What should Financial institutions do when handling credit processing?

Answers

i) Set out pre-qualification screening criteria, which would act as a guide for their credit officers to determine the types of credit that are acceptable. These criteria would help institutions avoid processing and screening applications that would later be rejected
ii) All credits should be for legitimate purposes and financial institutions should establish adequate processes to ensure that they are not being used for fraudulent activities or activities that are prohibited by law or are of such nature that if permitted would contravene the provisions of law. Financial institutions must not expose themselves to reputational risk associated with granting credit to customers of questionable repute and integrity.
iii) Do credit appraisal - Credit appraisal is where the financial institution assesses the customer’s ability to meet his obligations. Financial institutions should establish well designed credit appraisal criteria to ensure that facilities are granted only to creditworthy customers who can make repayments from reasonably determinable sources of cash flow on a timely basis.
iv) Financial institutions must have a policy for valuing collateral, taking into account the legal requirements and provision policies of the central bank. Such a policy shall, among other things, provide for acceptability of various forms of collateral, their periodic valuation, process for ensuring their continuing legal enforceability and realization value.
v) In the case of loan syndication, a participating financial institution should have a policy to ensure that it does not place undue reliance on the credit risk analysis carried out by the lead underwriter. The institution must carry out its own due diligence, including credit risk analysis, and an assessment of the terms and conditions of the syndication.
vi) Financial institutions must differentiate between corporate and non-corporate
borrowers. Corporate credit applicants must provide audited financial
statements in support of their applications

Kavungya answered the question on March 26, 2019 at 09:24

Next: A stone of mass 200g tied to a long string 1m long and whirled round in a vertical circle at an angular speed of 6.28...
Previous: State a factor that determines the angle at which a road should be banked at a bend.

View More Economics of Microfinance II Questions and Answers | Return to Questions Index

What should Financial institutions do when handling credit processing?

Answers

Exams With Marking Schemes

Related Questions