This document discusses various types of loans provided by banks. It begins by describing trends in loan growth and quality, noting that real estate loans make up the largest category. It then discusses loan categories for different sized banks. The remainder of the document details the credit process, from policy setting to analyzing and approving loans to administration and problem loans. It also describes characteristics of major loan types like real estate loans, commercial loans, and agricultural loans.
1. Making loans is the principal function of banks and risk is concentrated in loan portfolios. Uncollectable loans can seriously harm banks.
2. Banks group loans into categories like real estate, commercial, and individual loans. Factors like regulations, management experience, and loan policies determine a bank's loan mix.
3. Banks analyze loan applications using the six C's - character, capacity, collateral, capital, conditions and control - to assess creditworthiness. They monitor loans and work with struggling borrowers to maximize recovery of funds.
Lamar Van Dusen | Business Suppliers and Asset-Based LendersLamar Van Dusen
Lamar Van Dusen is explaining the Business Suppliers and Asset-Based Lenders. Lamar Van Dusen is a professional and he is great in business development.
This document provides an overview of loan management systems and the loan lifecycle process. It defines what a loan is, discusses the key parties and stages involved, and outlines the types and importance of bank loans for businesses and individuals. The stages covered include application, security/collateral, disbursement, repayment, monitoring, and potential rescheduling. Factors influencing loan pricing and the importance of loan documentation, analysis, supervision, review and problem identification are also summarized.
The document discusses lending policies and procedures at banks. It covers types of loans banks make, factors that affect loan mix, regulation of lending, creating a written loan policy, the lending process, and reviewing and working out problem loans. Key points include the need for written lending policies, regulatory oversight of lending, and processes for evaluating loans, identifying problems, and resolving troubled loans.
Raising Capital Insights, Peoria AZ Business Summit Kristin Slice
This document provides an overview of raising capital and the lending process for small businesses. It discusses various sources of capital, including commercial banks, micro lenders, SBA programs, and CDFIs. It outlines the key criteria lenders evaluate like credit history, repayment ability, collateral, management experience, and owner capital. Common lending options for new and mature businesses are presented. The document reviews preparing a loan request, ongoing lender reviews, reporting requirements, and important reminders. It concludes with a lending panel discussing their specialties and addressing common questions.
Moody's Credit Ratings & the Subprime Mortgage MeltdownKoyi Tan
Moody's ratings of mortgage-backed securities contributed to the 2008 financial crisis. Moody's underestimated the risks of subprime mortgages and assigned high credit ratings to securities backed by subprime mortgages. This misled investors and allowed the flawed mortgage market to grow substantially. Multiple parties share blame for the crisis, but Moody's inaccurate ratings were a key factor that enabled the crisis. New regulations were implemented through the Dodd-Frank Act, but it did not fully address the root causes and has been criticized for favoring large banks over other entities.
1. Making loans is the principal function of banks and risk is concentrated in loan portfolios. Uncollectable loans can seriously harm banks.
2. Banks group loans into categories like real estate, commercial, and individual loans. Factors like regulations, management experience, and loan policies determine a bank's loan mix.
3. Banks analyze loan applications using the six C's - character, capacity, collateral, capital, conditions and control - to assess creditworthiness. They monitor loans and work with struggling borrowers to maximize recovery of funds.
Lamar Van Dusen | Business Suppliers and Asset-Based LendersLamar Van Dusen
Lamar Van Dusen is explaining the Business Suppliers and Asset-Based Lenders. Lamar Van Dusen is a professional and he is great in business development.
This document provides an overview of loan management systems and the loan lifecycle process. It defines what a loan is, discusses the key parties and stages involved, and outlines the types and importance of bank loans for businesses and individuals. The stages covered include application, security/collateral, disbursement, repayment, monitoring, and potential rescheduling. Factors influencing loan pricing and the importance of loan documentation, analysis, supervision, review and problem identification are also summarized.
The document discusses lending policies and procedures at banks. It covers types of loans banks make, factors that affect loan mix, regulation of lending, creating a written loan policy, the lending process, and reviewing and working out problem loans. Key points include the need for written lending policies, regulatory oversight of lending, and processes for evaluating loans, identifying problems, and resolving troubled loans.
Raising Capital Insights, Peoria AZ Business Summit Kristin Slice
This document provides an overview of raising capital and the lending process for small businesses. It discusses various sources of capital, including commercial banks, micro lenders, SBA programs, and CDFIs. It outlines the key criteria lenders evaluate like credit history, repayment ability, collateral, management experience, and owner capital. Common lending options for new and mature businesses are presented. The document reviews preparing a loan request, ongoing lender reviews, reporting requirements, and important reminders. It concludes with a lending panel discussing their specialties and addressing common questions.
Moody's Credit Ratings & the Subprime Mortgage MeltdownKoyi Tan
Moody's ratings of mortgage-backed securities contributed to the 2008 financial crisis. Moody's underestimated the risks of subprime mortgages and assigned high credit ratings to securities backed by subprime mortgages. This misled investors and allowed the flawed mortgage market to grow substantially. Multiple parties share blame for the crisis, but Moody's inaccurate ratings were a key factor that enabled the crisis. New regulations were implemented through the Dodd-Frank Act, but it did not fully address the root causes and has been criticized for favoring large banks over other entities.
