Lending Notes Chapter 1. Lending Products FORMS OF LENDING Many there are two types of advances: Short-term (maturity within one year) Long term (maturity with the period of more than one year a. Categories of borrowers i. Corporate Borrowers Borrowing by businesses rather than by individuals. Type of products Short-term Lending- Working Capital Financing Running Finance- Advanced Merchandise/Demand Finance Receivable Financing- Factoring, Invoice Discounting Inventory Financing Trade Finance (L/c) 1. RUNNING FINANCE This form of finance was previously known as “overdraft”. When a customer requires the temporary accommodation, his bank allows withdrawal his account in excess of credit balance, which the customer has in its account, a running finance occurs. The accommodations t h u s a l l o w e d collateral security. When it is against collateral securities, it is called a “Secured Running Finance” and when the customer cannot offer any collateral Anam Rauf (GCUF) 1
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Lending Notes
Chapter 1. Lending ProductsFORMS OF LENDING
Many there are two types of advances:
Short-term (maturity within one year)
Long term (maturity with the period of more than one year
a. Categories of borrowersi. Corporate Borrowers
Borrowing by businesses rather than by individuals.
Credit capacity: The bank will conduct a full credit analysis, including a detailed review
of financial statements and personal finances to assess your ability to repay.
Collateral: This is the primary source of repayment. Expect the bank to want this source
to be larger than the amount you're borrowing.
Capital: What assets do you own that can be quickly turned into cash if necessary? The
bank wants to know what you own outside of the business-bonds, stocks, apartment
buildings-that might be an alternate repayment source. If there is a loss, your assets are
tapped first, not the bank's. Or, as one astute businessman puts it, "Banks like to lend to
people who already have money." You will most likely have to add a personal guarantee
to all of that, too.
Comfort/confidence with the business plan: How accurate are the revenue and expense
projections? Expect the bank to make a detailed judgment. What is the condition of the
economy and the industry: "Are you selling buggy whips or computers?" Fazzini asks.
What is the purpose of term loans
There are various purposes for which a bank will provide a term loan. There is a list of reasons why this is done and the borrower has to ensure that the reason that they seek a loan for is one of it. Some of the common reasons listed by the banks include:
* To help retire high cost debt for a business* To provide an impetus to the research and development activities within an entity* To shore up the net worth of a business* To build assets for a business* To help grow a business through strategic investments* To strengthen the asset base
Term loans basics
Term loans are one of the most common routes used by entities to raise funds. These funds are then used for the business in various ways. One big area of lending in case of term loans is the loans given to small-scale enterprises and businesses that are typically run by individuals or even firms and companies. Term loans form a significant part of the lending process of an entity and this is the reason why it requires attention.
What distinguishes term loans from other borrowings is its tenure. Various other loan options available are short term where the time period is usually around a year and has to be renewed thereafter. But term loans have slightly longer time period. It is common to find term loans for a period of 3 years. This is the time frame that will help a business to make proper use of the funds made available.
may automatically authorize a withdrawal based on limits preset by the authorizing
network.
Temporary Deposit Hold - A deposit made to the account can be placed on hold by the
bank. This may be due to Regulation CC (which governs the placement of holds on
deposited checks) or due to individual bank policies. The funds may not be immediately
available and lead to overdraft fees.
Unexpected electronic withdrawals - At some point in the past the account holder may
have authorized electronic withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made legally possible by terms of
the contract, such as the initiation of a recurring service following a free trial period. The
debit could also have been made as a result of a wage garnishment, an offset claim for a
taxing agency or a credit account or overdraft with another account with the same bank,
or a direct-deposit chargeback in order to recover an overpayment.
Security
There are a wide variety of securities that banks will accept to sanction the overdraft facility. One point is that the securities and the details of applicability will vary across banks, depending upon what each bank has decided. Also, each borrower has to carefully look at what is applicable to them
Overdraft basics
Taking a loan every time there is a requirement of funds is not an easy task as far as any business is concerned. This calls for the presence of some security which on being deposited with the bank, will the funds be made available for the business. Instead of looking for loans and expecting to raise money in this manner, there is a better way for dealing with this kind of situation. Here, an investor can earn returns on his/her investment just like a normal investment and at the same time use this investment as a means to raise funds that can be used for the business.
