Credit methods are methods of issuing loans and repaying them in accordance with the principles of loans, which determine the nature of the movement of funds in the circulation of funds and the borrower.
general description
Domestic banks have chosen the main lending methods in the pre-reform period: the turnover, the balance of production and inventory costs. The differences in these two forms consisted in a change in the technique and methods for assessing the needs of enterprises for loans, as well as in the process of processing and the mechanism for granting loans. Short-term lending methods were differentiated on the basis of technical rather than economic characteristics, and this suggested a single administrative approach to lending. Its use led to the fact that various enterprises provided credit resources regardless of social needs and performance. In this regard, the growth of borrowed investments significantly exceeded the increase in real commodity mass.
The result of this approach was the dissatisfaction of social needs for goods and services, taking into account their structure, which was constantly changing. Despite the fact that the existing lending methods were supplemented by one more, under the aggregate facilities that were developed and implemented in special banks since the beginning of 1988, the situation did not change. Due to the decentralization of economic management in the transition to a market economy, there is a need to change the role of the banking system in the mechanisms of economic management.
Characteristics of each species
Credit methods need to be examined in detail.
- Providing a loan on the balance. In this case, the movement of the loan is carried out in accordance with the change in the value of the object to which it is issued. The loan is linked to the movement of balances on credited values, which can serve as various values of commodity-material nature, work in progress, finished products, deferred expenses, goods shipped. Due to the growth of excess reserves, a need for a loan arose, and their reduction required the repayment of a certain part of it. The balances changed as a result of stock circuits. As soon as the credited reserves and costs increased, a loan was issued, and when the balances decreased, the loan was repaid. Such methods of lending to legal entities involved two periods: the time of issuing the loan and its repayment. In this case, the loan was in the nature of compensation, because it reimbursed the economic bodies of their funds, which were in stocks of values and costs in excess of the norm.
- Lending on turnover. This type of loan was determined by the circulation of material assets, that is, their receipt with subsequent spending, the beginning and end of the stock circulation. Here, the loan is exclusively of a payment nature, since its issuance was made exclusively for making payments at the time when there was a need for borrowed funds. Such lending methods suggested that the loan will be repaid upon completion of the full circulation of funds available to the borrower, in full accordance with the plan of commodity circulation. This method assumes that the periods of granting and repaying a loan could overlap.
- Crediting under the aggregate object. This method is transitional from providing loans to disparate multiple lending facilities and providing loans to enlarged facilities according to a single unified scheme, with only turnover being taken into account. Methods of lending by turnover are the provision of a loan on the aggregate stocks of the enterprise and production costs. They gradually transferred all sectors of the economy.
At the moment, these methods of bank lending can be called turnover-balance, as they apply the features of lending by balance and by turnover.
Current situation
Now, in this order, loans are provided to state transport, industrial, construction, agricultural, supply and marketing and trade organizations.
It is worth noting that such methods and principles of lending cannot exist in pure form for a long time, since this is a transitional option. There are certain contradictions between a pair of methods, so in each case its features become more pronounced in one of the directions. In relation to new commercial structures, that is, private ownership entities, loans are issued by commercial banks based on other forms and methods of lending borrowed from foreign banking practice.
International practice
- Individual lending methods. A loan is provided to meet certain target needs for funds, and the term is known in advance and specifically. This method is the main one when lending to new customers who do not yet have an established history in this bank. Typically, this form of financing acts as an unconditional contract, that is, from the moment of conclusion of the loan agreement, the bank is obligated to fulfill certain obligations on time.
- Methods of lending to legal entities with the opening of a credit line, that is, the provision of a loan, is made within the limit previously established by the credit institution for the borrower, which will be used as needed by paying for the payment documents presented to it during a certain time period.
Credit line: features
Thanks open line of credit at the expense of the loan you can pay any settlement documents that are indicated in the loan agreement concluded between the bank and the client.
As a feature of this form of financing, one can single out that this is an unconditional contract, obligatory for the bank, and a simple loan agreement will be consensual, that is, its presence is already an obligation for the lender to provide a loan. If a credit line is used, the agreement may be canceled by the bank, if the client's financial situation noticeably worsens or he does not fulfill other conditions of the agreement. For one reason or another, the borrower has the right not to use the credit line partially or fully. In the event of a sharp change in market conditions or due to legal restrictions, the initial amount of the credit line may be changed.
Rights and obligations of the parties
Modern methods of lending to a commercial bank using a credit line suggest that the client has the opportunity to obtain a loan at any time without additional negotiations with the bank and any special arrangements. However, the bank has the right to refuse to grant a loan to the client within the limit approved at this time, if the deterioration of the financial position of the borrower is established.
A credit line is usually opened for clients with a stable financial position, as well as a positive reputation.
Varieties
A line of credit can be revolving and non-revolving.In the case of the opening of the second type after the loan is issued and repaid, the client’s relationship with the bank will be completed. If the credit line is revolving, then the loan will be provided and repaid within the agreed debt limit in the automatic mode. A credit line can also be targeted if it is opened by a bank to a client to pay for deliveries of certain goods within the framework of a single contract that is implemented during a specific period.
Credit Accounts
Types and methods of lending are the basis for choosing the form and type of a loan account used to issue a loan with its subsequent repayment, depending on the interests of the bank and customer needs. In each case, the client can open:
- simple loan account;
- special loan account;
- settlement loan account.
You can consider the features of each of them.
Simple loan accounts
This type is usually used in the financial sector to provide one-time loans. Debt on these accounts is repaid within the terms agreed by the borrower, and the basis for this is the obligation-order. For the bearer, they can immediately open several simple loan accounts if they simultaneously use a loan for several objects, which requires the issuance of loans on different conditions, at different interest rates and for different periods. This approach to accounting for loans is quite significant for banking control of the timeliness of their repayment by the borrower.
A simple loan account can also be used to issue a loan of a payment nature. At this loan issued periodically when a need arises. With such a regime of using such an account, the resulting debt will be settled on the basis of urgent circumstances-orders in the usual manner.
Special loan account
This type of account is usually opened by a borrower who constantly needs loans when a loan is used for most of the payment transaction. Therefore, a credit account is issued without paperwork every time, and is made on the basis of a statement of commitment provided by the borrower to the bank.
If you open a special loan account, then loans will be issued as necessary by payment of settlement documents. Their repayment will be made by paying the proceeds directly to a special account, without transferring it to the settlement account. Here, the current account is used as an auxiliary account, since very few operations are carried out on it, mainly related to the payment of wages and distribution of profits. Each client can open only one special account with the bank, according to which loans will be issued for many objects. At the same time, several simple accounts can be opened for him if the bank decides that it is possible to provide the enterprise with a loan for certain specific operations.
Unified settlement and loan accounts
This type of account is used to lend to borrowers of the highest category, characterized by the highest solvency and creditworthiness. This account is the highest form of trust of a financial institution to a borrower. The debit of this account contains all client payments related to its core business and profit distribution, and the proceeds and other receipts in favor of the enterprise will be credited to the loan.
Finally
Banks also use various methods of mortgage lending, which involve providing a loan to each specific client using a personal approach and assessing the current state of affairs, as well as the prospects for repaying a received loan.
