8/12/2019 Loan Function of Banks

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FUNCTIONS OF BANKS

What are banks again?

- Banks are entities engaged in the lending of funds

obtained in the form of deposits.

Basic Functions

1. Loan Function

2. Deposit FunctionOther er!ices Offered b" the Bank

LOAN FUNCTION

1. #redit $pplication

- Bank must ascertain the capabilit" of the credit

applicant%borro&er to fulfill all its commitments to the

bank.

'o&?

Bank ma" demand a statement of assets and liabilities(

income and e)penditures( and such other information to

enable the bank to properl" e!aluate the credit

application. *his includes the financial statements of theborro&er submitted to the B+, for ta)ation purposes.

- hould such statements be incorrect in an" material

detail( the bank ma" terminate the loan or credit

accommodation granted on the basis of such statements

and demand immediate repa"ment of the loan or the

liuidation of the loan.

- urpose of the Loan / must also be in the contract

bet&een the bank and the borro&er

Wh"?

a. *he loan &ill be granted onl" in the amounts and for

the periods of time essential for the effecti!e completion

of the operations to be financed.

b. +f the loan &ill be used for a purpose other than that

stated in the credit application( &ithout the bank0s

appro!al( the bank ma" terminate the loan and%or

demand immediate repa"ment of the balance.

ot&ithstanding the preceding sentence( the proceeds

of a loan or other credit accommodation ma" be utilied

b" the borro&er for a purpose3s4 other than that

originall" stated in the application and contract5

ro!ided( *hat such other purpose3s4 is%are amongthose for &hich the lending bank ma" grant loans and

other credit accommodations under e)isting la&s and

regulations5 ro!ided( further( *hat such utiliation shall

be &ith prior &ritten appro!al of dul" authoried

officer3s4% committee%board of directors of the lending

bank and such &ritten appro!al shall form part of the

contract bet&een the bank and the borro&er.

- *he 6onetar" Board must take into consideration the

peculiar characteristics of micro-financing in the

promulgation of rules and regulations regarding credit

applications.

Micro-financing - $ t"pe of banking ser!ice that is

pro!ided to unemplo"ed or lo&-income indi!iduals or

groups &ho &ould other&ise ha!e no other means of

gaining financial ser!ices.

- Loans and credit accommodations shall be granted in

accordance &ith safe and sound banking practices.

Joint and Solidary Signature JSS! "ractice

$ common banking practice reuiring as an additional

securit" for a loan granted to a corporation the 7oint and

olidar" signature of a ma7or stockholder or corporate

officer of the borro&ing corporation 3ecurit" Bank !s.

#uenca( 891 #,$ :;14.

,easons5

a. +n case of default( creditor0s recourse is not limited to

corporate properties but e)tends to personal assets ofthe suret"