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Money and credit - Ivanov V.M.

15.4. Bank lending

The organization of credit relationships of commercial banks with customers is determined by many factors, including the strategy and tactics of the bank, the qualifications of bank employees, the size of the authorized capital and equity. The lending process consists of a number of stages, each of which separately provides a solution to specific problems, and together they are aimed at achieving the goal of bank lending - obtaining bank profit.

At the first stage of bank lending, customer applications for a loan are analyzed and selected. The application shall indicate the purpose of the loan, its amount, period of use, repayment date, characteristics and economic effect of the project from lending, forms of loan security. At the same time, the bank estimates the probability of timely repayment of the loan and interest for its use.

The bank employee must make sure that the client is registered as a business entity in state registration bodies.

After reading the documents, the employee talks with the future borrower, which is of great importance for the subsequent resolution of the issue of granting a loan. It also enables the bank to find out important details related to the application for a loan, to determine its attitude towards the client.

At this stage, the bank should pay attention to the reliability of documents and information, on the basis of which the issue of granting a loan is decided.

The next stage of the lending process involves the study of the creditworthiness of the client, i.e., the existence of a basis for obtaining loans, the ability to repay them. The borrower's creditworthiness is determined by indicators that characterize its accuracy in settlements for previously received loans, its current financial condition and prospects for changes, the ability to mobilize funds from various sources, if necessary.

To get a more complete picture of the client’s business and financial activities, to clarify and verify the accuracy of the information and documents provided, banks can conduct on-site inspections.

After that, the bank proceeds to the third stage of granting a loan - developing credit conditions, preparing and drawing up a loan agreement. After a clear definition of the characteristics of the loan (and agreement has been reached on all its terms), the text of the loan agreement is drawn up.

The interest condition is one of the essential conditions of the loan agreement. The essence of interest as an economic category is that it represents a part of the profit that the borrower pays for the borrowed money capital, that is, interest is the irrational price of borrowed capital.

The next stage of bank lending is characterized by the fact that the bank controls the implementation of the terms of the loan agreement. The purpose of this stage is to ensure the timely and complete repayment of the loan and interest.

If the financial and business activities of the client deteriorate and there is a risk of loan non-repayment, the bank takes a set of measures that would ensure loan repayment.

The last step in the bank lending process is to repay the loan along with interest.

But often the parties extend the terms of the loan agreement, for which the loan agreement is amended and supplemented in writing. Changes to the loan agreement are, in most cases, related to the extension of the loan repayment period.