Bank Lending: Policies &

Procedures
Chapter 17
Banking course

How banks decide how much to lend?
Who to lend?
Where should be the concentration?
Key decision: Will the bank decide to
lend across all sectors or will it be
selective?
How much to lend
Authority -Presidents Council BM
SVP
Lending capacity next 6 months lend out
100 billion.
One party will not get more than 1 billion
Gearing ratio
Who to lend:
Sectors distribution
Maturity
Geographic distribution
Social classes
Size of the bank matters when deciding
who to lend
For most banks, loans account for half or
more of their total assets and about half to
2/3 of their revenues.
Moreover, risk in banking tends to be
concentrated in the loan portfolio


Types of Loans made by Banks:
Real estate loans
Financial institution loans
Agricultural loans
Commercial and industrial loans
Loans to individuals
Lease financing receivables
Factors determining the growth and mix of
bank loans
1. Profile of characteristics of the market area
it serves
2. Participations with other banks
3. Bank size : (larger banks are typically
wholesale lenders and smaller banks tend
to emphasize retail credit)
4. The experience and expertise of
management
5. Official loan policy

Regulation of Lending:
The loan portfolio has more to do with
risk and safety than any other aspect of
the banking business. Some loans are
restricted or prohibited by law.
Loans that are performing well but have
minor weaknesses because the bank
has not followed its own loan policy or
has failed to get full documentation from
the borrower are called criticized loans.
Loans that appear to contain significant
weaknesses or that represent what is
dangerous concentration of credit in one
borrower or in one industry are called
scheduled loans.

When some loans carry an immediate
risk of not paying out as planned,
these credits are adversely classified.
These are placed into 3 groupings:
1. Substandard loans
2. Doubtful loans
3. Loss loans
Banks performance is rated by
quality of loans and other bank
assets and also by numerical ratings
are also assigned based on banks
capital adequacy, management
quality, earnings record, liquidity
position and sensitivity to market risk
exposure.



All six dimensions of banks
performance are combined into one
overall numerical rating. CAMELS
rating. The letters are derived from:
Capital adequacy
Asset quality
Management quality
Earnings record
Liquidity position
Sensitivity to market risk
Establishing a written Loan Policy:
1. A goal statement for the banks loan portfolio
2. Specification of the lending authority given to each
loan office and loan committee
3. Lines of responsibility in making assignments and
reporting information within the loan dept.
4. Operating procedures for soliciting, reviewing ,
evaluating and making decisions on customer loan
applications.
5. The required documentation that is to accompany
each loan application and what must be kept in the
banks credit files
6. Lines of authority within the bank, detailing who is
responsible for maintaining and reviewing the banks
credit files
7. Guidelines for taking, evaluating and perfecting loan
collateral.
8. A presentation of policies and procedures for setting
loan interest rates and fees

Loan process
1. Origination / application
2. Documentation
3. Credit check
4. Negotiation
5. Presentation
6. Loan approval
7. Loan signing ceremony
8. Disbursement
9. Monitoring
Documentation
CNIC
NTN
Bank Statements
Financial statements
Employees letter/ pay slips
Forecasted financial statements
Feasibility report
Asset documents
Guarantor's CNIC, Co-signers CNIC
Credit Check
CIB
Financial ratios
Assets value
Interview

Negotiation
Four parties involve
Loan applicant
Applicant's legal departments
representative
Loan officer
Banks legal departments representative
Discuss about:
Interest rate
Disbursement schedule
Claim on collateral
Early repayment


Disbursement schedule
Date Disbursement Clause
on the day of
approval 10 million
two months 20 million
All requirement for
building is completed
four months 10 million
Basic structure is
complete
two months 2 million Building is finished
Dear Madam Faiza,
Below is the list of documents required:
Your Documents:
CNIC copy
2 Passport size Photographs
Copy of Appointment letter, Resignation and Experience letter from LSE when left
Copies of last 2-3 months salary slips before leaving LSE
Copy of Appointment Letter (When joined again)
Copies of last 2-3 months salary slips after joining again
Employment Certificate from LSE mentioning the designation, permanent status, date of joining
and salary drawn
Last 3 years Salary Account Bank Statement (from 1st March 2011 till date)
Further may be asked during the process
Your Husband's required Documents:
CNIC copy
2 Passport size Photographs
Copy of Appointment letter
Copies of last 3 months salary slips
Employment Certificate from Employer mentioning the designation, permanent status, date of
joining and salary drawn
Last 3 years Salary Account Bank Statement (1st March 2011 till date or since whatever
applicable can be provided)

Initial Processing Charges (Stage- 1):


Rs. 11832 cash deposit in Dubai Islamic Bank Gulberg Branch


Further charges will be required after property selecion that applies: Legal opinion by the lawyer
on the property selected and property appraisal (Valuation) charges (3500+3500).