Bank Lending Introduction and Overview
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Questions and Answers

According to the Financial Services Act 2013, the word 'bank' refers to any person licensed to carry on banking business or investment banking business.

True (A)

What are the key areas of universal banking operations?

  • Investment Banking, Commercial Banking, Retail Banking, Treasury, Asset Management
  • Wholesale and Corporate Banking, Business/SME Banking, Retail and Consumer Banking, Treasury, Asset Management (correct)
  • Credit Risk Management, Asset Management, Loan Disbursement, Marketing, Customer Service
  • Finance and Insurance, Investment Banking, Commercial Banking, Retail Banking, Private Banking

What does the term 'provision of finance' encompass according to the Financial Services Act 2013? Select all that apply.

  • Leasing business (correct)
  • Acceptance or guarantee of any liability, obligation or duty of any person (correct)
  • Factoring business (correct)
  • Deposit taking
  • Purchase of bills of exchange, promissory notes, certificates of deposit, debentures or other negotiable instruments (correct)
  • Lending of money (correct)

The Basel Framework exclusively dictates the standards for the prudential regulation of banks in the United States.

<p>False (B)</p> Signup and view all the answers

What is the primary function of the Basel Framework?

<p>To establish global standards for the prudential regulation of banks.</p> Signup and view all the answers

Which of the following are external laws and regulations that impact bank credit functions in Malaysia?

<p>All of the above (D)</p> Signup and view all the answers

The credit policy document is solely for internal use within a lending company and has no impact on external stakeholders.

<p>False (B)</p> Signup and view all the answers

What is the core purpose of the credit policy document?

<p>To define the guidelines that lending companies use for making credit decisions.</p> Signup and view all the answers

Which stage of the credit process cycle involves determining a borrower's repayment ability based on financial and non-financial information?

<p>Approval (A)</p> Signup and view all the answers

What is the key purpose of loan monitoring in the credit process cycle?

<p>Ensure compliance with post-drawdown terms and conditions. (B)</p> Signup and view all the answers

Loan recovery is the first step lenders take when borrowers default on their loans.

<p>False (B)</p> Signup and view all the answers

What are the key situations that typically trigger loan recovery procedures?

<p>When a borrower's business cash flow and repayment ability are permanently affected and they are unlikely to recover to meet their loan obligation.</p> Signup and view all the answers

Flashcards

What is a bank?

A financial institution regulated by the Bank Negara Malaysia (BNM) that accepts deposits, pays or collects checks, provides finance, and performs other prescribed business activities.

How are banks legally defined in Malaysia?

In Malaysia, the Central Bank of Malaysia Act 2009 [Act 701] and the Financial Services Act 2013 define financial institutions and banks, respectively.

What is the core business of a bank?

The primary business of a bank involves accepting deposits from individuals and corporations and lending these funds to borrowers at a higher interest rate.

What are the main activities included in 'provision of finance'?

Bank lending encompasses lending money, leasing assets, factoring receivables, purchasing negotiable instruments, and accepting guarantees on liabilities.

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What is a universal bank?

A bank that offers a wide range of services, encompassing commercial banking, investment banking, and asset management.

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What is wholesale and corporate banking?

This banking segment serves large enterprises (publicly traded companies), offering financial services to support their operations, expansions, and mergers & acquisitions.

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What is SME/Business banking?

This banking segment provides services to medium and large privately-owned businesses, helping them with working capital, investment, and growth strategies.

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What is retail and consumer banking?

The segment of banking focused on individuals and small businesses, offering services like savings accounts, loans, mortgages, debit/credit cards, and investment products.

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What is the role of Treasury in a bank?

A crucial department within a bank responsible for managing its funding and liquidity, ensuring the bank has sufficient funds to meet its obligations and invest strategically.

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What is asset management?

This banking segment focuses on investing the funds of customers, managing portfolios, and providing financial advisory services.

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What is the importance of SME credit in banking?

A significant area of business for banks, it involves extending credit to SMEs, contributing significantly to the bank's overall credit portfolio and profitability.

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What is credit risk in banking?

The risk associated with borrowers potentially defaulting on their loans, leading to financial losses for the bank.

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What is SME credit analysis?

The process of evaluating the financial health and creditworthiness of a potential borrower, ensuring that the bank's lending decisions are sound.

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What is credit risk mitigation?

Processes and strategies to minimize credit risk through proactive measures like thorough evaluation, setting appropriate loan terms, and monitoring borrowers' financial performance.

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What is the Basel Framework?

A framework developed by the Basel Committee on Banking Supervision that sets international standards for the prudential regulation of banks, aiming to enhance financial stability.

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What are examples of external regulations affecting bank credit?

