LEC1.13-BANKING LAW:Principles of Lending

Описание: Key Principles of Sound Lending:
Safety:
Banks prioritize ensuring the borrower has the capacity and willingness to repay the loan, considering their character, financial standing, and the nature of the security provided.
Liquidity:
Banks lend for short periods, as deposits can be withdrawn, so they lend against assets that are easily convertible to cash.
Profitability:
Banks aim to earn a reasonable return on their lending activities while maintaining safety and liquidity.
Diversification:
Banks diversify their loan portfolio across different industries and borrowers to minimize risk.
Purpose of the Loan:
Lending should be for productive purposes that generate profits for repayment.
Security:
Banks require adequate security and margin on secured loans to protect their investments.
Creditworthiness Assessment:
Banks conduct thorough assessments of the borrower's ability to repay, including their financial standing, credit history, and capacity to repay.
Interest Rate Determination:
Banks determine interest rates based on factors like the borrower's risk profile, market conditions, and the loan's purpose.
National Policies:
Banks also consider national policies and priorities when making lending decisions.
Regulatory Frameworks:
Banks must comply with regulatory frameworks and ethical considerations to ensure responsible lending practices.
Continuous Monitoring:
Banks continuously monitor their loan portfolio to identify potential problems and take corrective action.
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