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  3. Analyzing the "security"—the factor that banks employ to consider the loan grant

Analyzing the "security"—the factor that banks employ to consider the loan grant

游客2025-06-21  25
问题 Analyzing the "security"—the factor that banks employ to consider the loan granting.
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答案 (1) Concept of the security
    Security can be viewed as a "comfort" which provides the lending banker with the assurance that if things go wrong with the loan, there is another source of recovery available to minimize credit losses.         
    (2)The classification of the security
    A. Direct security and collateral
    Direct security: refers to the borrower’s assets obtained by the bank by way of a mortgage, charge or lien.
    Collateral: refers to any security deposited by a third party to secure the indebtedness of the borrower.
    B. Tangible and intangible
    Tangible: include land, buildings, fixed deposits, shares and stocks.
    Intangible: guarantees and indemnities.                          
    (3)The types of security and their features
    Land and other property
    Most popular type of security.
    It can be classified as "legal" or "equitable" mortgage.
    Life policy
    It is an adequate form of security, especially against loans made to a sole proprietorship.
    Stocks and shares
    It is common type of security.
    To avoid the risk involved, loans should not be made against "unquoted" shares.
    Guarantees
    It is a written undertaking to be responsible for the debt of another party.
    There are three parties involved: creditor, debtor and guarantor.
    Debentures
    It is a written acknowledgement of indebtedness by a company, usually given under its seal and setting out the terms of interest and repayment.
    Deposits
    It is a safe and highly liquid form of security.
    Its value is readily available and realization is relatively easy.        
    (4)The factors influencing the judgment of the security
    Value: the price at the time it is necessary to sell the asset so as to recover the loan.
    Type:
    Acceptability: acceptable to the bank as security, and be readily available to be transferred to the bank.
    Realizability: the last step that the bank takes to recover the loan.      
    (5)The criteria for good or suitable security
    Easy to value.
    Easy to transfer tide.
    Easy to realize.
    Stable and increasing in value.                                   
    (6)The advantage of using security
    It provides banks with some form of insurance to safeguard the bank against any loss if the loan turns out to be irrecoverable.                                          
    (7)The limitation of using security
    Security is a protection rather than a source of repayment. It should be the last item to be considered in loan approval.
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