Lending

14 Pages 3460 Words

¥balanced scorecard¡¦ of factors all aimed at minimising loan losses.
In Part II, I will review the apparently conflicting approaches of prudential management of banks and their ¡¥social responsibility¡¦ to their customers. In the final analysis I will argue that an optimum stress should exist between these two aspects of bank management and that neither should entirely dominate to the exclusion of the other.
While the Paper takes an overall view of the banking sector, it has been heavily influenced by example from the Bank of Ireland. I have taken care to set the practicalities of lending on a day to day basis, in the context of the more theoretical principles put forward by some of the leading writers in this field.



Part I ¡V Introduction
¡§Unless a loan is sold to a third party without recourse, a bank must live with it for better or worse.¡¨
P.Henry Mueller, Cycles & the Credit Culture, The Journal of Lending & Credit Risk Management, December 1998.
As P.Henry Mueller articulates so well in the above quote, financial institutions face a fundamental reality when managing their loan books: namely that their will always be a risk of default (subject to the said exception of sale without recourse of the loan-book). This paper will consider the measures open to the banker when trying to mitigate the risks of default.
In essence the balanced scorecard identifies areas which when combined constitute a cohesive environment for effective loan management. I have adopted this approach from its original source, namely that of management consultancy. However this is merely a framework for assessing the merits of the broad range of measures the banker has in terms of loan management in general and the mitigation of loan loss exposure in particular.
The key factors which come into play may be categorised as follows:
„Y Credit Policy
„Y Credit Grading & Control of Accounts
„Y Credit Review of the Loan Book
â€...