Let us now discuss the principles of lending in details: Bank lend for short periods only because they lend public money which can be withdrawn at any time by depositors. Do people in the rural areas find it very difficult to borrow from bank? An industry or trade may face recessionary conditions and the price of the goods and commodities may sharply fall.
The bank has to earn profit to pay salaries to the staff, interest to the depositors, dividend to the shareholders and to meet the day-to-day expenditure. Plc has immensely contributed to the development of the Nigerian economy. Safety means that the borrower should be able to repay the loan and interest in time at regular intervals without default.
This is a statement of dealings expressed in words and figures according to book-keeping form. He should be a person of integrity, good character and reputation.
From the two problems, diversification of loan and lack of security, which one do bankers encounter most? The Lending Code The Lending Code is a self-regulatory code of practice which sets standards for financial institutions to follow when they are dealing with their individual or personal customers and micro-enterprise customers.
Secured Advances A secured advance is one which is made on the security of either assets or against personal security or other guarantees. It is essential because if the bank needs cash to meet the urgent requirements of its customers, it should be in a position to sell some of the securities at a very short notice without disturbing their market prices much.
But the shares and debentures of ordinary firms are not easily marketable without bringing down their market prices. Loans are not advanced for speculative and unproductive purposes like social functions and ceremonies or for pleasure trips or for the repayment of a prior loan.
A bank should follow the maxim: Government bonds and debentures of companies carry fixed rates of interest. We look for demonstrable benefit to the customer such as: Above all, the safety of bank funds depends upon the technical feasibility and economic viability of the project for which the loan is advanced.
Therefore, they lend funds for short periods and mainly for working capital purposes. On the other hand, If it is for productive purposes then there is more chances of repayment loan value with the interest. We do not tolerate abusive, misleading or fraudulent lending.
Two sets of minimum standards have been created, which outline what you should expect. The bank cannot afford to invest its funds in very long term securities or those securities which are unsaleable.
It should, therefore, invest it funds in the shares of reputed companies where the possibility of decline in their prices is remote. The Lending Code applies to personal and small business customers, whilst the Lending Principles have been created for larger business customers.
The same is the case with the securities of a rich municipality or local body and state government of a prosperous region.Principles of lending Posted on August 21, by admin The business of lending, which is main business of the banks, carry certain inherent risks and bank cannot take. Principles of Lending - Free download as Powerpoint Presentation .ppt), PDF File .pdf), Text File .txt) or view presentation slides online.
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Therefore, the banker should follow the cardinal principles of lending while lending money and make sure all the norms of sound financial lending are practised. To put it simply banks make money by lending money to borrowers, so it becomes very important for banks to follow the cardinal principles of lending.
Cardinal Principles of lending A bank is an institution which is primarily seen as a body that accepts monetary deposits from its customers (general public), looks after their money, offer them some beneficial services such as cheque books to make payments and lends money to other public (borrowers).
The Shakespearean tragedy ‘Julius Caesar’ and Rob Sitch’s film ‘The Castle’ are two such pieces of literature that examine a range of conflicting perspectives.
Principles of good lending A loan officer of a bank will always observe the principle before he/she can approve a loan application Purpose Should mention why he/she needs the loan.
Purpose of taking the loan must be for something good not for gambling, speculation and smuggling or .Download