Observation

The question was attempted by almost all the candidates and their performance was also good. However some candidates could not distinguish between bank credit and trade credit. They defined the two terms separately.

The expected responses to the question include:

5.(a) Bank credit will involve the provision of physical cash or purchase of equipment required by the customer and then lease it to him while trade credit involves collection of items the company sells or uses from a supplier with the intention to pay later

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(b) Banks Grant Credit to Businessmen through:

• Overdrafts
• Loans
• Discounting of bills
• Leasing
• Debt factoring
• Credit Card
• Forfaiting
• Supplier line of credit
• Factoring

(c) Factors that a Bank Manager Should Consider before Granting Credit

• Collateral - The customer should provide adequate collateral.
• The worth of the collateral should be higher in value than the amount being requested and must be easily saleable and belong to the borrower.
• Guarantor - The customer must provide a person of good financial status as guarantor and should be known to the manager.
• Feasibility of the project- The project must be a viable one so as to pay the debt./Net worth of the business.
• The manager would consider the borrower’s character.
• The borrower should have a good record of repayment of previous loans.
• The bank’s policy on granting loans must be considered and followed.
• The government policy on bank loans should also be considered.
• The manager would consider the repayment period of the loan.
• The purpose of the loan would be considered by the manager.
• The bank manager would consider the level of the customer’s turnover with the bank.
• The amount to be borrowed by the customer would be considered.