This document summarizes the current state of small and medium enterprise (SME) access to capital and emerging alternatives. It finds that while bank lending to SMEs has improved since the financial crisis, it remains below pre-crisis levels due to ongoing regulatory pressures and risk aversion. To fill the resulting credit gap, online alternative finance platforms like marketplace lenders, peer-to-peer lending, and crowdfunding have grown rapidly in recent years and are expected to continue strong growth in 2015. These alternatives provide lower-cost capital options for SMEs and attractive returns for investors.
This document discusses credit risk management for financial institutions. It covers topics such as how financial institutions transform household savings into loans, the importance of credit risk management, credit quality problems over time, analyzing different types of loans including real estate, consumer, small business and commercial loans. It discusses tools for credit analysis like the five C's of credit, cash flow analysis, ratio analysis, Altman's Z-score model and Moody's expected default frequency model. The document is from a textbook on financial institutions by Dr. Muath Asmar from An-Najah National University.
UNIT 1 FINANCIAL CREDIT RISK ANALYTICS (1).pptxVikash Barnwal
Credit analysis is the process of evaluating the creditworthiness of a business or organization. It involves analyzing financial statements, cash flows, collateral, and other factors to assess the entity's ability to repay debt. The key aspects of creditworthiness evaluated are capacity, character, capital, cash flow, collateral, conditions, and control. The credit analysis process involves collecting information on the loan, business, and risks. The information is then analyzed to make a decision on the loan request and design an appropriate loan structure. Credit analysis is important for lenders to evaluate default risk and for investors to assess a debt issuer's ability to meet obligations.
Mercer Capital's Bank Watch | May 2022 | Specialty Finance AcquisitionsMercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
This document discusses various types of bank financing including short term, medium term, and long term financing. It provides details on the key elements that banks look for when approving financing requests. The different types of financing are used to fund different time periods, from less than one year for short term financing, 1-7 years for medium term, and 15-20 years for long term financing. The document also outlines the sources, advantages, disadvantages and purposes of each type of financing.
Corporate banking, financial advisory and merchant banking servicesKalpesh Arvind Shah
The document discusses syndicated loans, which involve multiple lenders jointly providing loans to one or more borrowers under the same terms. One bank is appointed as the lead bank to manage the loan process. Syndicated loans account for around half of India's investment banking revenue. They provide large sums of money for projects and allow risk spreading among lenders. The roles of different players like the arranger, lead bank, manager, participants and agency bank in syndicated loans are also outlined.
This document discusses short-term financing for small businesses. It defines short-term finance as sources of funding for periods under one year, usually needed due to uneven cash flows. Common sources of short-term credit include trade credit extended by suppliers, loans from commercial banks, finance companies, and government agencies like the Small Business Administration. The costs, terms, and eligibility requirements for short-term loans from each of these sources are reviewed in detail.
This document discusses credit analysis and financial distress prediction. It covers key topics including why firms use debt financing, potential downsides of debt financing, and differences in debt financing practices internationally. It also describes the credit analysis process in private debt markets, including conducting financial analysis and assembling loan structures. Methods of predicting financial distress like Altman's Z-score model are also discussed.
Week-9 Bank RegulationMoney and Banking Econ 311Tuesdays 7 .docxalanfhall8953
Week-9 Bank Regulation
Money and Banking Econ 311
Tuesdays 7 - 9:45
Instructor: Thomas L. Thomas
Capital Adequacy Management
Bank capital helps prevent bank failure
The amount of capital affects return for the owners (equity holders) of the bank
Regulatory requirement – Regulatory Capital – Tier 1 and Tier 2 Basle Rules
Economic Capital - What is this
2
Capital Adequacy Management:
Returns to Equity Holders
3
Traditional Economic Capital Value-At-Risk (VaR) View
Frequency of Occurrence / Probability
Mean/Average Expected Losses (m)
Unexpected Losses @ 99.9% confidence Level (s)
Economic Capital
Reserves
Value-at-Risk
VAR
Before we can develop adequate credit stress testing we need to understand the differences between traditional credit loss measures and what stress tests incorporate.
Aside form standard concentration and coverage analysis, a standard portfolio credit risk analysis typically employs a Value-at-Risk view.
Credit risk in this view generally follows a positive skewed distribution (by definition one cannot have negative defaults and thus a normal distribution is not applicable).
Reserves ALLL generally cover average expected losses over a horizon. In reality these are usually allocated to general reserves since most ALLL have two components: general reserves and specific reserves for known credits that are detraining.
Economic capital functions as a cushion against unexpected loss up to some confidence level. In this case 99.9% or a single “A” rating is the regulatory standard (once every 10,000 years)
In addition to a loss cushion economic capital represents the amount of the firm’s equity that is at risk which requires a return sufficient to cover the associated risk.
The shape of the curve or tail will then reflect the underlying credit risk of the portfolio or product.
However this view has some assumptions that can miss important risk elements.
The distribution is generally based on one variable PD in this case and does necessarily fully account for other correlated factors that when combined either change the tail or increase the likelihood of default.
Second, while the event may be rare, this methodology does not tell how severe or the magnitude of the event when it occurs beyond the confidence level prescribed for economic capital.
4
Old Measure: New Ones
RAROC - Risk Adjusted Return on Capital
EVA - Economic Value Added.
Hurdle Rate – What is it. How is it measured?
5
Time Line of the Early History of Commercial Banking in the United States
6
Historical Development of the Banking System
Bank of North America chartered in 1782
Controversy over the chartering of banks.
