CREDIT ANALYSIS

Government/Public deposits

represents those owned by the government or its political subdivisions or instrumentalities.

Bank Loans

refer to the major part of bank credit whereby a bank earns the greatest portion of its income.

Lines of Credit

consolidation of the credit needs of a certain borrower based on experience and the bank extends it to facilitate the borrower in his credit needs.

lenders viewpoint

credit is the trust and confidence of the lender in the borrower’s willingness and ability to pay.

borrower’s viewpoint

credit represents the borrower’s ability to
obtain goods and services in exchange for a promise to pay in the
future.

economist’s viewpoint

credit is the exchange of an actual reality
with future probability.

legal viewpoint

credit creates a legal right in favor of the creditor
against the debtor who is under obligation to pay.

trust and confidence

implies that the creditor has faith in the ability
and willingness of the debtor to fulfill his obligations to pay in the
future.

futurity or time

refers to the specific date or time in the future for
paying one’s obligation.

risk

refers to the hazard that is due to the uncertainty of payment
or the probability of non-payment.

credit risk

any applicant for credit

Moral Risk

= any applicant for credit who is granted credit based
primarily on his character to pay.

business risk

one who is granted credit based primarily on his
capacity to pay.

property risk

one who is granted credit based primarily on his
property or ownership of any investment.

legal reserve ratio

the BSP decreases credit by raising the rate of
legal reserve; while it increases credit by lowering the rate of legal
reserve.

discount rate

interest on loanable funds may be reduced by the
BSP  to encourage borrowers to borrow; and it may be increased
by the BSP  to discourage borrowers.

rediscount facilities of the bsp

this may be availed by a bank when
it runs out of loanable funds.

open market conditions

refers to the buying from or selling to the
public of marketable securities. This maybe employed by the BSP
toward off either inflation or deflation.

selective credit control program

this is a policy of first thing first
which is adopted so that the loanable funds are exclusively
channeled to productive uses.

character

the peculiar qualities of a debtor which refers to his
willingness & determination to pay his debt when it falls due.

character

This is
measured by his personal habits & activities

capacity

the ability of the potential borrower to pay debt on the
date of maturity.

capacity

This is best indicated by his present capital &
earning capacity.

capital

this refers to all properties owned by the debtor in
procuring his income.

collateral

any property which is pledged by the borrower
deposited with the lender to secure payment of the debt.

condition

this may refer to economic, political and social
conditions which might affect the decision of the creditor to
determine whether to grant or not to grant credit.

borrower’s risk rating system

is an instrument
used to help control credit risks; it helps creditors to identify and mitigate
areas of risk involved in extending financing to clients.

CREDIT INSTRUMENT

is a written evidence of the existence of credit contract
entered into between the creditor and debtor.

CREDIT INSTRUMENT

It is a written agreement
evidencing the existence of debt that gives a legal claim to the creditor against the
debtor.

CREDIT INSTRUMENT

It is a written agreement
evidencing the existence of debt that gives a legal claim to the creditor against the
debtor.

PRESENCE OF RISK

because of the possibility of non-payment in the future.

STRESS ON THE DEBTOR CREDITOR RELATIONSHIP

an agreement between the
borrower and the lender.

CLEAR AND DEFININTE DETAILS OF THE TRANSACTION CAN BE STIPULATED BY THE PARTIES

The obligations of the debtor as well as the rights of the creditor are
spelled out in the instrument, including the rate of interest & terms of
payments.

CREDIT INSTRUMENTS CAN BE TRANSFERRED TO THIRD PARTIES

This is because
it can be used as collateral in securing loans to third parties.

IT IS AN INCONTESTABLE PROOF OF THE CREDITOR

In cases of court
proceedings, the lender has an undefeatable proof or evidence.

UNLIMITED ACCEPTABILITY

those which pass from one hand to
another hand without question as to their source & possess the
characteristics of money.

LIMITED ACCEPTABILITY

those whose acceptance depend on the
credit standing of the issuer or maker.

ORDER TO PAY

refers to the order of a person to a second person to
pay a third person a certain sum of money on demand or at a
determinable future time.

PROMISES TO PAY

contain the promise of one person to pay another
a certain sum of money on demand or at a determinable future time.

DRAWER

ONE WHO GIVES ORDER

DRAWEE

ONE WHO IS ORDERED TO MAKE PAYMENTS

PAYEE

ONE WHO RECEIVES PAYMENT

CHECK

an order of a depositor to his bank to pay a certain sum of
money to a third party or himself on demand.

ORDER OR BEARER CHECK

a check payable to the order of a
specified individual or company or to the bearer of the
instrument.

CROSSED CHECK

a check that cannot be presented to the
bank for cash payment but to be deposited in the account
of the payee in his bank.

CERTIFIED CHECK

check which has been certified by the
bank official as to the sufficiency of funds covering the
amount on the face of the check.

CASHIERS OR MANAGERS CHECK

the bank’s order to pay drawn
upon itself & signed by the cashier/manager payable to the
person or firm designated by the depositor.

POST DATED CHECK

check which is issued by the drawer
showing a future date, hence, it should not be presented
for payment before the date it bears, nor will it be
acceptable for deposit.

STALE CHECK

a check which is not presented to the bank for
cash payment nor deposited to the payee’s account after six (6)
months from the date it bears.

TRAVELERS CHECK

a form of check that is not drawn on any
particular bank but it is payable anywhere throughout the
world.

COUNTER CHECK

used by a depositor who wishes to
withdraw all his money from his account but whose check
booklet has been exhausted.

BOUNCING CHECK

a check which has no sufficient funds.

BANK ON US CHECKS

these are checks that are drawn on
a particular bank branch only.