An overdraft facility calls for using some investment of the borrower as a security and then providing a facility to borrow against this amount. There is a specific amount that is allowed as the borrowing. The security earns the normal rate of return for the investor and at the same time provides additional finance facility. The good part of the entire exercise is that the borrowers will pay interest only for the time period for which they have borrowed the amount and that too for the specific amount for which they have overdrawn the account.
the user) from which the user can borrow money for payment to a merchant or as a cash advance
to the user.
A credit card is different from a charge card : a charge card requires the balance to be paid in full each month.[2] In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. Most credit cards are issued by banks or credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1. This is defined as 85.60 × 53.98 mm (33/8 × 21/8 in) in size.[3]
How credit cards work
Credit cards are issued by a credit card issuer, such as a bank or credit union, after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card. Merchants often advertise which cards they accept by displaying acceptance marks – generally derived from logos – or may communicate this orally, as in "We take (brands X, Y, and Z)" or "We don't take credit cards".
When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a card not present transaction (CNP).
Electronic verification systems allow merchants to verify in a few seconds that the card is valid and the credit card customer has sufficient credit to cover the purchase, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or point-of-sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is called Chip and PIN in the United Kingdom and Ireland, and is implemented as an EMV card.
For card not present transactions where the card is not shown (e.g., e-commerce, mail order, and telephone sales), merchants additionally verify that the customer is in physical possession of the card and is the authorized user by asking for additional information such as the security code printed on the back of the card, date of expiry, and billing address.
Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see 15 U.S.C. § 1643 , which limits cardholder liability for unauthorized use of a credit card to $50, and the Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit issuer charges interest on the amount owed if the balance is not paid in full (typically at a much higher rate than most other forms of debt). In addition, if the credit card user fails to make at least the minimum payment by the due date, the issuer may
impose a "late fee" and/or other penalties on the user. To help mitigate this, some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts, thus avoiding such penalties altogether as long as the cardholder has sufficient funds.
Parties involved
Cardholder: The holder of the card used to make a purchase; the consumer.
Card-issuing bank: The financial institution or other organization that issued the credit
card to the cardholder. This bank bills the consumer for repayment and bears the risk that
the card is used fraudulently. American Express and Discover were previously the only
card-issuing banks for their respective brands, but as of 2007, this is no longer the case.
Cards issued by banks to cardholders in a different country are known as offshore credit
cards.
Merchant: The individual or business accepting credit card payments for products or
services sold to the cardholder.
Acquiring bank : The financial institution accepting payment for the products or services
on behalf of the merchant.
Independent sales organization : Resellers (to merchants) of the services of the
acquiring bank.
Merchant account : This could refer to the acquiring bank or the independent sales
organization, but in general is the organization that the merchant deals with.
Credit Card association: An association of card-issuing banks such as Discover, Visa,
MasterCard, American Express, etc. that set transaction terms for merchants, card-issuing
banks, and acquiring banks.
Transaction network: The system that implements the mechanics of the electronic
transactions. May be operated by an independent company, and one company may
operate multiple networks.
Affinity partner: Some institutions lend their names to an issuer to attract customers that
have a strong relationship with that institution, and get paid a fee or a percentage of the
balance for each card issued using their name. Examples of typical affinity partners are
sports teams, universities, charities, professional organizations, and major retailers.
The lease finance facilities are available for a variety of assets (imported/local) conforming but not limited to the following categories:
1. Vehicles (Private & Commercial)
2. Plant, Machinery and equipment
3. CNG Equipment
4. Generators(Industrial & Commercial)
Leasing is, therefore, a form of rental. Leased assets have usually been plant and machinery, cars
and commercial vehicles, but might also be computers and office equipment. There are two basic
forms of lease: "operating leases" and "finance leases".
Operating leases
Operating leases are rental agreements between the lessor and the lessee whereby:
a) the lessor supplies the equipment to the lessee
b) the lessor is responsible for servicing and maintaining the leased equipment
c) the period of the lease is fairly short, less than the economic life of the asset, so that at the end of the lease agreement, the lessor can either
i) lease the equipment to someone else, and obtain a good rent for it, orii) sell the equipment secondhand.
Finance leases
Finance leases are lease agreements between the user of the leased asset (the lessee) and a provider of finance (the lessor) for most, or all, of the asset's expected useful life.
Suppose that a company decides to obtain a company car and finance the acquisition by means of a finance lease. A car dealer will supply the car. A finance house will agree to act as lessor in a finance leasing arrangement, and so will purchase the car from the dealer and lease it to the company. The company will take possession of the car from the car dealer, and make regular payments (monthly, quarterly, six monthly or annually) to the finance house under the terms of the lease.
