For most banks, loans

account for half or more of their total assetsand about half to two-thirds of their

revenues.

Risk in banking tends to be concentrated in

the loan portfolio. Uncollectable loans can

cause serious financial problems for banks.


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Types of Loans

Bank loans can be grouped according to their purpose.

Real Estate Loans

Financial Institution Loans

Agriculture Loans Commercial and Industrial Loans

Loans to Individuals

Miscellaneous Loans

Lease Financing Receivables


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Types of Loans (continued)

Factors Determining the Growth and Mix of Loans

Characteristics of the market area served

Lender size

Experience and expertise of management Written Loan policy

Expected yield of each type of loan

Regulation

General rule: A lending institution should make thetypes of loans for which it is the most efficient producer


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Regulation of Lending

Uniform Financial Institutions Rating System

Each banking firm is assigned a numerical rating based onthe quality of its asset portfolio

The federal examiner may assign one of these ratings:

1 = strong performance 2 = satisfactory performance

3 = fair performance

4 = marginal performance

5 = unsatisfactory performance


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Regulation of Lending (continued)

Asset Quality

Criticized loans

Scheduled loans

Adversely classified loans Substandard loans

Doubtful loans

Loss loans


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CAMELS Rating

Capital adequacy

Asset quality

Management quality

Earnings record

Liquidity position

Sensitivity to market risk exposure

All six dimensions of performance are combined into one overall

numerical rating, referred to as the CAMELS rating Depository institutions whose overall rating is low tend to be

examined more frequently than the highest-rated institutions


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Banks Written Loan Policy

A goal statement for the entire loan portfolio

Specification of lending authority of each loan officer and loan

committee

Lines of responsibility in making assignments and reportinginformation

Operating procedures for soliciting, evaluating and making loan

decisions

Required documentation for all loans


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Lines of authority for maintaining and reviewing credit files

Guidelines for taking, evaluating, and perfecting loan collateral.

Procedures for setting loan rates and fees and the terms for

repayment of loans

A statement of quality standards applicable to all loans

A statement of the preferred upper limit for total loans

outstanding

A description of the lending institutions principal trade area

Procedures for detecting and working out problem loan

situations.


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Steps in the Lending Process

1. Finding Prospective Loan Customers

2. Evaluating a Customers Character and Sincerity of Purpose

3. Making Site Visits and Evaluating a Customers CreditRecord

4. Evaluating a Prospective Customers Financial Condition5. Assessing Possible Loan Collateral and Signing the Loan

Agreement

6. Monitoring Compliance with the Loan Agreement and OtherCustomer Service Needs


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Credit Analysis: What Makes a Good Loan?

Is the Borrower Creditworthy? The Cs of Credit

Character

Specific purpose of loan and serious intent to repay the loan

Capacity

Legal authority to sign binding contract Cash

Ability to generate enough cash to repay loan

Collateral

Adequate assets to support the loan

Conditions Economic conditions faced by borrower

Control

Does loan meet written loan policy and how would loan beaffected by changing laws and regulations


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Case StudyLending Policy & Process in

Zarai Taraqiati Bank Ltd. (ZTBL)


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ZTBL Vision & MissionVisionDedicated to serve the needs of the farming community, by

delivering financial products and technical services on a

competitive and sustainable basis, in a convenient , efficientand professional manner, leading to success of the Bank and

the farmers.

Mission

To play effective role in the promotion of economic growth, byenhancing the availability of credit to the agriculture sector,

through reliable access to sustainable financing, special lending

programs, technical assistance, and other products & services, and

to promote career development opportunities for increasing

professionalism and technical proficiencies of employees.


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ZTBL Lending Policy & Process

Loan Application

Appraisal of Loan Application

Summary

Loan Application Form

Credit Investigation Report

Opinion of Legal Advisor Sanction orders in Secured Case

Sanction orders in Surety Case


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ZTBL Lending Policy & Process (Cont.)

Acceptable Securities

Valuation of Security

Documentation

Disbursement of Loan

Utilization of Loan

Recovery of LoanRecovery Schedule

Issuance of Notice

Legal Action


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SWOT Analysis

Strengths

Credit Rating Strong Policy

Strong Supervision

Weaknesses

Lack of Implementation Non-Payment Attitude

Political Base Loaning


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SWOT Analysis

Opportunities

Micro Credit Mobile Credit

Expansion

Threats

Political Pressure Recovery Depends on

Crops


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Conclusion

After study and analyze I conclude that

ZTBL lending policy is strong andhealthy. There is lack of implementation

of policies and political pressure is main

factor of un-implementation.


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Recommendations

I will recommend that in ZTBL political

base lending should be stop to reducethe bad debts.

Recovery system should be improved in

order to meet the future creditrequirements.


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McGraw-Hill/IrwinBank Management and Financial Services 7/e


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Lending Policies & Procedures by M Hashaam

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