National Bank Act of 1863 creates a new banking system of federally chartered banks
Office of the Comptroller of the Currency
Dual banking system
Federal Reserve System is created in 1913.
7
Asymmetric Information and Financial.
The document proposes reforms to address the mortgage crisis and prevent future financial catastrophes. It recommends mandating third-party oversight of financial transactions to ensure objective risk ratings and valuations. Appraisals and income verification should be independently verified. Regulations should strengthen penalties for fraudulent behavior and improve transparency through a centralized registry and mandatory reporting of commercial loan data.
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.
This document summarizes the agenda for a seminar on small business credit risk. It discusses recent events affecting credit markets and lenders. It also outlines factors small businesses should consider, such as ensuring sound financial foundations. The document provides an overview of credit assessment tools and partnerships that can help small businesses manage risk. It analyzes current economic conditions and their potential impacts on small business lending.
2016 Mark Barbash Financing Presentation Copy Colorado FINALMBEDC, LLC
This document provides an overview of economic development financing. It discusses understanding the business and project, identifying private and public financing options, determining any financing gaps, and structuring deals. Private financing sources include banks, venture capital, and capital markets. Public programs include direct loans, loan guarantees, tax-exempt bonds, tax incentives, and intermediary programs. The document outlines steps in the financing process and principles for working with private and public financing.
The document discusses capital markets and the bank loan syndication process. It describes two types of loan markets - the investment grade loan market and leveraged loan market. It then details the typical steps in the loan syndication process, including the roles of the issuer/company, arrangers, agents, and lenders. It provides an example of a large syndicated loan for Harrah's Entertainment.
Bladex's presentation discusses its business model and financial position. It highlights Bladex's longstanding franchise in Latin America due to its expertise in the region and unique shareholder structure. Bladex's portfolio has grown, with increased lending spreads. The portfolio remains diversified across industries and countries, with continued focus on high-quality clients. Bladex maintains a strong capital and liquidity position to support further business opportunities.
Bladex provides a corporate presentation summarizing its business fundamentals and positioning. It highlights Bladex's longstanding franchise in Latin America due to its unique shareholder structure and expertise in the region. Bladex's business model focuses on short-term lending to blue-chip clients in key industries. Its diversified portfolio and funding sources have supported continued growth while maintaining sound credit quality.
Bladex provides a corporate presentation summarizing its business fundamentals and positioning. It highlights Bladex's longstanding franchise in Latin America due to its regional expertise, unique shareholder structure linking it to Latin American governments, and balanced portfolio diversified across sectors and countries. Bladex also discusses its continued portfolio growth, supported by favorable market dynamics and high portfolio turnover, positioning it to leverage new opportunities in the region.
This document summarizes the findings of a survey of 819 lenders on their environmental risk management practices. The top challenges lenders face are: (1) lack of expertise to understand environmental reports and make risk-based decisions, (2) need for internal education and training on how environmental due diligence fits into the lending process, and (3) turnaround time constraints. While lender policies have evolved since the real estate downturn, many - especially smaller banks - still lack formal policies or training. As lending slowly increases, lenders need assistance justifying due diligence costs, basic training, and help balancing regulatory compliance with maintaining competitiveness.
Hedge funds and investment banks packaged home loans into complex financial products like CDOs and sold them to investors seeking higher yields. As interest rates fell and home prices rose, more risky loans were originated and securitized. When the housing market collapsed in 2007-2008, the value of these securities plummeted due to high correlations within loan pools that rating models and investors failed to properly account for. Some hedge funds like Magnetar profited by taking positions that benefited from this mispricing, while others like Peloton suffered large losses after being overly exposed to subprime mortgage-backed assets. The crisis exposed flaws in how risk was assessed and allocated within structured products.
This document discusses managing the cost of funds, capital, and liquidity in banks. It covers key components of bank liabilities including capital, reserves and surplus, deposits, borrowings, and other liabilities. It explains the features of bank liabilities and components of the bank balance sheet. The document also discusses the cost of deposits/funds and how net demand and time liabilities (NDTL) are calculated. Finally, it provides details on the calculation of the marginal cost of funds based lending rate (MCLR), including the key components involved like marginal cost of funds, operating expenses, negative carry on CRR and SLR, and average return on net worth.
This document summarizes the current state of small and medium enterprise (SME) access to capital and emerging alternatives. It finds that while bank lending to SMEs has improved since the financial crisis, it remains below pre-crisis levels due to ongoing regulatory pressures and risk aversion. To fill the resulting credit gap, online alternative finance platforms like marketplace lenders, peer-to-peer lending, and crowdfunding have grown rapidly in recent years and are expected to continue strong growth in 2015. These alternatives provide lower-cost capital options for SMEs and attractive returns for investors.
This document discusses credit risk management for financial institutions. It covers topics such as how financial institutions transform household savings into loans, the importance of credit risk management, credit quality problems over time, analyzing different types of loans including real estate, consumer, small business and commercial loans. It discusses tools for credit analysis like the five C's of credit, cash flow analysis, ratio analysis, Altman's Z-score model and Moody's expected default frequency model. The document is from a textbook on financial institutions by Dr. Muath Asmar from An-Najah National University.
