However, in a sequential historical order, the existing loan concepts can be outlined as: (i) The real bill doctrine (ii) The shiftability theory (iii) The anticipated income theory (iv) The liability management theory As was emphasized by adequately enumerated by Adam Smith. This will: (a) Automatically limit in the most desirable manner, the quantity of bank liabilities (b) Means that bank assets will be of such a nature that they can be turned into cash on short notice and this place the bank in a short notice. Monitoring After the approval of an advance, banks have to ensure that the performance of the firm is monitored. Anticipated income theory: After a through study of banks term loans, prochnon (1949) came up with a new loan theory known as the Anticipated income theory as was expressed in wood worth (1971). Since fixed assets are not usually swiftly saleable at a good price the effect would be to make the firms financial position riskier. The papers ordered and produced should be used as a guide or framework for your own paper. Then consider your general assessment of the customer. Stability Some firms are very vulnerable to economic fluctuations. Where s banker takes up the financing of almost all the stages of a project, the borrower may not get involved so deeply in the execution of the job because his stake in the project is relatively low. This could be done through (a) regular demand for the firms records (b) Monitoring of the project by physical inspection Monitoring of the conduct of the loan account to detect failure to meet loan account reduction as and when due.
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This he expressed as:. Collateral is the cell membrane transport essay security a bank has in assets owned and mortgaged / pledged by the borrower against a debt in the event of default. Project monitoring is a control measure to ensure judicious application of funds by the borrowers. Adekanye (1984 in supporting this view contended that it is a well known fact that banks are businesses established to make profits and not as charitable organizations. In most developing countries of the world, the lending function has become so paramount that it has persistently been integrated into government policy formation in the National Economic development process. M will only provide papers as a reference for your research.
(d) The anticipated source of repayment should be stated section II risk analyst summary AND recommendations The analyst should state the pros and cons of extending credit and evaluate the credit risks sufficient to justify or impede the lending decision. The second is denying a loan request to a customer who ultimately would repay the debt. It is also known as the productive / commercial loan theory, it reiterate that if the bank can restrict its assets to real bills of exchange (ie bills supported by goods in transit). Some bankers like ROY AND lewis (1971) affirmed that like folk lores they have passed from one generation of bankers to the other. Errors IN judgment When evaluating loan requests, bankers make two types of errors in judgment. However, according to pandey, he contends that the applicant should be asked to provide the financial statements, which will form a basis to analyze the performance and trend of the applicants business activities. Prochnon found in his study that in every instances regardless of the nature and character of the borrowers business, the banker planned liquidation of term loans for anticipated earnings of the borrower. The lending objective of the bank is to provide funds for growth and development, encourage savings and investment, and to maintain profitability and liquidity.
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