BFI

• Loans and Discount Function

  The largest single source of bank income depends on the amount of its loans
• Loans


  • Advances to persons dealing in commerce and trade and/or swapping of credits
  • Dictates the degree of success the institution may attain
• Loans


  Advances on which interest is collected at maturity

  
• Discounts


  Interest is deducted in advance, entered in the bank's book of accounts as unearned interest income
• Loans


  Depend largely on the bank's ability to attract and retain large deposits
• Loan classifications by purpose

  • Commercial loans
  • Agricultural loans
  • Industrial loans
  • Personal loans

  
• Loan classifications by maturity

  • Short term
  • Intermediate
  • Long term

  
• Loan classifications by security

  • Secured
  • Unsecured

  
• Loan classifications by method of payment

  • Self-liquidating
  • Non-self liquidating

  
• Loan classifications by method of release


  • Release on installment
  • Lumpsum release

  
• Loan classifications by source

  • Bank credit
  • Mercantile credit
  • Private credit
  • Public credit

  
• Regular line of credit


  Amount granted based on regular needs and regularity of payments, can be utilized over and over again
• Maximum loan commitment


  Similar to regular line of credit but used portion cannot be availed of again

  
• Overdraft line


  Allows depositor to draw over and above existing deposits, requires marginal deposits
• Loan and Discount Department is one of the bank's training grounds for well-rounded understanding of important bank functions
• Loan application and processing

  1. Loan application

  2. Credit investigation

  3. Loan approval

  4. Loan release

  5. Loan collection

  
• Credit investigation


  • Ascertains the credit risk, results in a Credit Investigation Report used to guide loan decision

  
• Control of credit may be effected in many ways by different agencies
• Follow up and collection

  1. Sending reminders, mild letters, court action for delinquent debtors

  2. Borrower makes payments at the bank, reflected in loan passbook
• Clearing


  Presentation and collection of checks drawn on other banks, inter-bank offsetting of balances

  
• Clearing house


  Association of banks that agree to contribute to expenses of interbank settlement of items for exchange or collection
• Modern clearing is faster than traditional clearing, with one day clearing for all types of checks
• Clearing house operation


  Banks with debit balances pay, banks with credit balances receive payment, netting of balances
• Types of exchanges


  • Simple exchange (internal clearing/on-us checks)
  • Local exchange
  • Domestic intercommunication (regional)
  • International exchange
• Kiting


  Drawing funds against a check still in the process of clearing, taking advantage of the time element
• Trust


  A systematic scheme or arrangement whereby confidence and title to property are placed upon one party for the benefit of another
• Trustee


  The party that assumes the obligation of faithfully administering the property as if it were their own
• Trust


  A systematic scheme or arrangement whereby confidence as well as title to the property are placed upon one party for the sole benefit of another
• Nature of a trust agreement

  • Implies the presence of complete faith and confidence among the parties
  • Creator of the trust (trustor, grantor, donor, testator) transfers title of the property to another person (trustee) for the benefit of a third person or himself (beneficiary)
  • Trustee is expected to assume the obligation of faithfully administering the property as if it were his own and thus exercise the prudent man principle
• Trustor


  One who entrusts his property to a trustee
• Trustee


  A person holding legal title to a property for the benefit of another person
• Beneficiary


  The person for whose benefit the property has been entrusted
• Will


  An instrument by which a person may direct to whom and upon what terms, his estate shall be distributed
• Testator


  A person who makes a will
• Testate


  A person who dies leaving a valid will
• Executor


  The one named in the will to settle the estate
• Administrator


  One who is appointed by the court in the absence of a will to settle the estate
• Holographic will


  A will that is written wholly and completely in the handwriting of the testator

  
• Settlor


  One who creates a trust by agreement or declaration
• Agent


  One who acts for and in behalf of another person