UNIT 1 FINANCIAL CREDIT RISK ANALYTICS (1).pptxVikash Barnwal
Credit analysis is the process of evaluating the creditworthiness of a business or organization. It involves analyzing financial statements, cash flows, collateral, and other factors to assess the entity's ability to repay debt. The key aspects of creditworthiness evaluated are capacity, character, capital, cash flow, collateral, conditions, and control. The credit analysis process involves collecting information on the loan, business, and risks. The information is then analyzed to make a decision on the loan request and design an appropriate loan structure. Credit analysis is important for lenders to evaluate default risk and for investors to assess a debt issuer's ability to meet obligations.
Mercer Capital's Bank Watch | May 2022 | Specialty Finance AcquisitionsMercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
This document discusses various types of bank financing including short term, medium term, and long term financing. It provides details on the key elements that banks look for when approving financing requests. The different types of financing are used to fund different time periods, from less than one year for short term financing, 1-7 years for medium term, and 15-20 years for long term financing. The document also outlines the sources, advantages, disadvantages and purposes of each type of financing.
Corporate banking, financial advisory and merchant banking servicesKalpesh Arvind Shah
The document discusses syndicated loans, which involve multiple lenders jointly providing loans to one or more borrowers under the same terms. One bank is appointed as the lead bank to manage the loan process. Syndicated loans account for around half of India's investment banking revenue. They provide large sums of money for projects and allow risk spreading among lenders. The roles of different players like the arranger, lead bank, manager, participants and agency bank in syndicated loans are also outlined.
This document discusses short-term financing for small businesses. It defines short-term finance as sources of funding for periods under one year, usually needed due to uneven cash flows. Common sources of short-term credit include trade credit extended by suppliers, loans from commercial banks, finance companies, and government agencies like the Small Business Administration. The costs, terms, and eligibility requirements for short-term loans from each of these sources are reviewed in detail.
This document discusses credit analysis and financial distress prediction. It covers key topics including why firms use debt financing, potential downsides of debt financing, and differences in debt financing practices internationally. It also describes the credit analysis process in private debt markets, including conducting financial analysis and assembling loan structures. Methods of predicting financial distress like Altman's Z-score model are also discussed.
Week-9 Bank RegulationMoney and Banking Econ 311Tuesdays 7 .docxalanfhall8953
Week-9 Bank Regulation
Money and Banking Econ 311
Tuesdays 7 - 9:45
Instructor: Thomas L. Thomas
Capital Adequacy Management
Bank capital helps prevent bank failure
The amount of capital affects return for the owners (equity holders) of the bank
Regulatory requirement – Regulatory Capital – Tier 1 and Tier 2 Basle Rules
Economic Capital - What is this
2
Capital Adequacy Management:
Returns to Equity Holders
3
Traditional Economic Capital Value-At-Risk (VaR) View
Frequency of Occurrence / Probability
Mean/Average Expected Losses (m)
Unexpected Losses @ 99.9% confidence Level (s)
Economic Capital
Reserves
Value-at-Risk
VAR
Before we can develop adequate credit stress testing we need to understand the differences between traditional credit loss measures and what stress tests incorporate.
Aside form standard concentration and coverage analysis, a standard portfolio credit risk analysis typically employs a Value-at-Risk view.
Credit risk in this view generally follows a positive skewed distribution (by definition one cannot have negative defaults and thus a normal distribution is not applicable).
Reserves ALLL generally cover average expected losses over a horizon. In reality these are usually allocated to general reserves since most ALLL have two components: general reserves and specific reserves for known credits that are detraining.
Economic capital functions as a cushion against unexpected loss up to some confidence level. In this case 99.9% or a single “A” rating is the regulatory standard (once every 10,000 years)
In addition to a loss cushion economic capital represents the amount of the firm’s equity that is at risk which requires a return sufficient to cover the associated risk.
The shape of the curve or tail will then reflect the underlying credit risk of the portfolio or product.
However this view has some assumptions that can miss important risk elements.
The distribution is generally based on one variable PD in this case and does necessarily fully account for other correlated factors that when combined either change the tail or increase the likelihood of default.
Second, while the event may be rare, this methodology does not tell how severe or the magnitude of the event when it occurs beyond the confidence level prescribed for economic capital.
4
Old Measure: New Ones
RAROC - Risk Adjusted Return on Capital
EVA - Economic Value Added.
Hurdle Rate – What is it. How is it measured?
5
Time Line of the Early History of Commercial Banking in the United States
6
Historical Development of the Banking System
Bank of North America chartered in 1782
Controversy over the chartering of banks.
National Bank Act of 1863 creates a new banking system of federally chartered banks
Office of the Comptroller of the Currency
Dual banking system
Federal Reserve System is created in 1913.
7
Asymmetric Information and Financial.
The document proposes reforms to address the mortgage crisis and prevent future financial catastrophes. It recommends mandating third-party oversight of financial transactions to ensure objective risk ratings and valuations. Appraisals and income verification should be independently verified. Regulations should strengthen penalties for fraudulent behavior and improve transparency through a centralized registry and mandatory reporting of commercial loan data.
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.
This document summarizes the agenda for a seminar on small business credit risk. It discusses recent events affecting credit markets and lenders. It also outlines factors small businesses should consider, such as ensuring sound financial foundations. The document provides an overview of credit assessment tools and partnerships that can help small businesses manage risk. It analyzes current economic conditions and their potential impacts on small business lending.
2016 Mark Barbash Financing Presentation Copy Colorado FINALMBEDC, LLC
This document provides an overview of economic development financing. It discusses understanding the business and project, identifying private and public financing options, determining any financing gaps, and structuring deals. Private financing sources include banks, venture capital, and capital markets. Public programs include direct loans, loan guarantees, tax-exempt bonds, tax incentives, and intermediary programs. The document outlines steps in the financing process and principles for working with private and public financing.
