Foundations of Bank Lending Chapter 1
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Questions and Answers

What are the learning objectives of FIN367 Chapter 1?

  1. Define bank credit. 2. Clarify the important of bank credit to the bank business. 3. Understand the flow of credit process cycle. 4. Understand major provisions of Financial Services Act 2013 and BNM guidelines affecting credit function. 5. Explain ethics and governance in financial institution.

What are the three sub-topics under 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

What are the main provisions affecting credit function mentioned in the learning objectives?

Financial Services Act 2013 and BNM guidelines

What is the scope of business for banks according to sub-topic 1.1.1.1?

<p>Bank lending business</p> Signup and view all the answers

What is highly regulated according to sub-topic 1.1.1.3?

<p>Bank operation</p> Signup and view all the answers

What is the definition of 'banking business' as per the Financial Services Act 2013?

<p>The business of accepting deposits on current account, deposit account, savings account or other similar account; paying or collecting cheques drawn by or paid in by customers; and provision of finance.</p> Signup and view all the answers

According to the Financial Services Act 2013, what does the term 'provision of finance' include?

<p>Lending of money, leasing business, factoring business, purchase of bills of exchange, promissory notes, certificates of deposit, debentures or other negotiable instruments, and the acceptance or guarantee of any liability, obligation or duty of any person.</p> Signup and view all the answers

Name the five areas into which a universal banking's operations are typically divided.

<ol> <li>Wholesale and corporate banking, 2. Business/SME banking, 3. Retail and consumer banking, 4. Treasury, 5. Asset management.</li> </ol> Signup and view all the answers

Why is credit analysis of SMEs important for banks?

<p>Credit analysis of SMEs is important to mitigate credit risk, as granting more loans to SMEs exposes the bank to higher credit risk, directly impacting the bank’s profitability.</p> Signup and view all the answers

List three items typically found on a bank's balance sheet.

<p>Loans, Equity, Deposit.</p> Signup and view all the answers

Flashcards

Bank Credit

Money lent by a bank to borrowers, often for specific purposes. This is a core activity of banks.

Credit Process Cycle

The series of steps banks follow when considering and granting loans. It includes application, assessment, approval, disbursement, and monitoring.

Financial Services Act 2013

A key Malaysian law that governs the financial industry, including banks. It sets standards for responsible lending practices and consumer protection.

BNM Guidelines

Specific instructions issued by Bank Negara Malaysia (the central bank) to banks, covering areas like credit procedures, loan approvals, and risk management.

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Ethics and Governance

Principles and practices that ensure banks operate fairly, transparently, and within ethical boundaries, especially when making lending decisions.

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Lending Decision Framework

A structured approach used by banks to assess loan applications, considering factors like borrower creditworthiness and potential risks.

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Universal Banking

When a bank offers a wide range of financial services, including lending, deposit taking, investment, and insurance.

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Credit Analysis of SMEs

The process of evaluating the financial health and risk of small and medium-sized enterprises (SMEs) before a bank grants them loans.

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Bank Balance Sheet

A formal financial statement of a bank's assets (what it owns), liabilities (what it owes), and equity (ownership value).

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Provision of Finance

The act of lending money, as defined in the Financial Services Act 2013. This encompasses various financial activities banks engage in.

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Study Notes

FIN367 Chapter 1 Learning Objectives

  • Understand the fundamental principles of bank credit and its significance
  • Identify the main provisions affecting credit function
  • Appreciate the importance of credit analysis in banking operations

Fundamental Principles of Bank Credit

1.1.1 Scope of Banking Business

  • Banks engage in a wide range of activities, including accepting deposits, granting loans, and providing other financial services
  • The scope of business for banks includes accepting deposits, making loans, and providing other financial services

1.1.1.3 Banking Business Regulations

  • Banking business is highly regulated due to its critical role in the economy and the potential risks associated with it
  • The Financial Services Act 2013 regulates banking business in Malaysia

Definition of Banking Business

  • According to the Financial Services Act 2013, banking business refers to the business of accepting, for the purpose of lending or investment, deposits of money from persons, and includes the provision of finance
  • The term "provision of finance" includes the granting of loans, advances, and other forms of credit

Universal Banking Operations

  • A universal banking's operations are typically divided into five areas:
    • Corporate banking
    • Retail banking
    • Investment banking
    • Treasury operations
    • International banking

Credit Analysis and SMEs

  • Credit analysis of SMEs (Small and Medium-sized Enterprises) is important for banks because SMEs are critical to the economy and banks need to manage their credit risk effectively

Bank's Balance Sheet

  • A bank's balance sheet typically includes:
    • Cash and cash equivalents
    • Loans and advances
    • Investments
    • Deposits and other liabilities
    • Shareholders' equity

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Description

Explore the fundamental principles of bank credit and the lending decision framework in business banking with this quiz. Learn about the introduction to bank credit, the credit process cycle, and the rules and regulations governing bank lending.

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