BANK MANAGEMENT & LOAN

Bank management & Loan

Bank management and Loan

Introduction

This work applies an Early Warning System and bank crises in different countries due which now bank usually give high consideration while approving loan. In recent years, there has been the development of models and early warning leading indicators of banking distress by authorities of banking supervision. These models are designed to quickly identify plants with financial situation and deserve a special attention from the supervisors and through an analysis of the financial health of banks. This paper will discuss about the early Warning Signals why Banks Rejects a Loan Applications.

Discussion

In recent years there have been failures of banks in different countries such as in Japan, China, American and 50% of the banks reduced their lending pattern in the past six years.

Early warning Signals

Early warnings are those variables that provide signals regarding the behavior of the banking crisis which consistently differs in the normal course of the period. Banks usually monitor these signals in order to discover the forthcoming crisis. These are indicators that determine the causes of crisis. There are some non financial indicators and financial indicators but bank usually consider s the non financial indicators when considering the loan proposal.

The main reasons for rejecting loan by the banks is due to the risks which banks has to faced. The entire world crisis was due to the mortgage loan and hence, made banks conscious when lending money to the borrowers. Growth of bad loans is historically one of the main causes of loss bank and its bankruptcy, the problem is particularly relevant in times of unstable time neither one of which are now experiencing by banks.

The Most Common Cause Credit Problems

In adverse economic conditions, which lead to the deterioration in the credit quality of assets, banks have to monitor credit line so that they can identify the early stage of losses. The earlier problems identified with respect to the borrower. The financial condition of the country indicates that borrower portfolio has huge chances of loan default and more opportunities to conduct reasonable restricting of potential problematic credit and solvency to maintain an acceptable loan proposal by the banks.

An expert of the international Finance Corporation identifies a number of key reasons for worsening the quality properties of the credit portfolio (Schwaab B., Koopman S., 2011, pp. 5).

Poor Identification of Risk which often reflects the lack of appropriate policies of lending or lack of weighted expert judgments.

Excessive lending which is an excess reasonable levels of lending

Failure to insist on the fulfillment of the plan payment which is principal and interest. Furthermore, the neglect of financial disciplines and violation of basic principle of lending.

Incomplete or delay of financial information may result in the complicated information competent to expert judgment and makes it impossible for further decisions. Excessive concentration of effort for a credit income which leads to poor decision credit decisions.

Lending to related parties, including excessive lending to insiders or companies in which ...