The document discusses capital markets and the bank loan syndication process. It describes two types of loan markets - the investment grade loan market and leveraged loan market. It then details the typical steps in the loan syndication process, including the roles of the issuer/company, arrangers, agents, and lenders. It provides an example of a large syndicated loan for Harrah's Entertainment.
Bladex's presentation discusses its business model and financial position. It highlights Bladex's longstanding franchise in Latin America due to its expertise in the region and unique shareholder structure. Bladex's portfolio has grown, with increased lending spreads. The portfolio remains diversified across industries and countries, with continued focus on high-quality clients. Bladex maintains a strong capital and liquidity position to support further business opportunities.
Bladex provides a corporate presentation summarizing its business fundamentals and positioning. It highlights Bladex's longstanding franchise in Latin America due to its unique shareholder structure and expertise in the region. Bladex's business model focuses on short-term lending to blue-chip clients in key industries. Its diversified portfolio and funding sources have supported continued growth while maintaining sound credit quality.
Bladex provides a corporate presentation summarizing its business fundamentals and positioning. It highlights Bladex's longstanding franchise in Latin America due to its regional expertise, unique shareholder structure linking it to Latin American governments, and balanced portfolio diversified across sectors and countries. Bladex also discusses its continued portfolio growth, supported by favorable market dynamics and high portfolio turnover, positioning it to leverage new opportunities in the region.
This document summarizes the findings of a survey of 819 lenders on their environmental risk management practices. The top challenges lenders face are: (1) lack of expertise to understand environmental reports and make risk-based decisions, (2) need for internal education and training on how environmental due diligence fits into the lending process, and (3) turnaround time constraints. While lender policies have evolved since the real estate downturn, many - especially smaller banks - still lack formal policies or training. As lending slowly increases, lenders need assistance justifying due diligence costs, basic training, and help balancing regulatory compliance with maintaining competitiveness.
Hedge funds and investment banks packaged home loans into complex financial products like CDOs and sold them to investors seeking higher yields. As interest rates fell and home prices rose, more risky loans were originated and securitized. When the housing market collapsed in 2007-2008, the value of these securities plummeted due to high correlations within loan pools that rating models and investors failed to properly account for. Some hedge funds like Magnetar profited by taking positions that benefited from this mispricing, while others like Peloton suffered large losses after being overly exposed to subprime mortgage-backed assets. The crisis exposed flaws in how risk was assessed and allocated within structured products.
Similar to MM-3 Credit Policy and Loan Characteristics-Darsono.pptx (20)
This document discusses managing the cost of funds, capital, and liquidity in banks. It covers key components of bank liabilities including capital, reserves and surplus, deposits, borrowings, and other liabilities. It explains the features of bank liabilities and components of the bank balance sheet. The document also discusses the cost of deposits/funds and how net demand and time liabilities (NDTL) are calculated. Finally, it provides details on the calculation of the marginal cost of funds based lending rate (MCLR), including the key components involved like marginal cost of funds, operating expenses, negative carry on CRR and SLR, and average return on net worth.
This document discusses various methods for analyzing risk and uncertainty in investment projects, including sensitivity analysis, scenario analysis, decision tree analysis, and simulation analysis. It provides examples and explanations of each method. Sensitivity analysis involves changing assumptions individually to see how the net present value changes. Scenario analysis examines the impact of alternative variable combinations on NPV. Decision tree analysis visually represents choices and probabilities. Simulation analysis considers interactions between variables and generates a probability distribution of potential NPV outcomes.
This document provides an overview of conducting market research for a new business venture. It discusses defining target markets and analyzing the industry and target customer. Key aspects covered include segmenting the market, understanding industry forces like barriers to entry and competition, creating a customer profile, and forecasting demand. The purpose of market research is to understand customer needs and determine if there is a market for the business's product or service.
This document discusses where to keep cash if one were to inherit £100,000. It notes keeping it at home has advantages of easy access but disadvantages of risk of theft, loss, or aimless spending. A safer option is a savings institution like a bank or building society. These offer various deposit and savings accounts that pay interest. The interest income is taxed, with a personal savings allowance exempting the first £1,000-£500 of interest depending on tax bracket. Cash deposits provide benefits like interest, protection up to £75,000, and liquidity, but also risks like institution collapse, inflation eroding returns, interest/exchange rate changes.
Traditional costing methods often result in inaccurate product costs due to broad overhead allocations. Activity-based costing (ABC) addresses this problem by tracing overhead costs to products based on their actual consumption of resources. An example of a toy manufacturer, Plastim, shows how ABC assigns overhead more precisely than traditional methods, revealing that management's assumptions about product profitability were incorrect. While more complex than traditional costing, ABC can provide valuable information to support important decisions about product pricing, cost reduction, and production planning.
How to Build a Module in Odoo 17 Using the Scaffold MethodCeline George
Odoo provides an option for creating a module by using a single line command. By using this command the user can make a whole structure of a module. It is very easy for a beginner to make a module. There is no need to make each file manually. This slide will show how to create a module using the scaffold method.
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
How to Make a Field Mandatory in Odoo 17Celine George
In Odoo, making a field required can be done through both Python code and XML views. When you set the required attribute to True in Python code, it makes the field required across all views where it's used. Conversely, when you set the required attribute in XML views, it makes the field required only in the context of that particular view.
