Exam 16: Lending Policies and Procedures: Managing Credit Risk

A loan workout is when a bank and its customer initially negotiate the terms of a loan.

A loan to a local business to purchase a new machine would be categorized as:

Real estate lending is popular with banks,in part,due to the growth of the secondary mortgage market.

The Price Bank of Edmond makes a loan to Home Depot.What type of loan has this bank made?

A lender reviews the partnership agreement of one of its small business customers.Which of the 6 Cs of lending would this piece of information belong to?

Banks that emphasize on lending to commercial customers are categorized as:

Shelby Mann is a loan officer with the First National Bank.She interviews a potential loan customer to find out exactly why the person needs the loan and whether he would be serious about repaying the loan.Which step in the lending process is Shelby performing?

According to the Community Reinvestment Act,selected lenders must make an "affirmative effort" to provide loans and other services to all credit-worthy borrowers in their chosen service area.

Standard Bank,a U.S.national bank,has $50 million in unimpaired capital and surpluses and $86 million in total time and savings deposits.Average revenue for the bank in the last three years is $12.5 million and a net interest income of $3.2 million.Pluto Inc.has applied for an unsecured loan of $9 million to the bank.What is the maximum amount of loan the bank can make to Pluto?

Banks should concentrate their lending on those types of loans in which they have the greatest cost advantage.

Geoff Willis and Mary Williams,president and CEO respectively of the First National Bank of Edmond,come from a background in retail banking.As a strategic initiative,they have decided to focus their lending activities on consumer loans and loans to small business.What factor determining the growth and mix of loans does this fact reflect?

A written loan policy gives loan officers and the bank's management specific guidelines in making individual loan decisions and in forming the bank's loan portfolio.

One of the 6 Cs of lending is ______________ which suggests that a lender must ensure that the borrower is legally entitled to sign a binding loan agreement.For an individual this entails making sure the borrower is of a legal age to sign a contract.

___________________________,usually large banks,devote a bulk of their credit portfolio to large-denomination loans directed towards corporations and other businesses.

Affirmative covenants restrict a borrower from doing certain things,like taking on new debt without the lender's approval.

The Second National Bank has capital and surplus of $100 million.The bank has decided that the most that it can loan to the Krumlova Manufacturing Company is $15 million.What factor determining the growth and mix of loans does this most likely reflect for the bank?

Loans to a bank's officers,extended for purposes other than purchase of a home or funding education and those that are not fully backed by government securities,cannot exceed 2.5 percent of the bank's capital and unimpaired surplus or $25,000 whichever is larger but cannot exceed $100,000.

Risk in banking tends to be concentrated in a bank's loan portfolio.

Cash is one of the six Cs of lending and refers to the fact that the lender wants to make sure that the borrower has the ability to generate enough cash to repay the loan.

First State Bank's loan policy manual states 'that the goal of the bank is to make high quality loans for home mortgages,the purchase of automobiles and small business accounts receivables'.What factor determining the growth and mix of loans does this fact reflect?