FIN368: Chapter 4 - Administration of Loan

A typical credit process would involve business origination, credit administration and monitoring, credit recovery, and credit controls, review, and analysis.

• True

• False

The banking institution must have an effective management information system to enable management to be aware, measure, monitor, and control the credit risk inherent in its activities.

• True

• False

The ease of disposal of the collateral does not need to be taken into consideration in assessing the acceptability of collateral.

• True

• False

In the evaluation of credits, each credit proposal should be subject to careful analysis by a credit analyst with expertise, which commensurates with the size and complexity of the transaction.

• True

• False

Factors to be considered and documented in approving credits do not include the legal capacity of the borrower to assume the liability.

• True

• False

The administration of loans usually relates to the issue of credit control. Why is credit control important?

• To ensure that sales made cannot be realized as cash or liquid resources.

• To prevent the business from becoming illiquid due to improper issuance of credit to customers.

• To prevent the business from becoming liquid due to lending to a financial institution.

• To extend the repayment period of credit.

Which of the following is the responsibility of the Board of Directors?

•  Offer the credit to prospect customers.

•   Conduct monitoring and perform a bank operation.

• Provide the financing for banking operations.

• Ensure the proper oversight on bank’s credit management.

The availability of an effective management information system is important to enable the banking institution to do the following activities, EXCEPT?

• Maintain a database for research and use of analytical techniques.

• Report exposures.

•   Market the financial services facilities.

• Track the quality and account performance.

“The primary document by which the Board of Directors and management guide credit activities.” Which of the following represent this statement?

• Credit control

• Credit policy

•    Credit line

• Credit analysis

Which of the following will NOT be considered in assessing the acceptability of collateral?

• The value of the collateral

• The ease of disposal of the collateral

•  The color of the collateral

• The aggregate size of the particular collateral