Podcast
Questions and Answers
What is a primary goal of understanding the flow of the credit process cycle?
What is a primary goal of understanding the flow of the credit process cycle?
- To streamline bank operations and enhance efficiency (correct)
- To limit credit availability to clients
- To maximize profit without restrictions
- To reduce the number of loan applicants
Which regulation is specifically mentioned as impacting the bank credit function?
Which regulation is specifically mentioned as impacting the bank credit function?
- Companies Act 2016
- Capital Markets and Services Act
- Financial Services Act 2013 (correct)
- Banking Act 1987
What is the definition of bank credit?
What is the definition of bank credit?
- Loans issued to individuals without collateral
- Government-funded loans exclusively
- Financial support provided by banks to various sectors (correct)
- Investment funds managed by external firms
Why is the bank lending business considered highly regulated?
Why is the bank lending business considered highly regulated?
What is one of the ethics-related objectives in financial institutions?
What is one of the ethics-related objectives in financial institutions?
What role does asset management play in banks?
What role does asset management play in banks?
How does granting more loans to SMEs potentially affect a bank?
How does granting more loans to SMEs potentially affect a bank?
What is a key focus of SME credit analysis in banks?
What is a key focus of SME credit analysis in banks?
What is likely to occur if a bank's credit risk impacts its profitability?
What is likely to occur if a bank's credit risk impacts its profitability?
Which component is essential for the bank lending business to operate effectively?
Which component is essential for the bank lending business to operate effectively?
Which factors can influence the RAAC for individual or consumer lending?
Which factors can influence the RAAC for individual or consumer lending?
What primarily determines a borrower's repayment ability during credit evaluation?
What primarily determines a borrower's repayment ability during credit evaluation?
What is the responsibility of the Bank's credit officer in the credit process?
What is the responsibility of the Bank's credit officer in the credit process?
What does the Letter of Offer (LO) incorporate?
What does the Letter of Offer (LO) incorporate?
What happens to a loan proposal if it has poor bankable credit?
What happens to a loan proposal if it has poor bankable credit?
Who handles the execution and perfection of the loan and security agreement after the Letter of Offer is accepted?
Who handles the execution and perfection of the loan and security agreement after the Letter of Offer is accepted?
What principle guides the credit evaluation process?
What principle guides the credit evaluation process?
What role does the Credit Approval Committee play in the lending process?
What role does the Credit Approval Committee play in the lending process?
What is the main purpose of the credit process cycle?
What is the main purpose of the credit process cycle?
Which phase involves discussing business requirements with the customer?
Which phase involves discussing business requirements with the customer?
What role does the RAAC play in the credit process cycle?
What role does the RAAC play in the credit process cycle?
Which regulatory body’s guidelines must be considered during the origination phase?
Which regulatory body’s guidelines must be considered during the origination phase?
During which phase are borrowers verified and their credit evaluated?
During which phase are borrowers verified and their credit evaluated?
What is NOT a phase in the credit process cycle?
What is NOT a phase in the credit process cycle?
What is a key outcome of the credit process cycle for lenders?
What is a key outcome of the credit process cycle for lenders?
Which of the following best describes the monitoring phase?
Which of the following best describes the monitoring phase?
What does 'provision of finance' include in bank lending business?
What does 'provision of finance' include in bank lending business?
Which area of universal banking typically serves large enterprises?
Which area of universal banking typically serves large enterprises?
According to the Financial Services Act 2013, what constitutes banking business?
According to the Financial Services Act 2013, what constitutes banking business?
Which of the following is NOT included in the definition of a bank under the Financial Services Act 2013?
Which of the following is NOT included in the definition of a bank under the Financial Services Act 2013?
What type of banking primarily focuses on individuals and small businesses?
What type of banking primarily focuses on individuals and small businesses?
Which of the following services is associated with the leasing business in bank lending?
Which of the following services is associated with the leasing business in bank lending?
The Treasury in universal banking is primarily responsible for what?
The Treasury in universal banking is primarily responsible for what?
Which instrument is NOT part of the 'provision of finance' as defined in bank lending?
Which instrument is NOT part of the 'provision of finance' as defined in bank lending?
What is the primary function of the loan disbursement department?
What is the primary function of the loan disbursement department?
Which of the following is NOT a responsibility of the credit officer in loan monitoring?
Which of the following is NOT a responsibility of the credit officer in loan monitoring?
What does loan monitoring help to identify?
What does loan monitoring help to identify?
Which action is NOT part of proactive loan account management?
