Bank lending is the primary function of banks, providing loans to customers to fund consumption, investment, and government activities. Loans are a major source of bank profit but also carry risk depending on borrower creditworthiness. Banks establish lending policies to guide individual loan decisions and shape their overall loan portfolios, outlining goals, authority levels, procedures, documentation standards, interest rates, and handling of problem accounts. Regulators monitor bank loan portfolios and policies to ensure sound underwriting and quality standards.

1. 1
Bank Lending
 Primary Function of a bank: give loans to
its customers
 To fund consumption and investment of
Business, Individuals and Units of
Government

2. 2
 Loans for economic health
 Major source of profit for banks
 Creditworthiness for borrowers
 Risk for banks

3. 3
Types of Loan
 According to their purpose
 Real Estate Loans
 Financial Institution Loans
 Agricultural Loan
 Commercial and Industrial Loan
 Loans to Individuals
 Other Loans
 Lease Financing receivables

4. 4
Factors determining
Growth and Mix
 Characteristics of market area it serves
 Credit Derivatives
 Bank Size
 Wholesale Lending
 Retail Lending
 Experience and expertise of management
 Expected Yield

5. 5
Lending Regulation
 Loan influenced by Regulation
 Some loans restricted by law
 Regulators look at
 Quality of loan portfolio
 Soundness of lending policies
 CAMELS Rating

6. 6
Lending Policy
 Banks need to establish a written loan policy
 Guideline in making individual loan decision
 Shape bank’s overall loan portfolio
 Revisions / proper enforcement required if
desired portfolio is not achieved

7. 7
Loan Policy Contents
 Goal statement for loan portfolio
 Lending authority
 Lines of responsibility
 Operating procedure
 Documentation requirement
 Line of authority
 Guideline for taking, evaluation, perfecting security
 Interest rate / Fees / Repayment Terms
 Quality standards
 Loan limits
 Principle trade area
 Handling problem accounts