Commercial banking final

types of loans
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Terms in this set (46)
types of loans
real estate, financial institution, agriculture, commercial and industrial, individuals, miscellaneous, lease financing loans
Factors determining the growth and mix of loans
market area, lender size, expertise of management, loan policy, yield of loan, regulation
loan criteria
mix, quality, and yield are influenced by regulation
examples of lending regulation
volume of real estate loans granted cannot exceed the capital surplus of said bank or 70% of its time savings deposits
loan to a single customer
cannot exceed 15% of a single bank's capital surplus account(legal lending limit)
community reinvestment act of 1977
lenders must make an effort to meet the credit needs of individuals and businesses so no areas of the local community are discriminated against in seeking to access credit
equal credit opportunity act of 1974
no individual can be denied credit because of race, sex, religious affiliation, age, or receipt of public assistance
International lending and supervision act
requires banks to make public of any credit exposures to a single country that exceed 15% of their primary capital, or 75% of total assets, whichever is smaller.
Camels Rating
recognized international rating system that bank authorities use to rate financial institutions according to six factors that represent the acronym CAMELS
Six factors representing CAMELS acronym
Capital adequacy
Asset management
Management quality
Earnings record
Liquidity position
Sensitivity to market risk exposure
Six C's of loansCharacter Capacity Collateral Conditions ControlElements to Loan agreementPromissary note, loan commitment agreement, collateral, borrower guaranties or warranties, events of default, covenantsaffirmative covenanttype of promise or contract that requires a party adhere to certain terms, like maintain insurance or deliver audited financial statementsNegative covenantpromise a company makes to not exceed certain financial ratios or conduct certain activities. Usually found in bond or loan documentssteps in loan reviewCarry out reviews of all types on periodic basis Structure the loan review process Review largest loans frequently Conducting more frequent reviews of troubled loans Accelerating loan review schedule if economy or industry experiences problemsloan workoutthe process of recovering funds from a problem loan situationShort term business loansSelf liquidating inventory loan working capital loan interm construction financing security dealer financing retailer and equipment financing asset based loans syndicated loansSelf liquidating inventory loansused to finance the purchase of inventory or raw materials or finished goods to sellworking capital loansshort run credit that lasts from a few days to one year, secured by accounts receivable or pledges of inventoryinterm construction financingsecured short term loan used to support the construction of homes, apartments, office buildings, shopping centers, or any type of permanent structuresecurity dealer financingdealers in securities need short term financing to purchase new securities and carry their existing portfolios until they are sold to customers or reach maturityretailer and equipment financinglenders support installment purchases of automobiles, home appliances, and other durable goods by financingasset based financingcredit secured by the shorter term assets of a firm that are expected to roll over into cash in the futureSyndicated loansa loan package extended to a corporation by a group of lenders, usually done to help spread the risk of a failed borrower between more than one financial institutionPrime ratethe interest rate that commercial banks give their most credit worthy customers. Largely determined by the federal funds rate, which is the overnight rate in which banks use to lend each otherLIBORLondon Interbank Offered Rate, switched to this due to the growing use of eurocurrencies as a source of loanable fundsResidential loanscredit to finance the purchase of a home or fund improvements on a private residenceNon-residential loansinstallment loan, short to medium term loans repayable within two or more consecutive payments. Used to buy big ticket items like cars, furniture, or home appliances.Criteria for loan to individualCharacterized by the purpose of the loan, and the type of the loan and how it will be repaid.Price on consumer loansconsumer loans are priced so high because they are the most risky and costly to make per dollar.How to qualify for a consumer loanown a home maintain strong deposit balances truthfully answer all of the loan officers questionsLoan covenantis a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrower from undertaking certain actionsIssues with mergersFound few real benefits to the public Usually have multiple outcomes, mixture of winners and losers Merger companies are not more profitable than the firms they buy Pay sizable premiums for the firmsFICO systemDeveloped by the fair issac corporation, most famous credit scoring system currently in use, scores range from 300 to 850 with higher values have less credit riskFICO score based on:borrowers payment history amount of money owed length of a perspective buyers credit history nature of the loan being requested types of credit borrower has already useddisclosure rulesmandate telling the consumer about the cost and other terms of a loan lease agreementAntidiscrimmination lawsprevent loan customers from being discriminated againstReal estate loansmake loans to fund the acquisition of real property.Factors in evaluating Real Estate loan applicantsamount of down payment pledged ratio of loan amount to purchase price stability of earners income available savings Track record of managing the property market interest ratesHome equity lendinghomeowners can borrow the equity in their homesequitydifference between a homes estimated market value and the amount of mortgage loans against ittwo types of home equity loanstraditional home equity loan lines of credit against a homes borrowing baseMotives in a mergerProfit potential Risk reduction Rescue of failing merger Tax breaks or market positioning Cost savings Reduce competition Maximizing an Managers welfareto maximize stockholder value, a merger shouldImprove operating efficiency Geographic diversification Product line diversificationCharacteristics examined when firm is going to acquire anotherFirms history condition of balance sheet firms track record and operating performance condition of income statements and cash flow condition of local economy competitive structure of market in which the firm operatesh&H indexa summary measure of market concentration, is the sum of the squared market share for all banks in a specific area.