How to Add Chatter in the odoo 17 ERP ModuleCeline George
In Odoo, the chatter is like a chat tool that helps you work together on records. You can leave notes and track things, making it easier to talk with your team and partners. Inside chatter, all communication history, activity, and changes will be displayed.
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
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2. Recent Trends in Loan Growth
and Quality
Larger banks have, on average, recently
reduced their dependence on loans
relative to smaller banks.
Real estate loans represent the largest
single loan category for banks.
Residential 1-4 family homes contribute
the largest amount of real estate loans
for banks.
Commercial real estate is highest for
banks with $100 million to $1 billion in
assets
2
3. Recent Trends in Loan Growth
and Quality
Commercial and industrial loans
represent the second highest
concentration of loans at banks
Loans to individuals are greatest for
banks with more than $1 billion in
assets
Farmland and farm loans make up a
significant portion of the smallest
banks’ loans
3
4. Recent Trends in Loan Growth
and Quality
Wholesale Bank
Emphasizes lending to businesses
Retail Bank
Emphasizes lending to individuals
Primary funding is from core deposits
4
5. Recent Trends in Loan Growth
and Quality
FDIC Bank Categories
Credit Card Banks
International Banks
Agricultural Banks
Commercial Lenders
Vast majority of FDIC-insured
institutions fall in this category
5
6. Recent Trends in Loan Growth
and Quality
FDIC Bank Categories
Mortgage Lenders
Consumer Lenders
Other Specialized Banks (less than $1
billion)
All Other Banks (less than $1 billion)
All Other Banks (more than $1 billion)
6
8. Measuring Aggregate Asset
Quality
It is extremely difficult to assess individual
asset quality using aggregate quality data
Different types of assets and off-balance
sheet activities have different default
probabilities
Loans typically exhibit the greatest credit
risk
Historical charge-offs and past-due loans
might understate (or overstate) future losses
depending on the future economic and
operational conditions of the borrower
8
9. Measuring Aggregate Asset
Quality
Concentration Risk
Exists when banks lend in a narrow
geographic area or concentrate their
loans in a certain industry
Country Risk
Refers to the potential loss of interest
and principal on international loans
due to borrowers in a country refusing
to make timely payments
9
10. Trends in Competition for Loan
Business
In 1984, there were nearly 14,500 banks
in the U.S.
This fell to fewer than 7,300 at the
beginning of 2007
Recently, the Treasury’s efforts to provide
capital to banks via TARP further
differentiated between strong and weaker
banks, as those in the worst condition did
not qualify for the capital and ultimately
either failed or were forced to sell
This has forced consolidation
10
11. Trends in Competition for Loan
Business
Banks still have the required expertise
and experience to make them the
preferred lender for many types of
loans
Technology advances have meant that
more loans are becoming
“standardized,” making it easier for
market participants to offer loans in
direct competition to banks
11
12. The Credit Process
Loan Policy
Formalizes lending guidelines that
employees follow to conduct bank
business
Credit Philosophy
Management’s philosophy that
determines how much risk the bank will
take and in what form
Credit Culture
The fundamental principles that drive
lending activity and how management
analyzes risk
12
14. The Credit Process
Credit Culture
The fundamental principles that drive
lending activity and how management
analyzes risk
Values Driven
Focus is on credit quality
Current-Profit Driven
Focus is on short-term earnings
Market-Share Driven
Focus is on having the highest market
share
14
16. The Credit Process
Business Development and Credit
Analysis
Business Development
Market research
Train employees:
What products are available
What products customers are likely to
need
How they should communicate with
customers about those needs
Advertising and Public Relations
Officer Call Programs
16
17. The Credit Process
Business Development and Credit
Analysis
Credit Analysis
Evaluate a borrower’s ability and
willingness to repay
Questions to address
What risks are inherent in the operations of the
business?
What have managers done or failed to do in
mitigating those risks?
How can a lender structure and control its own
risks in supplying funds?
