Overview of Credit Policy and Loan Characteristics

Transcript:Overview of Credit Policy and Loan Characteristics:
Overview of Credit Policy and Loan Characteristics Chapter 13 Recent Trends in Loan Growth and Quality Larger banks have, on average, recently reduced their dependence on loans relative to smaller banks. Real estate loans represent the largest single loan category for banks. Residential 1-4 family homes contribute the largest amount of real estate loans for banks. Commercial real estate is highest for banks with $100 million to $1 billion in assets Recent Trends in Loan Growth and Quality Commercial and industrial loans represent the second highest concentration of loans at banks Loans to individuals are greatest for banks with more than $1 billion in assets Farmland and farm loans make up a significant portion of the smallest banks’ loans Recent Trends in Loan Growth and Quality Wholesale Bank Emphasizes lending to businesses Retail Bank Emphasizes lending to individuals Primary funding is from core deposits Recent Trends in Loan Growth and Quality FDIC Bank Categories Credit Card Banks International Banks Agricultural Banks Commercial Lenders Vast majority of FDIC-insured institutions fall in this category Recent Trends in Loan Growth and Quality FDIC Bank Categories Mortgage Lenders Consumer Lenders Other Specialized Banks (less than $1 billion) All Other Banks (less than $1 billion) All Other Banks (more than $1 billion) Recent Trends in Loan Growth and Quality Noncurrent Loans Loans and leases past due 90 days or more and still accruing interest plus all loans and leases in a nonaccrual status Nonaccrual loans and leases are those: that are maintained on a cash basis because of deterioration in the financial position of the borrower where full payment of interest and principal is not expected where principal or interest has been in default for a period of 90 days or more, unless the obligation is both well secured and in the process of collection Recent Trends in Loan Growth and Quality Net Losses (Net Charge-offs) The dollar amount of loans that are formally charged off as uncollectible minus the dollar value of recoveries on loans previously charged off Measuring Aggregate Asset Quality It is extremely difficult to assess individual asset quality using aggregate quality data Different types of assets and off-balance sheet activities have different default probabilities Loans typically exhibit the greatest credit risk Historical charge-offs and past-due loans might understate (or overstate) future losses depending on the future economic and operational conditions of the borrower Measuring Aggregate Asset Quality Concentration Risk Exists when