Other important characteristics of a finance lease:
a) The lessee is responsible for the upkeep, servicing and maintenance of the asset. The lessor is not involved in this at all.
Anam Rauf (GCUF) 33
Lending Notes
b) The lease has a primary period, which covers all or most of the economic life of the asset. At the end of the lease, the lessor would not be able to lease the asset to someone else, as the asset would be worn out. The lessor must, therefore, ensure that the lease payments during the primary period pay for the full cost of the asset as well as providing the lessor with a suitable return on his investment.
c) It is usual at the end of the primary lease period to allow the lessee to continue to lease the asset for an indefinite secondary period, in return for a very low nominal rent. Alternatively, the lessee might be allowed to sell the asset on the lessor's behalf (since the lessor is the owner) and to keep most of the sale proceeds, paying only a small percentage (perhaps 10%) to the lessor.
Why might leasing be popular
The attractions of leases to the supplier of the equipment, the lessee and the lessor are as follows:
The supplier of the equipment is paid in full at the beginning. The equipment is sold to the
lessor, and apart from obligations under guarantees or warranties, the supplier has no further
financial concern about the asset.
The lessor invests finance by purchasing assets from suppliers and makes a return out of the
lease payments from the lessee. Provided that a lessor can find lessees willing to pay the amounts
he wants to make his return, the lessor can make good profits. He will also get capital allowances
on his purchase of the equipment.
Leasing might be attractive to the lessee:
i) if the lessee does not have enough cash to pay for the asset, and would have difficulty
obtaining a bank loan to buy it, and so has to rent it in one way or another if he is to have the use
of it at all; or
ii) if finance leasing is cheaper than a bank loan. The cost of payments under a loan might
exceed the cost of a lease.
Operating leases have further advantages:
The leased equipment does not need to be shown in the lessee's published balance sheet, and so
the lessee's balance sheet shows no increase in its gearing ratio.
Anam Rauf (GCUF) 34
Lending Notes
The equipment is leased for a shorter period than its expected useful life. In the case of high-
technology equipment, if the equipment becomes out-of-date before the end of its expected life,
the lessee does not have to keep on using it, and it is the lessor who must bear the risk of having
to sell obsolete equipment secondhand.
The lessee will be able to deduct the lease payments in computing his taxable profits.
Hire purchase
Hire purchase is a form of instalment credit. Hire purchase is similar to leasing, with the
exception that ownership of the goods passes to the hire purchase customer on payment of the
final credit instalment, whereas a lessee never becomes the owner of the goods.
Hire purchase agreements usually involve a finance house.
i) The supplier sells the goods to the finance house.
ii) The supplier delivers the goods to the customer who will eventually purchase them.
iii) The hire purchase arrangement exists between the finance house and the customer.
The finance house will always insist that the hirer should pay a deposit towards the purchase
price. The size of the deposit will depend on the finance company's policy and its assessment of
the hirer. This is in contrast to a finance lease, where the lessee might not be required to make
any large initial payment.
An industrial or commercial business can use hire purchase as a source of finance. With
industrial hire purchase, a business customer obtains hire purchase finance from a finance house
in order to purchase the fixed asset. Goods bought by businesses on hire purchase include
company vehicles, plant and machinery, office equipment and farming machinery.
5. Mortgage:
A mortgage loan is a loan secured by real property through the use of a mortgage note which
evidences the existence of the loan and the encumbrance of that realty through the granting of a
SBP SME Financing Products (For Lending product detail … see page 1 to 40, but Definition page 1 to 2 are most important)
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c. Pricing1. Calculation of pool rates and internal cost of funds
2. Structuring floating mark-up rates and their impact during change of interest rates
3. The basis for floating mark-up rates using:
Karachi Inter-bank Offer Rates (KIBOR), SBP Discount Rate and PIB Rates matching the facility tenor
4. Bank’s spread over cost of deposits relating to customer and transaction risks5. Methods and frequency of mark-up recovery and their impact on income recognition
(Oops …. Exact data is not found) Please Consult any Lending book.
Pool Rate is the overhead costs for a Homogeneous Cost Pool divided by the appropriate Cost
Driver associated with the pool.
Homogeneous Cost Pool is a group of overhead costs associated with activities that can use the
same Cost Driver.
Cost Driver is a factor that has a direct cause-effect relationship to a cost, such as direct labor
hours, machine hours, beds occupied, computer time used, flight hours, miles driven, or
contracts.
