Bank Management( EFIN519)

A Q M KIBRIYA, MBA

Uses of Bank fund

Fixed asset Dead stock Prepayments Advances on fixed asset and other Investments on securities bonds etc Placements

Loans and advances

Providing loans

Business Consumers Industries

Typical products and mix of Bank loan

Real estate loan Financial institution loan Agricultural loan Commercial n industrial loan Loans to individuals Miscellaneous loans Lease financing receivable micro credit

A written policy for credit

A goal statement Specification of the lending authority Lines of responsibility Operating procedure Required documentation with application Lines of authority for maintaining credit file

Guideline for taking and perfecting collateral Interest , fees, tenure set up procedure Statement on quality and standard of loans Statement of upper limit of total loan outstanding Principal trade area(s) Procedure for detecting and working on problem loan situation

Lending process
Scouting and application from client Analyzing the application Recommendation Processing and approval Structuring the facilities Documentation and disbursement

Credit analysis
Is the applicant creditworthy? Can the loan application be properly structured? Can the bank perfect its claim against the borrowers earnings and any asset that may be pledged as collateral?

Part of typical loan agreement

The note Loan commitment agreement Collateral Covenants Borrowers guaranties or warranties Events of default

Types of Business loans

Short term loans
Self liquidating inventory loans Working capital loans Interim construction financing Security dealer financing Retailer financing Asset based loans ( accounts receivable fin., factoring, inventory fin.) Syndicated loans

 Long term loans

To support purchase of equipment, stock, structure Revolving credit loans Project loans To support acquisition of other business firm

Consumer loans
Residential mortgage loan Non-residential loans
Installment loans Non-installment loans
Credit card loan

Credit scoring consumer loan application Real estate loans

Difference between real estate and other loans

Average size Tenure Projected cash flow of the borrower vs value of the property

Industrial loans
Project loan New project BMRE of existing project Large project Medium project Working capital loan Assessment Structuring Phasing

SME finance
Manufacturing concern Trading concern Service oriented concern Medium enterprise Small enterprise Micro enterprise

Agricultural loans
Primary product Processing Agro-based industry Up-stream activity Down-stream activity Mid- the stream activity

Micro credit
Income generating activities ( IGA ) Concept of group guarantee Credit for vulnerable people Credit as a social responsibility Development of micro credit Micro credit from NGO Micro credit from Banks Micro credit from Bank via NGO

Pricing the loan products

Cost of deposit Cost of fund Mark up policy Soft term for sector preference Soft term for size preference Soft term for security preference Soft term for social desire preference Spread requirement

Cost plus loan pricing Price leadership Prime rate LIBOR Below-prime pricing Cap rate Customer profitability analysis

Cost plus loan pricing

Loan interest rate = marginal cost of raising loanable fund + non funds bank operating cost + estimated margin to compensate the bank for default risk + banks desired profit margin

Price leadership model

Loan interest rate = base or prime rate (including desired profit margin over all operating & admin. Cost) + default risk premium paid by nonprime rated borrower + term risk premium paid by borrowers seeking long term credit

Pricing non residential consumer loan

Loan rate paid by consumer = banks cost of raising loanable fund + nonfund operating cost including admin cost + premium for default + premium for term risk for longer term loan + desired profit margin

Interest on home mortgage loan

Monthly loan mortgage payment = amount annual annual tx12 of loan x loan rate x ( 1 +loan rate ) principal --------------------12 12 -------------------------------------------------------------tx12 [( 1 + annual loan rate/12 ) - 1]

Investment management
Investment in money market Investment in capital market Investment on other securities/avenues