A Principles of Lending
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Certified Credit Professional — Certified Credit Professional.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is the primary principle underlying the concept of lending in banking?
The primary principle is safety of funds — a banker must ensure that the borrowed money is recoverable on demand or on the due date, protecting the depositors' funds entrusted to the bank.
What is the principle of 'covenants' in a loan agreement?
Conditions imposed on borrower to protect lender's interests.
What does the principle of liquidity mean in the context of bank lending?
Liquidity means the bank should be able to convert its loans and advances into cash within a reasonable time without significant loss, ensuring it can meet depositor withdrawal demands at any time.
What is the principle of 'capital adequacy' in the context of a borrower's creditworthiness?
Borrower's own funds invested in the business as a risk buffer.
What is the principle of profitability in bank lending?
Banks must earn a reasonable return on their advances to cover the cost of deposits, administrative expenses, and risk provisions while generating profit for shareholders and sustaining operations.
What is the meaning of 'conditions' as the fifth C in the 5-Cs of credit?
Economic environment and external factors affecting the borrower.
What is the principle of purpose in credit appraisal?
A banker must ascertain the exact purpose for which a loan is sought and must not finance speculative, illegal, or socially undesirable activities, as the end use of funds directly affects repayment prospects.
What is a 'take-out finance' arrangement in project lending?
Long-term lender takes over loan from short-term lender after commissioning.
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