Ch_13_Loan_Policy

Ch_13_Loan_Policy - Overview of Credit Policy and Loan...

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Overview of Credit Policy and Loan Characteristics 11
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Recent Trends in Loan Growth n Larger banks have, on average, recently reduced their dependence on loans relative to smaller banks. n Real estate loans represent the largest single loan category for banks. n Residential 1-4 family homes contribute the largest amount of real estate loans for banks. n Commercial real estate is highest for banks with $100 million to $1 billion in 22
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Recent Trends in Loan Growth n Commercial and industrial loans represent the second highest concentration of loans at banks n Loans to individuals are greatest for banks with more than $1 billion in assets n Farmland and farm loans make up a significant portion of the smallest banks’ loans 33
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Recent Trends in Loan Growth n Wholesale Bank n Emphasizes lending to businesses n Retail Bank n Emphasizes lending to individuals n Primary funding is from core deposits 55
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Recent Trends in Loan Growth n FDIC Bank Categories n Credit Card Banks n International Banks n Agricultural Banks n Commercial Lenders n Vast majority of FDIC-insured institutions fall in this category 66
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Recent Trends in Loan Growth n FDIC Bank Categories n Mortgage Lenders n Consumer Lenders n Other Specialized Banks (less than $1 billion) n All Other Banks (less than $1 billion) n All Other Banks (more than $1 billion) 77
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Recent Trends in Loan Growth n Noncurrent Loans n Loans and leases past due 90 days or more and still accruing interest plus all loans and leases in a nonaccrual status n Nonaccrual loans and leases are those: § that are maintained on a cash basis because of deterioration in the financial position of the borrower § where full payment of interest and principal is not expected § where principal or interest has been in 1111
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Recent Trends in Loan Growth n Net Losses (Net Charge-offs) n The dollar amount of loans that are formally charged off as uncollectible minus the dollar value of recoveries on loans previously charged off 1212
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Measuring Aggregate Asset n It is extremely difficult to assess individual asset quality using aggregate quality data n Different types of assets and off- balance sheet activities have different default probabilities n Loans typically exhibit the greatest credit risk n Historical charge-offs and past-due loans might understate (or overstate) 1616
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Measuring Aggregate Asset n Concentration Risk n Exists when banks lend in a narrow geographic area or concentrate their loans in a certain industry n Country Risk n Refers to the potential loss of interest and principal on international loans due to borrowers in a country refusing to make timely payments 1717
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Trends in Competition for Loan n In 1984, there were nearly 14,500 banks in the U.S. n
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This note was uploaded on 09/07/2011 for the course FIN 653 taught by Professor Cobus during the Spring '08 term at S.F. State.

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Ch_13_Loan_Policy - Overview of Credit Policy and Loan...

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