17
18. The Credit Process
Business Development and Credit
Analysis
Credit Analysis
Five C’s of Good Credit
Character
Capital
Capacity
Conditions
Collateral
18
19. The Credit Process
Business Development and Credit
Analysis
Credit Analysis
Five C’s of Bad Credit
Complacency
Carelessness
Communication
Contingencies
Competition
19
20. The Credit Process
Business Development and Credit
Analysis
Credit Analysis
Procedure
1. Collect information for the credit file
2. Evaluate management, the company, and the
industry in which it operates
3. Conduct a financial statement analysis
4. Project the borrower’s cash flow and its
ability to service the debt
5. Evaluate collateral or the secondary source
of repayment
6. Write a summary analysis and making a
recommendation
20
21. The Credit Process
Credit Execution and Administration
Loan Decision
Individual officer decision
Committee
Centralized underwriting
21
22. The Credit Process
Credit Execution and Administration
Loan Agreement
Formalizes the purpose of the loan
Terms of the loan
Repayment schedule
Collateral required
Any loan covenants
States what conditions bring about a
default
22
23. The Credit Process
Credit Execution and Administration
Documentation: Perfecting the
Security Interest
Perfected
When the bank's claim is superior to that
of other creditors and the borrower
Require the borrower to sign a security
agreement that assigns the qualifying
collateral to the bank
Bank obtains title to equipment or
vehicles
23
24. The Credit Process
Credit Execution and Administration
Position Limits
Maximum allowable credit exposures to
any single borrower, industry, or
geographic local
Risk Rating Loans
Evaluating characteristics of the
borrower and loan to assess the
likelihood of default and the amount of
loss in the event of default
24
25. The Credit Process
Credit Execution and Administration
Loan Covenants
Positive (Affirmative)
Indicate specific provisions to which the
borrower must adhere
Negative
Indicate financial limitations and prohibited
events
25
27. The Credit Process
Credit Execution and Administration
Loan Review
Monitoring the performance of existing
loans
Handling problem loans
Loan review should be kept separate from
credit analysis, execution, and
administration
The loan review committee should act
independent of loan officers and report
directly to the CEO of the bank
27
28. The Credit Process
Credit Execution and Administration
Problem Loans
Often require special treatment
Modify terms of the loan agreement to
increases the probability of full repayment
Modifications might include:
Deferring interest and principal
payments
Lengthening maturities
Liquidating unnecessary assets
28
29. Characteristics of Different Types
of Loans
UBPR Classifications
Real Estate Loans
Commercial Loans
Individual Loans
Agricultural Loans
Other Loans and Leases in Domestic
Offices
Loans and Leases in Foreign Offices
29
30. Characteristics of Different Types
of Loans
Real Estate Loans
Construction and Development Loans
Commercial Real Estate
Multi-Family Residential Real Estate
1-4 Family Residential
Home Equity
Farmland
Other Real Estate Loans
30
31. Characteristics of Different Types
of Loans
Real Estate Loans
Commercial Real Estate Loans
Typically short-term loans consisting
of:
Construction and Real Estate Development
Loans
Land Development Loans
Commercial Building Construction and
Land Development Loans
31
32. Characteristics of Different Types
of Loans
Real Estate Loans
Commercial Real Estate Loans
Construction Loans
Interim financing on commercial, industrial,
and multi-family residential property
Interim Loans
Provide financing for a limited time until
permanent financing is arranged
Land Development Loans
Finance the construction of road and public
utilities in areas where developers plan to
build houses
Developers typically repay loans as lots or
homes are sold
32
33. Characteristics of Different Types
of Loans
Real Estate Loans
Commercial Real Estate Loans
Takeout Commitment
An agreement whereby a different lender
agrees to provide long-term financing after
construction is finished
33
34. Characteristics of Different Types
of Loans
Real Estate Loans
Residential Mortgage Loans
Mortgage
Legal document through which a borrower
gives a lender a lien on real property as
collateral against a debt
Most are amortized with monthly
payments, including principal and
interest
34
35. Characteristics of Different Types
of Loans
Real Estate Loans
Residential Mortgage Loans
1-4 Family Residential Mortgage Loans
Holding long-term fixed-rate mortgages can
create interest rate risk for banks with loss
potential if rates increase
To avoid this, many mortgages now provide
for:
Periodic adjustments in the interest rate
Adjustments in periodic principal payments
The lender sharing in any price
appreciation of the underlying asset at sale
All of these can increase cash flows to the
lender when interest rates rise
35
36. Characteristics of Different Types
of Loans
Real Estate Loans
The Secondary Mortgage Market
Involves the trading of previously
originated residential mortgages
Can be sold directly to investors or
packaged into mortgage pools
36
37. Characteristics of Different Types
of Loans
Real Estate Loans
Home Equity Loans
Second Mortgage Loans
Typically shorter term than first mortgages
Subordinated to first mortgage
Home Equity Lines of Credit (HELOC)
37
38. Characteristics of Different Types
of Loans
Real Estate Loans
Equity Investments in Real Estate
Historically, commercial banks have been
prevented from owning real estate except
for their corporate offices or property
involved in foreclosure
Regulators want banks to engage in
speculative real estate activities only
through separate subsidiaries
The Gramm-Leach-Bliley Act of 1999
allowed for commercial banks and savings
institutions to enter into the merchant
banking business
38
39. Characteristics of Different Types
of Loans
Commercial Loans
Loan Commitment/Line of Credit
Formal agreement between a bank and
borrower to provide a fixed amount of
credit for a specified period
The customer determines the timing of
actual borrowing
39
40. Characteristics of Different Types
of Loans
Commercial Loans
Working Capital Requirements
Net Working Capital
Current assets – Current liabilities
For most firms, net working capital is
positive, indicating that some current
assets are not financed with current
liabilities
40
41. Characteristics of Different Types
of Loans
Commercial Loans
Working Capital Requirements
Days Cash
Cash/(Sales/365)
Days Receivables
AR/(Sales/365)
Days Inventory
Inventory/(COGS/365)
41
42. Characteristics of Different Types
of Loans
Commercial Loans
Working Capital Requirements
Days Payable
