Learning Objectives:

  • Describe the loan processing lifecycle from application to disbursement.

  • Understand the difference between secured and unsecured lending.

  • Explain the management of credit facilities and overdrafts.

6.1 The Lending Lifecycle
Loan operations involve a structured process from application to approval and servicing. This includes verifying information on loan applications, conducting valuations on collateral, and managing both secured and unsecured loan transaction processing . Banks must meticulously maintain loan account transaction records to ensure accuracy and compliance .

6.2 Secured vs. Unsecured Lending

  • Secured Loans: Backed by collateral (e.g., property, vehicles, deposits). If the borrower defaults, the bank can seize the asset to recover losses.

  • Unsecured Loans: Granted based on the borrower’s creditworthiness (e.g., personal loans, credit cards). These carry higher risk and typically attract higher interest rates. The bank’s credit policy dictates the terms and risk appetite for such lending .

6.3 Managing Credit and Overdraft Facilities
Banks provide overdraft facilities to allow customers to withdraw more money than they have in their account up to an agreed limit, often requiring approval . Effective loan processing includes making timely credit decisions and ensuring proper documentation . Senior officials oversee loan operations, formulate guidelines, and monitor the portfolio’s health, including compliance and risk management .

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