Some Factors Bank Managers Consider Before Granting Loans

There are many factors which may influence the granting of loans by most Bank Managers and a number of them are outlined below;
1. The type of Account The Customer operates: Although non-account owners get loans, loans are normally given to current account owners more than those who operate savings accounts.
2. The Amount Involved: If it is a large sum of loan, the Bank Manager will consider whether if such an amount is removed, it will not affect the financial standing of the bank.
3.The Past Financial Dealings of the Customer with the Bank: one with sound past financial dealings with a bank has a higher chance of getting a loan and vice versa.
4. The Purpose for which the loan will be used: financially yielding projects are considered more buy bank managers in order to make sure that the loan will be used for projects that will yield profit so that it will enable the borrower to repay the loan.
5.The Collateral Security Offered:These collateral securities which are fixed assets must be the things the bank can sell easily and more than the value of the loan given.
6. The Period of Repayment: The period of re-payment of such loan is very important because, the Bank would not want its loan to be tied down for a very long time in spite of the fact that it changes interest on the loan.
7. The Customers Referee: The referee must be one who is well known to the bank and who will guarantee that in case the borrower defaults or becomes insolvent, that he will repay the loan.
8. The Earning Power of The Customer: The person's earnings vis-a-vis the amount to be given out as loan are some of the determining factors in granting and issuing loans.
9. The Sources of Re-payment: The Bank Managers will also like to know the possible sources the customer intending to borrow loans has for repaying the loan.
10. The Present Government Policy on Bank Lending: A Customer may fulfill all the "Conditions" but if government policy on lending is credit squeeze, the Bank will not grant the Loan and vice versa.

How Commercial Banks Create Credit or Money

By creating credits we mean the process whereby commercial banks, make it possible for more deposits to be made through loan and this process of creating credits is also called creation of money or money creation. By granting loans to their customers, commercial banks increase the purchasing power of the borrower and also increase the volume of money in circulation. Commercial banks use current account as basis of creating credit or money. However, it is not possible for one commercial bank to create credit or money. For credit or money to be created, the entire banking system, will have to be involved.
Commercial banks are required by law to keep certain percentage of their deposits with them. This percentage kept with them is known as Cash ratio or Liquidity ratio or Cash reserve. This is done in order to protect customer's deposits and prevent bank crisis. This percentage of cash ratio banks will keep is fixed by the central bank, and varies from one country to another. Assuming the central bank fixes 10% as the cash ratio, it then means that for every deposit a bank receives, 10% of the deposit must be kept in the bank while the remaining 90% can be given out as a loan or overdraft by the bank. This 10% cash ratio is kept or reserved with the bank in order for the bank to meet up with customer's withdrawals. There are other methods by which commercial banks generate credit, for example the death of a customer, by government policies, by the sale of receipts and treasury bills, and also by selling shares to customers and the entire public.

How The Central Bank Controls The Financial Activities of The Commercial Banks

The Central Bank of any country controls the financial activities of commercial banks in the following ways:
1.Open Market Operation: This involves the buying and selling of securities from and to commercial banks in order to increase and reduce the volume of money in circulation. If the central bank feels that the money in circulation is too small and wants to increase it, it will buy securities from commercial banks. By buying securities, it will increase the volume of money in the possession of the commercial banks and increase their ability to give more loans to members of the public,which will help to add more money in circulation. On the other hand, if the central bank feels that the amount of money in circulation is too much and wants to curtail it, it will sell securities to commercial banks. This will extract more money from commercial banks and at the same time reduce their lending powers and thereby decreasing the amount of money in circulation in the country.
2.Bank Rate: This which is also called discount rate, is the rate of interest the central bank charges commercial banks and other financial institutions for discounting their bills. If the central bank feels like curtailing the lending powers of commercial banks and other financial institutions, it will raise its discount rate, which will force other rates to rise. If the rate of interest charged by commercial banks and other financial institutions is high because that of the central bank rate is high, it will make borrowing very exorbitant and will scare people away and the rate of lending will reduce.On the other hand, if the central bank lowers its discount rate, the lending rate of commercial banks and other financial institutions will also reduce. This will make borrowing cheaper and people will be attracted to borrow.

11 Reasons Why Most Bank Checks Are Being Dishonoured

There are various reasons why bank checks are not being accepted from drawers:1. Insufficient Fund: When the amount written on a check is more than what the drawer has in his account in the bank.
2.The Death of The Drawer: If the bank recieves information of the death of its customer, the bank will not honour any check presented on the account of the dead customer, until further notice.
3. Irregular Signature: If the signature the drawer signs on the check differs from the specimen signature in the bank.
4. Non-Existing Account: Sometimes, swindlers who have no bank account but possess false check books may issue check to those whom they have swindled.
5. Bankruptcy: If one is judged by a law court to be unable to pay his debts in full, the bank will dishonour any check presented on behalf of that customer.
6.Frozen Account: If court orders or a military government decrees that some people's account be frozen, the bank must definitely dishonour all checks bearing the account's numbers.
7.When There is Attention: If anything is cancelled on a check, the bank will dishonour such a check, except the drawer signs his signature above or under the altered word.
8. A Post-Dated Check: If this is presented for payment, the bank will dishonour such a check.
9. A Stale Checkd: A check that has been delayed for more than six months of the date written on it, if presented for repayment must be dishonoured by the bank.
10. If There Is A Difference Between The Amount Written In Words And That in Figuresd: If for instance, the drawer writes thirty dollars only in words and $20 in figure.
11. When Payment is Stopped: If the drawer asks a bank not to pay a check already issued.

The Limitations On The Powers Of Commercial Banks To Create Credits or Money.

1. The cash deposit ratio, if increased by the central bank, decreases the money with the commercial banks, which means they have little to lend out and vice versa.2. The readiness of other banks to grant credits to avoid cash drain on a particular bank.3. The willingness of members of the public to borrow.4. The willingness of banks to lend to the public.5. The ability of borrowers to present acceptable collateral securities to banks.6. The amount of cash available to banks.7. Other actions of the central bank in regulating the volume of money in circulation, for example, the use of bank rate, open market operation,special directives etc.8. The willingness or unwillingness of customers to deposit their money in the banks.9. Availability of Productive investments which will stimulate members of the public to demand for loans or non-availability of productive investments which may damper the interest of members of the public to demand for more loans and overdrafts.10. The rate of interest charged by commercial banks on loans, granted to members of the public.

The Sources of Income To Commercial Banks

Commercial Banks generate money in the following ways:1. Commercial banks realise money from interest they charge in loans they give to their customers.2.They derive money from the commission owners of current accounts pay them.3.Commercial banks charge some amount for the agency services they render to their customers.4. Some amount accrue to commercial banks from discounting of bills of exchange.5. Commercial banks realise some amount from their capital investments which yield profits for them.6. They also realise some amount of money through the sale of government's treasury bills and shares for companies.