Which action is NOT part of proactive loan account management?
Why is it essential to ensure the legal documentation is perfected before loan disbursement?
Why is it essential to ensure the legal documentation is perfected before loan disbursement?
What should the lender do if they identify a potential red flag in loan repayment?
What should the lender do if they identify a potential red flag in loan repayment?
How often should a credit officer review the borrowing account?
How often should a credit officer review the borrowing account?
What is a primary goal of loan monitoring?
What is a primary goal of loan monitoring?
Flashcards
What is bank credit?
What is bank credit?
Bank credit refers to the lending of money by a bank to individuals, businesses, or governments. This is a core function of banks and crucial for economic growth.
What is the main business of a bank?
What is the main business of a bank?
Banks are primarily focused on managing financial transactions, providing loans, and facilitating financial services. Their primary goal is to generate profit by lending money at a higher interest rate than they borrow it.
What are the steps in the bank credit process cycle?
What are the steps in the bank credit process cycle?
The process of bank lending involves several stages: 1. The initiation of a credit request. 2. Assessment of the borrower's creditworthiness. 3. Approval or rejection of the loan. 4. Disbursement of the funds. 5. Monitoring of the loan repayment. 6. Potential collection efforts if repayment is missed.
How do banks evaluate a company for loan eligibility?
How do banks evaluate a company for loan eligibility?
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What are some important regulations for banks in Malaysia?
What are some important regulations for banks in Malaysia?
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What is the significance of SME credit in banking?
What is the significance of SME credit in banking?
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How does SME credit impact a bank's risk?
How does SME credit impact a bank's risk?
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What steps do banks take to manage the credit risk from SME loans?
What steps do banks take to manage the credit risk from SME loans?
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How does credit risk affect a bank's profitability?
How does credit risk affect a bank's profitability?
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What is involved in SME credit analysis?
What is involved in SME credit analysis?
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Financial Institution (Malaysian Definition)
Financial Institution (Malaysian Definition)
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Bank (Malaysian Definition)
Bank (Malaysian Definition)
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What is Banking Business?
What is Banking Business?
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Provision of Finance
Provision of Finance
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Lending of Money
Lending of Money
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Wholesale & Corporate Banking
Wholesale & Corporate Banking
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Business/SME Banking
Business/SME Banking
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Retail & Consumer Banking
Retail & Consumer Banking
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What happens during the approval stage of the credit process?
What happens during the approval stage of the credit process?
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What tools are used for credit evaluation?
What tools are used for credit evaluation?
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What is the credit officer's role in the approval process?
What is the credit officer's role in the approval process?
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Who makes the final decision on a loan application?
Who makes the final decision on a loan application?
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What is the Letter of Offer (LO) in the credit process?
What is the Letter of Offer (LO) in the credit process?
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What happens during the administration stage of the credit process?
What happens during the administration stage of the credit process?
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When does the loan disbursement take place?
When does the loan disbursement take place?
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Who may handle legal documentation for complex loans?
Who may handle legal documentation for complex loans?
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What is the credit process cycle?
What is the credit process cycle?
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What is the Origination stage in the credit process cycle?
What is the Origination stage in the credit process cycle?
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What is the Approval stage in the credit process cycle?
What is the Approval stage in the credit process cycle?
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What is the Administration stage in the credit process cycle?
What is the Administration stage in the credit process cycle?
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What is the Monitoring stage in the credit process cycle?
What is the Monitoring stage in the credit process cycle?
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What is the Settlement/Recovery stage in the credit process cycle?
What is the Settlement/Recovery stage in the credit process cycle?
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How are the principlesof lending applied in the credit process cycle?
How are the principlesof lending applied in the credit process cycle?
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What are the external regulations that apply to the credit process cycle?
What are the external regulations that apply to the credit process cycle?
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Loan Monitoring
Loan Monitoring
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Warning Signals/Red Flags
Warning Signals/Red Flags
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Post-Drawn Down Terms and Conditions
Post-Drawn Down Terms and Conditions
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Loan Disbursement Department
Loan Disbursement Department
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Loan Account Review
Loan Account Review
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Site Visitation
Site Visitation
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Proactive Loan Management and Monitoring
Proactive Loan Management and Monitoring
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Loan Restructuring/Modification
Loan Restructuring/Modification
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Study Notes
Foundations of Bank Lending - Chapter 1
- Module authors include Jasman Tuyon, PhD, Rapheedah Musneh, PhD, Siti Julea Supar, and Nurziya Muzzawer, from the Faculty of Business and Management, Universiti Teknologi MARA, Sabah Branch, Kota Kinabalu Campus.