Loan rates:
The contractual loan rate is set at some mark-up over the base rate, so that interest income
varies directly with movements in the level of borrowing costs.
The magnitude of the mark-up reflects differences in perceived default and liquidity risk
associated with the borrower.
Anam Rauf (GCUF) 41
Lending Notes
Floating-rate loans are popular at banks because they increase the rate sensitivity of loans in
line with the increased rate sensitivity of bank liabilities.
Floating-rate loans:
increase the rate sensitivity of bank assets
increase the GAP
reduce potential net interest losses from rising interest rates
Because most banks operate with negative funding GAPs through one-year
maturities, floating-rate loans normally reduce a bank’s interest rate risk.
Given equivalent rates, most borrowers prefer fixed-rate loans in which the bank
assumes all interest rate risk.
Banks frequently offer two types of inducements to encourage floating-rate
pricing:
1. Floating rates are initially set below fixed rates for borrowers with a
choice
2. A bank may establish an interest rate cap on floating-rate loans to limit the
possible increase in periodic payments
KIBOR:
The karachi Interbank Offered Rate, or KIBOR, is the average interest rate at which term
deposits are offered between prime banks in the Pakistani wholesale money market or interbank
market.
It is Karachi Inter Bank Offer Rate (KIBOR), given by specialized institution on daily, weekly,
monthly and on 1, 2 and 3 yearly basis to all the commercial banks of Pakistan so that they
charge interest to their customers on that basis. This rate is inflation adjusted rate and then banks
by adding 2 or 3% in KIBOR rate charge their customers for their profit.
SBP Discount rate: The central bank is scheduled to announce monetary policy for the period of
next two months on Friday (today) and it is expected that discount rate will stay unchanged at 12
per cent.
The offered rates for the Pakistan Investment Bonds (PIBs) have shot up to 13.11 percent as
compared with 12.7 percent last month.
-------------------------------------------------
Anam Rauf (GCUF) 43
Lending Notes
Chapter # 2Lending Risk Assessment and Management
Overview Fundamental concept of Risk Management Risk and the economic environment Corporate governance and organizational structure External reporting
b. Sources of lending risk Obligor Risk Obligor Business and industry risk – cycles, price trends of raw materials, price trends of competition products Transaction failure risk Other risks – political, economic, market, liquidity, foreign exchange, interest rate risk
c. Risk Assessment Financial analysis Market check Market research Compliance with regulation requirement Customer Integrity and capability
d. Risk Management Credit Policy Delinquency portfolio – trends and control measures Collection and Recovery – strategies and methods
Study following document …. Guidelines by SBP
Risk ManagementGuidelines for Commercial Banks & DFIs. (Page 1 to 42)
e. Types of collateral• Stated and implied lien over customer’s assets
• Hypothecation
• Assignment of receivables
• Pledge of paper securities
• Pledge of goods
• Mortgage of immovable assets
Anam Rauf (GCUF) 44
Lending Notes
Types of collateral
There is a wide range of possible collaterals used to collateralize credit exposure with various degrees of risks.
Implied lien
Implied lien is a lien which may be implied and declared by a court of equity out of general
considerations of right and justice as applied to the relations of the parties and the circumstances
of their dealings. It will be based upon the fundamental maxims of equity and it may be created
in the absence of an express contract.
The lien in favor of a vendor who has conveyed the legal title to real estate to a purchaser, as
security for the unpaid purchase money is an implied lien. The implied lien of a vendor is only
permitted as a security for an unpaid purchase price. Such an implied lien will not be enforced
when it would operate as a means of deception or in prejudice of good faith to those affected by
it.
Hypothecation
Hypothecation is the practice where a borrower pledges collateral to secure a debt. The
borrower retains ownership of the collateral, but it is "hypothetically" controlled by the creditor
in that he has the right to seize possession if the borrower defaults. A common example occurs
when a consumer enters into a mortgage agreement, in which the consumer's house becomes
collateral until the mortgage loan is paid off.
The detailed practice and rules regulating hypothecation vary depending on context and on the
jurisdiction where it takes place. In the US, the legal right for the creditor to take ownership of
the collateral if the debtor defaults is classified as a lien.
Rehypothecation is a practice that occurs principally in the financial markets, where a bank or
other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing.
stocks are made also to merchants and commercial houses, and all kinds of collateral are offered.
They may be made on "time," running for thirty days to several months, or on "call," that is,
subject to payment on demand. The various forms of collateral offered to secure bank loans may
be roughly grouped into three divisions: stocks and bonds, merchandise, and real estate. Some of
the more important types of collateral loans may now be briefly considered.
