Assignment 1: Chapter 1 review

Name: Trần Thị Thùy Ngân

Class: IBP19-D02T

1. What factors have to be taken into account by bank into account by a bank in
considering an application for an advance?
- It can be grouped in to three categories: external factors, internal factors and borrower
specific factors. There are several factors such as: Capacity, collateral, capital, character,
conditions are five main factors
And some others factors like: age, credit score, experience, loan amount, repayment period,
repayment history.

2. What is creditworthiness and how can it be determined?

Creditworthiness is eligible for a loan, primarily based on the borrower's credit history, in the
opinion of the lender, or as determined by a credit scoring system if credit scoring is used.
Creditworthiness is a lender's assessment of the risk of default or the ability of an individual or
business to take on new debt. Creditworthiness is the ability to repay a loan which is something a
lender will consider before deciding to lend to that person. A person's ability to repay is
determined from many factors such as their repayment history or credit score. Some lenders also
look at their current assets and liabilities to determine your probability of default.
It can be determined by credit scoring systems. Credit scoring systems are to be found in all
types of credit analysis whether personal credit or business credit. It is very important and it is
one of the most important factors lenders use. The higher your credit score, the more likely you
are to repay your debts on time. As a result, more creditors and lenders will be willing to accept
your requests and reward you with lower interest rates. They're not putting a lot of trust in you by
lending to you.

3. Why do banks require a customer to contribute some of the capital required for a
project?
The main purpose is to minimize the risk of debt that the bank is responsible for. Banks bear
risks and may incur losses if the risks materialize. To ensure the safety of people's deposits and
continue operating in good times and bad, banks need to be able to absorb large losses.

4. Distinguish between a loan and an overdraft.

 Overdraft
Overdraft is a form of lending applied to
current accounts that allows the account
holder to withdraw money; swiping cards,
paying bills… even if the account has no
money
All banks review carefully before providing
overdraft loans to minimize the risk of
customers defaulting. Many banks also
require customers to add collateral if they
want to borrow with a large limit
Loan
Loan refers to a fixed amount borrowed for a
specified period which, for collateral, is
expected to be repaid with interest.
It is an agreement between a lender (banking
company) and a borrower (customer) wherein
the lender transfers money to the borrower
which, within a specified time, must be repaid
along with interest in the future. future.
Remittances are made against collateral, such
as land, buildings, vehicles, gold and the like.
If the borrower delays payment or defaults on
payment, the lender has the right to realize the
outstanding amount by selling the security.

A customer's credit profile plays an important

role in determining whether a borrower is able
to repay the loan.
Overdrafts are usually short-term credit Long - term fund
transactions.

5. What are the advantages of a framework for credit and lending decision making?
The framework of credit and lending decisions consists of external, internal and borrower
specific factors.
The main benefit of following a framework is that it ensures that decisions are made with due
consideration for all aspects of lending. The lending officers can be certain that they have not
violated any of the relevant requirements. Third, credit risk is greatly reduced as decisions are
made systematically. Fourth, the lending institution can be sure that it has not violated any laws.

6. What is a credit analysis? What are the various steps involved in a credit analysis?
Credit analysis is the method by which one calculates the creditworthiness of a business or
organization. In other words, It is an assessment of a company's ability to meet its financial
obligations.
There are two main ways to do credit analysis: the old-fashioned way, and the modern way.
Modern methods use technology to speed up the processing of proposals. Even if the credit
analysis is carried out using modern methods, it builds on the basis of the traditional analysis.
Traditional credit analysis is an important part of a lender's decision-making process, and cannot
be completely ignored.
Traditional approaches to credit assessment include three methods: the judgmental method, the
rating method, and the credit scoring method.

7. What does structuring of advances mean?

Structuring advances involves three major aspects: obtaining security and other documentation,
deciding debt covenants and pricing.

8. What are the different types of borrower?

There are many types of clients who need help getting a loan, and there are usually two main
types: personal borrowers and business borrowers. Customers who take out personal loans are
typically individuals, households, and families. The students are requesting loans to cover their
personal needs, such as travel, studying, home repairs, or spending money.
There are also a number of special types of personal loan clients. These are some of the different
types of accounts that exist. Minor accounts, sane people, and defaults are all examples. Joint
accounts are also a type of account that can be used by two people. Minors are people who are
under the age of 18. Minors should avoid contracting loans from lending institutions, as this can
be expensive and risky. People with an unstable mind can sign contracts as long as they have a
healthy mind. Banks should not allow a defaulter or a person resisting pending bankruptcy
proceedings to remain a customer. If the account is a joint account, the banker must get the clear
and specific authorization from the joint owners to withdraw money, to lend money, or to charge
a security fee from one or more of the account's participants.
Business loan clients can be sole proprietorships, partnerships, or corporations. There are a
variety of reasons why borrowers might be ineligible for a loan. Knowing the different types of
borrowers can help lenders determine which type of loan is best for the individual.

9. What is meant by credit culture? Why is it so important?

Credit culture refers to the total value of credits, beliefs, and behaviors of a lending institution.
What matters in achievement is not the goal itself, but the way that goal is achieved. The credit
culture in banks has a significant influence on their lending and credit risk management.
Rewarded behaviors become the norm, superseding policies and procedures. Customers are
likely to be more likely to purchase your product or service if it looks appealing. This includes
making sure the design of your product or service is attractive and user-friendly. Lending
organizations take great care to develop a strong credit culture. To ensure its officers make sound
decisions, the organization employs a risk management strategy that allows it to stay competitive
in the face of potential opportunities.
10. 'Lending is an art, not a science.' Do you agree with this statement?
Personally, I think borrowing is a combination of art and science.
The art of loan verification and steps, as well as in the process of reading documents to
determine whether to lend to the person or not, it relies on the feelings and guesswork of the
creditor.
However, the scientific element will be in the technological methods, in order to verify and
check the profile of the borrower.
It is often said that technology helps in decision making, but it cannot make the final decision
whether to lend or not, which requires human intervention.