Chapter Outline
-
1.1 Fundamental Principles of Bank Credit:
- 1.1.1 Introduction to Bank Credit
- 1.1.2 The Credit Process Cycle
- 1.1.3 Lending Decision Framework in Business Banking
-
1.2 Rules and Regulations Governing Bank Credit in Malaysia:
-
1.3 Ethics and Corporate Governance in Bank Credit:
Learning Objectives
- Upon completion of this chapter, students should be able to:
- Define bank credit.
- Clarify the importance of bank credit to the bank business.
- Understand the flow of the credit process cycle.
- Understand major provisions of the Financial Services Act 2013 and Bank Negara Malaysia (BNM) guidelines affecting credit function.
- Explain ethics and governance in financial institutions.
1.1.1 Introduction to Bank Credit
- 1.1.1.1 Bank definition and scope of business
- 1.1.1.2 Bank lending business
- 1.1.1.3 Bank operation is highly regulated
1.1.1.1 Bank definition and scope of business
- Bank of Malaysia Act 2009 (Act 701): "financial institution" means a person carrying on a financial business regulated under the laws enforced by the Bank, and includes a person operating a payment system or issuing a payment instrument.
- Financial Services Act 2013 (FSA 2013): "bank" refers to a business licensed under this Act, excluding certain types of banking or investment banking businesses.
- Banking business includes accepting deposits, paying/collecting cheques, and providing finance (e.g., lending money, leasing, factoring, purchasing negotiable instruments).
1.1.1.2 Bank Lending Business
- Financial Services Act 2013 defines "provision of finance" to include lending money, leasing, factoring, purchasing negotiable instruments (like bills of exchange, promissory notes, certificates of deposit, debentures), and accepting/guaranteeing liabilities.
1.1.1.3 Bank Operation is Highly Regulated
- Bank operations are heavily regulated at both international (Basel Framework) and domestic (e.g., Bank Negara Malaysia regulations, Financial Services Act 2013, and National Land Code Act 828) levels.
1.1.2 The Credit Process Cycle
- This outlines the operational flow of credit lending, from loan origination to repayment.
- Sub-topics within this section are:
- 1.1.2.1 Origination
- 1.1.2.2 Approval
- 1.1.2.3 Administration
- 1.1.2.4 Monitoring
- 1.1.2.5 Settlement/Recovery
1.1.2.1 Origination
- The "marketing phase" of credit process, initiating contact with customers, discussing business requirements, and evaluating credit risk.
- It's conducted using internal lending policies and external regulations (such as Bank Negara Malaysia guidelines and Financial Services Act 2013, for example) and adhering to acceptance criteria.
- The credit officer identifies target customer groups and sets Risk Assets Acceptance Criteria (RAAC).
1.1.2.2 Approval
- This stage involves evaluating credit applications based on available financial details (audited statements, forecasts) and non-financial data (borrowing history, litigation, and business background).
- Using tools like 5Cs basic credit factors, qualitative assessment, and quantitative financial analysis.
- Decision involves approving, modifying, or declining the loan with accompanying stipulations (or referral to higher authority).
- The Letter of Offer (LO) is issued outlining the approved facility details after a credit officer makes a recommendation.
1.1.2.3 Administration
- This stage involves preparing and executing loan agreements and security for borrowers and lenders.
- Using appropriate legal documentation or engaging with a panel of solicitors.
- An independent unit handles loan disbursement to minimize conflict of interest.
- It ensures that all conditions for loan disbursement are met and that legal documents are perfected.
1.1.2.4 Monitoring
- Post-disbursement activities for monitoring borrower's adherence to loan obligations.
- Includes managing profitability, detecting warning signs, and making proactive adjustments to avoid defaults.
- Monitoring also includes reviewing borrower's financial accounts, visiting, and ensuring adherence to agreement conditions.
1.1.2.5 Settlement/Recovery
- The final phase: loan repayment and settlement.
- If loans are not paid, the lender can proceed to loan rehabilitation, rescheduling, or restructuring.
- The lender can resort to the legal process for loan recovery if necessary, using collateral as security.
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Description
This quiz explores various aspects of the bank credit process cycle, including definitions and regulations affecting bank lending. It also addresses the importance of ethics in financial institutions and the critical role of asset management. Test your knowledge about the responsibilities of credit officers and the impact of lending decisions on profitability.