CHAPTER 16: Lending Policies and Procedures

Types of Loans:
1. Real estate loans secured by real propertyland, buildings etc.
Short term loans: construction & land development. Long term
loans: Finance purchase of farmland, homes etc
2. Financial institution loans credit to banks, insurance companies
etc
3. Agricultural loans extended to farms and ranches to assist in
planting
4. Commercial and industrial loans granted to businesses to cover
for purchase of inventory, payrolls and taxes
5. Loans to individuals credit to finance the purchase of
automobiles, appliances, medical care and other personal
expenses
6. Miscellaneous loans loans not listed above
7. Lease financing receivables lender buys equiptment
Factors determining the growth and mix of loans:
Characteristic of the market area it serves lender must respond
to demand of credit arising
Lender size volume of capital held determines its lending legal
limit
o Large banks wholesale lenders; bulk of credit goes to
businesses
o Small banks emphasize retail credit; personal cash loans
and mortgages
Experience and expertise of management
Loan policy prohibits loan officers from making certain kinds of
loans
Expected yield what each loan offers compared to the yields
that other assets the lender could acquire
Net yields
Regulation of Lending:
Loan portfolios are heavily influenced by the character and depth
of regulation
Loans are subject to examination and review
Sarbanes-Oxley Act of 2002 requires that loans to insiders be
priced at market value rather than be subsidized by a lending
institution
Community Reinvestment Act (1977) requires banks and other
selected lenders to make an affirmative effort to meet the
credit needs of individuals and businesses in their territories so
that no area can be discriminated against credit

Equal Credit Opportunity Act (1974) no individual can be denied

credit because of race, sex, religious affiliation etc
Criticized loans loans that are performing well but have minor
weakness because lender has not followed its own policy
Scheduled loans loans that appear to contain significant
weakness; warning for a manager to monitor credit
Adversely classified loans that are