Pledge of goods
Pledging is defined as “Offering assets /stocks /goods to a lender as collateral for a loan”. Though the asset will be pledged to the lender, it it still owned by the borrower unless he/she defaults on the loan.
Pledge of Goods may be considered for use where a debt is owed or may in the future be owed
by a person, and additional security is required. By signing this Cession and Pledge of Goods,
the debtor agrees to transfer to the creditor the right to the goods being ceded or pledged should
the debtor default. The goods may include, for example, shares, Kruger Rands, or an investment
account
How mortgage, pledge and hypothecation are different to each other?MORTGAGE:
Mortgage as “the transfer of interest in specific immovable property for the purpose of securing
the payment of money, advanced or to be advanced by way of loan, an existing or future debt, or
the performance of an engagement which may give rise to a pecuniary liability”.
The transferor is called the ‘mortgagor,’ the transferee is a ‘mortgagee’. The principal money
and interest thereon, the payment of which is secured are called the ‘mortgage money’.
PLEDGE:
Pledge as “bailment of goods as security for payment of a debt or performance of a promise”.
The person who offers the security is called ‘pawner’ or ‘pledger’ and the bailee is called the
‘pawnee’ or ‘pledgee’.
In case of pledge:
There should be bailment of goods; and
the objective of the bailment should be to hold the goods as security for the payment of a
a. Different types of financing agreements Project financing Account receivable financing Lease financing
Project financing
Project finance is the long term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of the project sponsors. Usually, a project financing structure involves a number of equity investors, known as sponsors, as well as a syndicate of banks or other lending institutions that provide loans to the operation.
The loans are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling.
The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms.
Project financing is an innovative and timely financing technique that has been used on many
high-profile corporate projects, including Euro Disneyland and the Eurotunnel. Employing a
carefully engineered financing mix, it has long been used to fund large-scale natural resource
projects, from pipelines and refineries to electric-generating facilities and hydro-electric projects.
Increasingly, project financing is emerging as the preferred alternative to conventional methods
of financing infrastructure and other large-scale projects worldwide.
Project Financing discipline includes understanding the rationale for project financing,
how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds.
In addition, one must understand the cogent analyses of why some project financing plans have
succeeded while others have failed. A knowledge-base is required regarding the design of
contractual arrangements to support project financing; issues for the host government legislative
The contract of pledge represents only one set of these: the terms under which the debt or
obligation will be fulfilled and the pledged property returned. On the one hand, the pledgor's
rights extend to the safekeeping and protection of his property while it is in possession of the
pledgee. The property cannot be used without permission unless use is necessary for its
preservation, such as exercising a live animal. Unauthorized use of the property is called
conversion and may make the pledgee liable for damages; thus, Mary should not use John's
stereo while in possession of it.
Pledgee Rights:
For the pledgee, on the other hand, there is more than the duty to care for the pledgor's property.
The pledgee has the right to the possession and control of any income accruing during the period
of the pledge, unless an agreement to the contrary exists. This income reduces the amount of the
debt, and the pledgor must account for it to the pledgee. Additionally, the pledgee is entitled to
be reimbursed for expenses incurred in retaining, caring for, and protecting the property. Finally,
the pledgee need not remain a party to the contract of pledge indefinitely. She can sell or assign
her interest under the contract of the pledge to a third party. However, the pledgee must notify
the pledgor that the contract of pledge has been sold or reassigned; otherwise, she is guilty of
conversion.
Standby Letter of Credit - SLOC'
A guarantee of payment issued by a bank on behalf of a client that is used as "payment of last
resort" should the client fail to fulfill a contractual commitment with a third party.
Standby letters of credit are created as a sign of good faith in business transactions, and are proof
of a buyer's credit quality and repayment abilities. The bank issuing the SLOC will perform brief
underwriting duties to ensure the credit quality of the party seeking the letter of credit, then send
notification to the bank of the party requesting the letter of credit (typically a seller or creditor).
Also known as a "non-performing letter of credit".
Standby letters of credit are issued by banks to stand behind monetary obligations, to insure the
refund of advance payment, to support performance and bid obligations, and to insure the
completion of a sales contract. The credit has an expiration date.