LOCAL CLEARING CHECKS

these are checks drawn against
other banks within the locality.

REGIONAL CLEARING CHECKS

these are checks drawn against
banks in provinces with BSP regional clearing.

MANILA CLEARING CHECKS

these are checks drawn against
banks branches in Manila with BSP Manila clearing.

DRAFTS

are orders to pay and are drawn by a drawer against a
drawee to pay a third party, a certain sum of money on demand or at
a future determinable time.

BANK MONEY ORDER

\=when the order is drawn by a
bank on another bank to pay a specified payee.

POSTAL MONEY ORDER

when the order is from one
post office to another post office to pay a specified
payee.

BANK DRAFT

an order of a bank to another bank or the
depositor to his bank to pay a third person a definite sum of
money.

TRADE OR COMMERCIAL DRAFT

an order drawn by a seller on
the buyer or another business firm to pay a certain sum of
money to bearer or to a third party on demand or at a fixed
future time.

SIGHT OF DEMAND DRAFT

a draft which is payable at sight or
upon presentation of the draft by the holder.

TIME DRAFT

is a draft wherein the order to pay sets a definite
determinable future time for payment.

ACCEPTANCE

is originally a draft presented for acceptance to the
drawee and when the drawee accepts the draft

TRADE ACCEPTANCE

is an order of the seller on the buyer to
pay a certain sum of money at a stipulated future time. If the
buyer accepts the terms, he annotates the draft with the word
accepted across its face together with his signature & the date
of acceptance.

BANKERS ACCEPTANCE

when an order to pay is presented to
a bank for its acceptance. If the bank accepts the terms, the
word accepted is stamped on the face of the instrument & it
will be signed and stamped with the date of acceptance.

PROMISES TO PAY

contain the promise of one person to pay another
a certain sum of money on demand or at a determinable future time.

MAKER

PERSON PROMISING TO PAY

OPEN BOOK ACCOUNT

implies the verbal promise of the debtor when
he buys consumable goods of credit and this is otherwise known as
charge account.

PROMISSORY NOTES

an unconditional promise in writing made by one
person to another, signed by the maker, engaging to pay on demand
or at a fixed future time a certain sum of money to order or to bearer.

SINGLE NAME PROMISSORY NOTE

one that bears only the
name of the maker.

TWO NAME OR DOUBLE NAME

one that bears the signature of
2 persons – the maker and co-maker.

COLLATERAL PROMISSORY NOTE

one in which the collateral is described
on its face or one a separate document.

COMMERCIAL LETTER OF CREDIT

a written promise on the part of the
bank to honor drafts drawn against it or for its account by a specified
beneficiary or his order under the specified beneficiary of his order
under the specifications contained in the letter of credit.

COMMERICAL LETTER OF CREDIT

A letter issued by a bank at the request of a buyer authorizing
the seller to draw drafts against the bank for a designated sum of
money payable at a specific time.

BUYER OR IMPORTER

the buyer of merchandise who will
initiate the letter of credit.

SELLER OR EXPORTER

the party who is to receive the letter of
credit.

OPENING BANK

bank of the buyer that issues and undertakes
the letter of credit for the account of the buyer.

NEGOTIATING BANK

bank of the seller instructed to pay the
letter of credit.

LETTER OF CREDIT

is initiated by the importer, that is, he makes
arrangement with his bank to open a letter of credit in favor of the exporter.

CIRCULAR

when the opening bank issues a letter addressed
generally to persons or corporation indicating its intention to
honor the drafts of the beneficiary under the terms specified
therein.

SPECIALLY ADVISED

when the opening bank notifies the
beneficiary directly of through a notifying bank.

REVOCABLE

when the bank has the right to cancel the credit
before negotiations without prior notice to the beneficiary.

IRREVOCABLE

when the bank waives its right to cancel of
notify the credit prior to negotiations.

CONFIRMED

when the notifying bank upon instructions of the opening bank assumes the obligation to perform the undertaking stipulated in the letter of credit. The liability of the bank of the importer is also the liability of the bank of the exporter, hence, the exporter enjoys the protection of 2 banks.

UNCONFIRMED

when the bank of the exporter does not
assume any other obligation except that of notifying the
beneficiary, in short, it acts only as the advising or paying
agent for the issuing of bank.

CREDIT MOMEY

emphasizes its use as a medium of exchange

COMMERCIAL CREDIT MONEY

used to facilitate the use of credit in
short-term commercial activities.

INVESTMENT CREDIT OR INVESTMENTS

used for long-term credit

NON NEGOTIABLE

those instrument that lacks the essentials of
negotiability.

NEGOTIATION

the transfer of the instrument from one party to
another party

PRESENTMENT

exhibiting of the instrument at the bank either for
payment or for acceptance.

DISHONOR

this means that the instrument is refused payment or
refused acceptance.

ENDORSEMENT

simply indicated by the signature of the endorser at the back of the instrument or on some paper attached THERETO

BLANK ENDORSEMENT

the printing of one’s name and
signature at the back of the instrument without specifying the
indorsee.

FULL OR SPECIAL ENDORSEMENT

one in which the indorser
specifies the person to whom or whose order the instrument is
to be payable.

RESTRICTIVE ENDORSEMENT

an endorsement that prohibits the
further negotiation of the instrument.

QUALIFIED ENDORSEMENT

is one that limits the liability of the endorser. It is made by writing the words “without
recourse”.

CONDITIONAL ENDORSEMENT

is a special endorsement to
which words are added that create a condition which must
happen before the endorsee is entitled to payment.

HOLDER IN DUE COURSE

is one who accepts the instrument with the understanding that