Download - Theories of Liquidity Management
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Loan Management 2
(Policy & Operations)
Presented byAmir HossainID: 51018056
Course Name: Bank Fund Management
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Loan SupervisionLoan supervision is the process of disbursing loan to the right people,
ensuring proper utilization of loan and advising borrower by suggesting him
the know-how to improve the financial condition so that the borrower can
successfully repay the loan.
Phases of Loan Supervision1
st
- Before Disbursement2nd - Disbursement to repayment3rd - After the repayment
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Times Spends on Loan Supervision in Different Stages
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Ways of Loan Supervision1. Personal Contacts
2. Periodical Reports
3. Financial Statements
4. Trends of Deposit Balance
5. Collection of Information from those having business transactions with
borrower
6. Collection of variation of statement of planned and actual fund
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1. Provide an objective grading system for loans2. Provide Current portfolio risk info to management & the board
3. Place problem credits under additional securities
4. Evaluate trends in loan portfolio
5. Cite loan policy exceptions and noncompliance with procedures
6. Cite documentation exceptions7. Cite violation of Laws and regulations
8. Assist in development of policy and procedures
9. Act as an info source concerning trends in the portfolio and the banks
economy
10. Ensure that the portfolio conforms to the bank loan policy11. Ensure that management and the board are informed on banks asset
quality
12. Allow lenders sufficient freedom to operate with imagination and
resourcefulness
Essential Areas of Responsibilities and Communication Goals
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1. Personal Surety
2. Immovable Property
3. Pledge
4. Marketable Securities
5. Documents of Title of Goods
6. Certificates of Fixed Deposits
7. Insurance Policies
8. Others
Frequently Used Securities in Bank
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Rating Category RatingScale
Collateral Support
HighestQuality
1 Govt. Securities,
Cash
2 Agency & High Quality MunicipalSecurities,
Insured CDs
3 Uninsured CDs,
High Quality Stocks and Bonds
4 Govt. Guaranteed Loans,
Risk Classification Scheme
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Risk Classification Scheme - ContinuingRating Category Rating
Scale
Collateral Support
Acceptable
Quality
5 Securities by Trading Asset (A/R &
Inventory)
6 Heavily dependent on collateral or
Guarantees
7 Inadequate Collateral
Rating Category Rating
Scale
Collateral Support
Poor
Quality
8 Inadequate Collateral
9 Inadequate Collateral
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How Borrowers and Lenders Behave over the Business CycleStage of Business Cycle Behavior of Borrower Behavior of Lender
Recession-unemployment
and idle capacity
- Liquidation in case of marginal
borrower
- Reduces bank borrowing
- Defers nonessential capital
- Repairs liquidity
- Excess liquidity which
erodes pricing
- Cautious on credit quality;
security conscious
Recovery and expansion - Continuous to repair balance
sheet liquidity
- Inventory and receivable build
- Increasing Productivity andearnings
- More liberal wage settlement
- Overtime payments grow
- Loan volume shows sign of
pick up in the face of excess
liquidity
- Intense competition push
bankers into unsound deals
- Rates rise and borrowers
turn to bonds rather than
bond market
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Stage of Business Cycle Behavior of Borrower Behavior of Lender
Boom-acceleration of inflationbeyond economys potential
growth
- Optimism mounts, Ordersand prices soar above
historic norms
- Raises wages sharply
- Reluctant to turn to long-
term financing increases
short and intermediate credit
substantially.
- Find cost of replacing
depreciated capital
equipment rising.
- Acquisition and tender offermore attractive.
- Find cost of replacing stocks
of raw materials and
components high
- Optimism Mounts- Increasing amounts loaned
against increasing cash flow
- High dependent on cash
flow for collection
- Demand for short term funds
increasingly strengthens.
- Lending for capital
expenditure grow and heats
up toward the end of
maturing up cycle.
- Acquisition loan increases.
How Borrowers and Lenders Behave over the Business Cycle - Continue
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Stage of Business Cycle Behavior of Borrower Behavior of Lender
Crunch-Restrictive Monetary
Policy
- Increases Prices wherever
possible. Wages increased in
anticipation of a freeze.
- Liquidity declines; leverage
sometimes excessive.
- Marginal borrowers find itdifficult to hold on.
- Cuts production as backlog
orders decrease.
- Pressures on working capital
affects debt servicing ability.
- Tries to improve collection of
receivables as payments
slow.
- Cautious selective in
extending new credit.
- Allocates funds formally or
informally.
- Discourage loan for:
Acquisition or purchase of
down share.
Speculation
Investment in outside
economy.
How Borrowers and Lenders Behave over the Business Cycle - Continue
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