Bank Credits: Advantages & Disadvantages

Abstract

The loans that borrowers cannot easily recover are called Problem loans. When the loans can’t be repaid according to the terms of the initial agreement or in an otherwise acceptable manner, they will be called problem loans. Problem loans can be considered as sickness for a bank. When a patient suffers from a disease, people try to cure them. In the same way, if a bank faces a problem loan, it will try to take the initiative to prevent it from becoming a bad loss. The lending process is trust-based and is imperfect by its nature. Credit analysis may be imperfect or based on faulty data, and loan officers may ignore the true condition because of strong personal lies to the bank. A borrower’s ability to repay may change after a loan is granted. If management concentrates solely on minimizing losses, a bank will make virtually no loan, profits will shrink, and the legitimate credit needs of customers will not be met. Lenders can’t eliminate risk, so some loan losses are expected. The objective is to manage loss experience so dial the bank can meet its risk and return target.