BASIC PRINCIPLES OF BANK LENDINGDefinitions of
Disposing of money or property with the expectation that the same thing (or an equivalent) will be returned . Credit is the provision of resources (such as granting a loan) by one party to another party where that second party does not reimburse the first party immediately, thereby generatinga debt, and instead arranges either to repay or return those resources (or material(s) of equalvalue)
enders - A loan is a type of debt.
ike all debt instruments, a loan entails the redistributionof financial assets over time
o provide money temporarily on condition that the amount borrowed be returned, usuallywith an interest fee.
oday ,the important types of banks, commercial and merchant banks, operating under theregulation of the Central Bank.
he commercial banks engage in retail banking servicesthrough branch networks and operate with a broad deposit base consisting of demand andtime deposit ± they provide short term lending. On the other hand, merchant banks arelicensed to provide wholesale banking, take deposit and arrange syndicated loan facilities for long terms by pooling, sometimes, a consortium of banks, including other financialinstitutions, to finance capital intensive projects. From the foregoing, it is realized that banksare generally debtors; they borrow money in order to lend them out to make profit. No bank can ever survive by just being a custodian of deposit, but they exist by lending from thedeposit on fixed interest charged. Money lent on interest is always supposed to be secured onsome guarantees or security.Since banks depend largely on lending, the need to adhere to the basic principles of lending isquite inevitable.
he principles, if strictly followed, will guarantee depositors and shareholders¶funds, increase profitability and make a healthy turn over. Such advances in turn assist in thetransformation of rural environment, promote rapid expansion of banking habit and improve and boost the nation¶s economy.