External regulations imposed by Bank Negara Malaysia (BNM) through laws, guidelines, notices, and directives to govern bank credit operations.

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What is a bank's credit policy?

Internal policies and guidelines established by banks to govern their lending decisions, ensuring consistency, risk management, and compliance with regulations.

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What is the credit process cycle?

The operational flow of credit lending, encompassing all stages from loan origination to full loan repayment.

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What is the origination stage of the credit process cycle?

The initial stage of the credit process, involving customer contact, business requirement assessment, and preliminary credit risk evaluation.

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What is the approval stage of the credit process cycle?

The stage where the bank evaluates a borrower's creditworthiness and financial ability to repay the loan, applying various credit analysis tools and principles.

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What is the administration stage of the credit process cycle?

The stage involving loan documentation, processing, and disbursement, ensuring all legal and contractual aspects are executed correctly.

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What is the monitoring stage of the credit process cycle?

The ongoing stage of the credit process where lenders monitor borrower's loan utilization, repayment performance, and overall financial health, taking remedial actions if necessary.

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What is the settlement/recovery stage of the credit process cycle?

The final stage of the credit process cycle involving loan repayment and settlement, including loan rehabilitation, rescheduling, or recovery efforts if borrowers fail to meet their obligations.

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How is the RAAC set for business lending?

The risk asset acceptance criteria (RAAC) establish thresholds for minimum sales, profitability, net worth, and account profitability based on the bank's risk appetite.

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How is the RAAC set for individual/consumer lending?

The RAAC for individual and consumer lending can be based on factors such as age, minimum loan amount, employment tenure, income, and payment history.

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What are the five Cs of credit?

A core principle of lending that emphasizes the borrower's character, capacity, capital, collateral, and conditions in evaluating creditworthiness.

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What happens in the documentation stage of the credit process?

The stage where the bank's legal documentation department handles the execution and perfection of loan agreements, ensuring legal validity and protection of the bank's rights.

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What is the role of the loan disbursement department?

The loan disbursement department independently verifies the borrower's compliance with terms and conditions, legal documentation, and collateral perfection before releasing the loan.

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What are the main activities in the loan monitoring stage?

The activities, roles, and responsibilities of credit officers in managing loan accounts after disbursement, encompassing monitoring, reviewing, and mitigating risk.

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What is the role of site visits in loan monitoring?

An important part of loan monitoring involving site visits to verify the borrower's business operations, assess management competency, and ensure the loan is being used as intended.

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What is the purpose of annual or interim reviews in loan monitoring?

A crucial aspect of loan monitoring, involving regular reviews (annual or interim) to reassess the borrower's risk profile, financial performance, and financing needs, potentially leading to restructuring or modifications.

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Study Notes

Bank Credit Introduction

  • Banks are regulated financial institutions, defined by the Central Bank of Malaysia Act 2009 and the Financial Services Act 2013.
  • Banking encompasses accepting deposits, issuing payment instruments, providing loans, and managing finances.
  • Lending activities include various financial services like providing loans, leasing, factoring, buying negotiable instruments.
  • Bank lending to small and medium-sized enterprises (SMEs) is crucial and impacts profitability, requiring thorough credit risk assessment.
  • Sound credit policies and guidelines are essential for managing client portfolios.

Bank Lending Business

  • Bank lending is an important business area.
  • Bank operations are divided into key areas: wholesale and corporate banking, SME banking, retail banking, treasury, and asset management.
  • Lending is crucial, but the risk of default must be carefully managed.
  • Financial assessments, both quantitative and qualitative, are used for evaluating risk.

Bank Operations Regulation

  • Bank operations adhere to several crucial regulations (both international and domestic).
  • The Basel Framework is a primary global standard for bank regulation.
  • Malaysian banks are governed by Bank Negara Malaysia's policies and guidelines.
  • Regulations like the Financial Services Act and National Land Code are important components.
  • Robust internal policies guide loan decisions and ensure effective risk management.

The Credit Process Cycle

  • The credit process encompasses a series of steps, from loan origination to repayment.
  • Key stages include origination (marketing and customer contact), approval (credit evaluation), administration (documentation and disbursement), monitoring (tracking borrower performance), and settlement/recovery (handling loan repayment).
  • A thorough credit evaluation based on internal guidelines and external regulations is vital during approval.
  • Loan monitoring helps assess and mitigate risk. Repayment problems may lead to negotiations or loan recovery procedures.

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Related Documents

Chapter 1 - Foundations of Bank Lending PDF

Description

This quiz covers the fundamentals of bank lending, emphasizing the importance of credit policies and risk assessment in banking operations. Learn about the impact of bank lending on small and medium-sized enterprises (SMEs) and the different areas of bank operations. Understand the regulations that govern banks and the financial services they provide.

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