AP/(Purchases/365)
Days Accruals
Accruals/(Operating Expenses/365)
42
43. Characteristics of Different Types
of Loans
Commercial Loans
Working Capital Requirements
Cash-to-Cash Asset Cycle
How long the firm must finance operating
cash, inventory and accounts receivables
from the day of first sale
Cash-to-Cash Liability Cycle
How long a firm obtains interest-free
financing from suppliers in the form of
accounts payable and accrued expenses to
help finance the asset cycle
43
44. Characteristics of Different Types
of Loans
Commercial Loans
Seasonal versus Permanent Working
Capital Needs
All firms need some minimum level of
current assets and current liabilities
The amount of current assets and
current liabilities will vary with
seasonal patterns
44
45. Characteristics of Different Types
of Loans
Commercial Loans
Seasonal versus Permanent Working
Capital Needs
Permanent Working Capital
The minimum level of current assets minus
the minimum level of adjusted current
liabilities
Adjusted Current Liabilities
Current liabilities net of short-term
bank credit and current maturities of
long-term debt
45
46. Characteristics of Different Types
of Loans
Commercial Loans
Seasonal versus Permanent Working
Capital Needs
Seasonal Working Capital
Difference in total current assets and
adjusted current liabilities
46
47. Characteristics of Different Types
of Loans
Commercial Loans
Seasonal Working Capital Loans
Finance a temporary increase in net
current assets above the permanent
requirement
Loan is seasonal if the need arises on a
regular basis and if the cycle completes
itself within one year
Loan is self-liquidating if repayment
derives from sales of the finished
goods that are financed
47
49. Characteristics of Different Types
of Loans
Commercial Loans
Short-Term Commercial Loans
Short-term funding needs are financed
by short-term loans, while long-term
needs are financed by term loans with
longer maturities
49
50. Characteristics of Different Types
of Loans
Commercial Loans
Open Credit Lines
Used to meet many types of temporary
needs in addition to seasonal needs
Informal Credit Line
Not legally binding but represent a promise
that the lender will advance credit
Formal Credit Line
Legally binding even though no written
agreement is signed
A commitment fee is charged for making credit
available, regardless of whether the customer
actually uses the line
50
51. Characteristics of Different Types
of Loans
Commercial Loans
Asset-Based Loans
Loans Secured by Accounts Receivable
The security consists of paper assets that
presumably represent sales
The quality of the collateral depends on the
borrower’s integrity in reporting actual
sales and the credibility of billings
51
52. Characteristics of Different Types
of Loans
Commercial Loans
Asset-Based Loans
Loans Secured by Accounts Receivable
Accounts Receivable Aging Schedule
List of A/Rs grouped according to the
month in which the invoice is dated
Lockbox
Customer’s mail payments go directly to a
P.O. Box controlled by the bank
The bank processes the payments and
reduces the borrower’s balance but
charges the borrower for handling the
items
52
53. Characteristics of Different Types
of Loans
Commercial Loans
Highly Levered Transactions
Leveraged Buyout (LBO)
Involves a group of investors, often part of
the management team, buying a target
company and taking it private with a
minimum amount of equity and a large
amount of debt
Target companies are generally those
with undervalued hard assets
53
54. Characteristics of Different Types
of Loans
Commercial Loans
Highly Levered Transactions
Leveraged Buyout (LBO)
The investors often sell specific assets or
subsidiaries to pay down much of the debt
quickly
If key assets have been undervalued, the
investors may own a downsized company
whose earnings prospects have improved
and whose stock has increased in value
The investors sell the company or take it
public once the market perceives its
greater value
54
55. Characteristics of Different Types
of Loans
Commercial Loans
Highly Levered Transactions
Arise from three types of transactions
LBOs in which debt is substituted for
privately held equity
Leveraged recapitalizations in which
borrowers use loan proceeds to pay large
dividends to shareholders
Leveraged acquisitions in which a cash
purchase of another related company
produces an increase in the buyer’s debt
structure 55
56. Characteristics of Different Types
of Loans
Commercial Loans
Highly Levered Transactions
An HLT must involve the buyout,
recapitalization, or acquisition of a firm
in which either:
1. The firm’s subsequent leverage ratio
exceeds 75 percent
2. The transaction more than doubles the
borrower’s liabilities and produces a
leverage ratio over 50 percent
3. The regulators or firm that syndicates the
loans declares the transaction an HLT
56
57. Characteristics of Different Types
of Loans
Commercial Loans
Term Commercial Loans
Original maturity greater than 1 year
Typically finance:
Depreciable assets
Start-up costs for a new venture
Permanent increase in the level of
working capital
57
58. Characteristics of Different Types
of Loans
Commercial Loans
Term Commercial Loans
Lenders focus more on the borrower’s
periodic income and cash flow rather
than the balance sheet
Term loans often require collateral, but this
represents a secondary source of
repayment in case the borrower defaults
58
59. Characteristics of Different Types
of Loans
Commercial Loans
Term Commercial Loans
Balloon Payments
Most of the principal is due at maturity
Bullet Payments
All of the principal is due at maturity
59
60. Characteristics of Different Types
of Loans
Commercial Loans
Revolving Credits
A hybrid of short-term working capital
loans and term loans
Typically involves the commitment of
funds for 1 – 5 years
At the end of some interim period, the
outstanding principal converts to a term
loan
During the interim period, the borrower
determines how much credit to use
Mandatory principal payments begin once
the revolver is converted to a term loan
60
61. Characteristics of Different Types
of Loans
Agricultural Loans
Proceeds are used to purchase seed,
fertilizer and pesticides and to pay other
production costs
Farmers expect to repay the debt with the
crops are harvested and sold
Long-term loans finance livestock,
equipment, and land purchases
The primary source of repayment is cash
flow from the sale of livestock and
harvested crops in excess of operating
expenses
61
62. Characteristics of Different Types
of Loans
Consumer Loans
Installment
Require periodic payments of principal
and interest
Credit Card
Non-Installment
For special purposes
Example: Bridge loan for the down
payment on a house that is repaid from the
sale of the previous house
62