Anam Rauf (GCUF) 58
Lending Notes
Use of standby letter of credit
The standby letter of credit is often used to guarantee performance or to strengthen the credit
worthiness of a customer. In the above example, the letter of credit is issued by the bank and held
by the supplier. The customer is provided open account terms. If payments are made in
accordance with the suppliers' terms, the letter of credit would not be drawn on. The seller
pursues the customer for payment directly. If the customer is unable to pay, the seller presents a
draft and copies of invoices to the bank for payment.
Standby Letter of credit is Domestic Transaction
The domestic standby letter of credit is governed by the Uniform Commercial Code. Under these
provisions, the bank is given until the close of the third banking day after receipt of the
documents to honor the draft.
Procedures required to execute a Standby Letter of Credit are less rigorous. The standby credit is
a domestic transaction. It does not require a correspondent bank (advising or confirming). The
documentation requirements are also less tedious as compared to commercial letter of credit.
c. Safe-keeping of borrower/customer documentation In-house arrangements and its modus operandi Ex-house arrangements and its modus operandi Arrangements for storage of documents and the system for recording Procedures to be followed for depositing and retrieving documents
In-House Arrangements
In-house arrangements are explained in various manuals obtainable via the secretary. New staff
is required to acquaint themselves with the contents of an elaborate file describing operational
processes and procedures. Volunteers are required to read information applicable to them and so
are interns.
The purpose of written, in-house arrangements and policies is to ensure as smooth an operation
as possible and to provide clarity and stability to all parties about agreed on practices. There is a
Anam Rauf (GCUF) 59
Lending Notes
process in place of regularly reviewing policies and in-house arrangements are reviewed on a
regular basis.
Recording File Movements
Files are issued to action officers in at least three circumstances.
A document arrives in the records office, is recorded and filed, and the file is passed to the officer.
A file is to be ‘brought up’ to the officer (see Section 8). The officer requests the file in person or by telephone.
Records office staff must be able to determine the location of every file for which they are
responsible. Each time a file moves, this fact must be recorded in the records office. File
movements are monitored in a number of ways: on file transit sheets that are filed in a file transit
book, on transit ladders that appear on file covers, on file movement slips and through regular file
censuses.
Retrieving Files from the Records Centre
Files that have been closed and transferred to the records centre may only be retrieved by
authorised staff. The records centre will not accept requests for files from anyone except the
head of the records office in the agency concerned, or an agency that is a successor to it. All
requests for files should therefore be directed through the head of the records office.
When a user requests a file which is held in the records centre, consult the records centre
Transfer file to determine the exact title, reference number, box number and location number.
Then complete three copies of the Records Centre Request Form. The three copies of the form
should be sent or taken to the records centre and the file collected. One copy of this form will be
sent with the file requested to the records office. The two other copies will be retained by the
records centre.
[See exact data & detail in any Lending book… sorry data is not found ]
d.Bank’s risk under various types of collateralIdeally, collateral taken by a central bank as part of its OMO should not carry credit
Anam Rauf (GCUF) 60
Lending Notes
or liquidity risk, though it will inevitably carry some market risk.
• The majority of central banks, for a variety of reasons, extend the list of eligible
collateral beyond domestic-currency denominated government (or central bank)
Securities and face trade-offs between minimizing additional risk (credit, liquidity,
exchange rate, operational) and providing access to a sufficiently wide group of
counterparties to allow the effective implementation of monetary policy and liquidity
management.
• The incentives for adverse selection will change depending on market conditions.
Central banks need to remain alert to such changes and the impact on the markets
Use of collateral.
Risk associated with various types of collateral:
Increases Operational Risk
Legal Risk
Concentration Risk
Settlement Risk
Valuation risk
Increasing Market Risk
Increased overhead
Reduced trading activity
Risk faced by banks:
Credit risk – risk that party to contract fails to fully discharge terms of contract
Interest rate risk – risk deriving from variation of market prices owing to
interest rate change
Market risk – more general term for risk of market price shifts
Liquidity risk – risk asset owner unable to recover full value of asset when sold
(or for borrower, credit not rolled over)
Market liquidity risk – risk that a traded asset market may vary in liquidity of the
Systemic risk – that the financial system may undergo contagious failure following other forms
of shock/risk.
e. Monitoring of charge/margin Appointment and role of Muccudums Obligations of the custodial services under the arrangement Monitoring Guarantees- issuer’s status, guarantee validity, conditions for claims Monitoring of Insurance Policies- issuer’s status, policy validity, conditions for claims Monitoring of Immovable Assets Monitoring of stock reports and valuation Proper system and credible sources for monitoring prices of financed assets and collateral
Source: www. Google.com and websites searched from Google.