CML.Week13.Fall18.pptx - Commercial Banking 6F:114 Commercial Banking Fall 2018 Leighton Smith [email protected] 319.325.4928(m Commercial

CML.Week13.Fall18.pptx - Commercial Banking 6F:114...

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Commercial Banking 6F:114 Commercial Banking Fall 2018 Leighton Smith [email protected] 319.325.4928 (m)
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Commercial Banking Commercial Banking Week 13 Loans & Credit Approval Process
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Commercial Banking Unit Outline Lending policies and procedures Types and mixture of loans Regulation and loan policies The lending process Consumer loans Types of consumer loans Evaluating requests, credit reports and scoring Pricing Business loans Types of business loans Evaluating requests and financial statement analysis Pricing Guest lecture on Business Lending
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Commercial Banking Teaching Objectives Provide an overview of the credit process and loans at commercial banks Understand the characteristics of various commercial and consumer loans Study procedures for analyzing consumer loan requests Credit reports and scores Study procedures for analyzing commercial loan requests Fundamental credit issues and cash flow analysis Historical financial statement analysis Pro forma financial statement analysis
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Commercial Banking Types of Loans Made By Banks Commercial and Industrial Loans Real Estate Loans Financial Institution Loans Agriculture Loans Loans to Individuals Miscellaneous Loans Lease Financing Receivables
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Commercial Banking Total Loans Outstanding for U.S. Banks (Source: FDIC, SDI, 12/31/11)
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Commercial Banking Total Loans Outstanding for U.S. Banks (Source: FDIC, SDI, 12/31/11)
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Commercial Banking Composition of Loans Outstanding for U.S. Banks (Source: FDIC, SDI, 12/31/11)
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Commercial Banking Your Turn: Sample Exam Question The largest single category of loans issued by US banks is: a. Agricultural Loans b. Commercial and Industrial Loans c. Loans to Financial Institutions d. Loans to Individuals e. Real Estate Loans
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Commercial Banking Factors Determining the Mix of Bank Loans Characteristics of market area Bank size Experience and expertise of management Expected yield and risk of each type of loan Regulations
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Commercial Banking The Lending Process and Goals Retail versus wholesale Wholesale banking, financed with purchased funds, has been the norm for large banks over the past Big move to a more retail oriented base in the last few years Twin goals of lending Loan volume Loan quality The bank must balance these with: Liquidity requirements Capital constraints Risk constraints Return objectives
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Commercial Banking Regulation of Lending Loans are subject to close examination and many restrictions Most limit loan sizes to individual customers Several limit loans to insiders Community Reinvestment Act (1977) Requires effort to meet needs of trade areas Equal Credit Opportunity Act (1974) No discrimination Truth in Lending Act (1968) Requires APR reporting
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Commercial Banking Regulation of Lending (Continued) Uniform Financial Institutions Rating System Quality of asset portfolio ranked as 1. Strong performance 2. Satisfactory performance 3. Fair performance 4. Marginal performance 5. Unsatisfactory performance Better ratings less frequent examination
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