Foundations of Bank Lending Chapter 1

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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?

Bank lending business

What is highly regulated according to sub-topic 1.1.1.3?

Bank operation

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

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.

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

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.

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

  1. Wholesale and corporate banking, 2. Business/SME banking, 3. Retail and consumer banking, 4. Treasury, 5. Asset management.

Why is credit analysis of SMEs important for banks?

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.

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

Loans, Equity, Deposit.

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

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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