THE INSTITUTE OF FINANCE

1
MANAGEMENT
BACHELOR IN BANKING AND FINANCE

YEAR 11 2020/2021

BFU 07407
CREDIT AND LENDING DECISIONS
 Recap of Agenda 1 &2
2

 Why banks lend?

 Legal requirement;
 To make profits and
 To allocate financial resources
efficiently.
 Recap of Agenda 1 &2
3

 Banks lend by giving;

loans.
Credit facilities
Credit Products
Credit accommodations

 They are mean the same

 Recap of Agenda 1 &2
4

 What are the common Credit Facilities?

 Loans
 Overdrafts
 Bills discounting / negotiated
 Invoice discounting
 Bank guarantees
 Letters of credits
 Etc.
 Agenda 3
5

Types of Borrowers
And
Their Requirements
 Introduction
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 Borrowers can be classified into several

categories depending on their legal status.
 The legal status of the borrower will

determine what kind of requirements does one

need to submit to the bank in order to be
granted a credit facility.
 However, some of the requirements are

general to all types of borrowers.

 Introduction
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 The general requirements include:

 An application Letter
 The Applicant must have an account for sometime
with the lender especially for Working Capital
Facilities
 Past Financial Statements/Salary Slip
 Projected Cash Flows especially If it’s a business
 Proposed Collateral for the Credit Facility
 introduction
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 Other requirements
 Certificate of registration and incorporation
• Submitted by business customers to provide
evidence that they are legally operating entities
 Partnership deed
• It is a written agreement used when partnership is
being formed. It indicates who is who inside the
firm. For a bank, it can be used to identify
borrowing powers of a partner.
 introduction
9

 Memorandum and articles of association

• It helps banks to identify borrowing powers of
directors of a company. They postulates the rules
and regulation of the company’s operation as well
as the purpose of the company
 Constitution
• It outline purpose, structure and limits of an
organization. It provides a foundation upon which
an organization operates. It is likely to indicate the
powers of the office bearers in terms of the
borrowing on behalf of the body.
 introduction
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 Trust deed
• Is a document which governs the way trustee
manages the property of the trust. Banks should
check the trust deed to see whether the trustees
have the authority to borrow
 company’s resolution
• It shows the resolution by the board of directors
allowing management to borrow
 List of current board of directors
 List of management team
 1. Personal customers
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 Personal borrowers can be individuals or

joint account holders
 For joint borrowers, ensure ‘joint and

several liability’ and ‘right of set-off’

against the individual accounts of
members are obtained.
 1. Personal customers
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 Consider the followings among others;

 Age
 Occupation
 Marital status (if married spouse ID may be needed)
 Number of dependents
 Previous track record
 Experience in the line of business (if its a business
loan)
 2. Sole traders:
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 Do business for their own benefit e.g.

shopkeepers, newsagents, grocery stores,
service providers etc.
 Purpose of borrowing may be:

 For buying raw materials

 For working capital
 Provision of finance towards the capital
costs of repairs, refurbishments, etc.
 2. Sole traders:
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 They trade in business names, ensure;

 The business name is registered by the
Registrar of Business Names, and
 Copy the Certificate of Registration of
the Business Name is held.
 Sole Traders
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 Others are;
 Business licence
 Taxpayer identification number (TIN)
 Identification card i.e. national ID, Voter’s
registration ID e.t.c
 Collateral
 Picture of the business location and the collateral
 Bank statement
 Business rent contract
 Tax clearance
16

 Banks should check carefully at the character of a

sole trader and soundness of the venture. Ideally
the bank should know the sole trader.
 3. Clubs and Associations:
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 Clubs and associations are run by

committees, which must abide to rules
stipulated in the constitution
 The business itself is not a separate legal

entity, hence no contractual powers.

 Clubs do not own property and their

members cannot be held liable for the

club liabilities.
 3. Clubs and Associations:
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Requirements
 Certificate of Registration documents

 Constitution

 The leaders of a club are required to submit

the documents of an asset they possess as a

collateral in case the club fails to repay the
loan
 Determine whether the officers have legal

capacity to guarantee the club.

 4. Trustees:
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 A trustee is someone holding property (asset) on

behalf of another
 A trustee is not allowed to delegate powers
 A trustee has a limited powers to borrow
 When a trustee ask for a loan banks should check the
trust deed to see whether the trustees have the
authority to borrow. In addition bank should be
satisfied that.
 Loan is to be used for specific purpose
 The security given is satisfactory
 Beneficiaries consent to the lending
 5. Executor & Administrators
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 Lend after receipt of a Letter of Probate or

Administration basing on personal values.
 High integrity
 Amount justified and reasonable.
 6. Partnerships:
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 Partnership is the relation that subsists

between persons carrying on business in
common with a view to profit
 Lending to partnerships is for the business

itself i.e. short term overdraft in anticipation

of fee income.
 Partnerships rarely have assets of their own,

therefore, in borrowing banks will rely on the

assets of the individual partners.
 6. Partnerships:
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 When lending to partnerships, banks in

addition to normal lending requirements,
have to make reference to partnership
deeds
 The lending banker must take the ‘joint

and several liability’ of all partners

 7. Companies:
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 A company is a legal entity incorporated under

Cap 212.
 A company is entirely a separate body from

the individuals forming it.

 It can sue, or be sued, make contracts through

agents or on its own and can own and dispose-

off properties in its own rights.
 7. Companies:
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 Requirements:
 MEMART
 Memorandum of Association.
 Articles of Association.

 Certificate of registration.
 Board of Directors’ Resolution.
 Thank You