Active Banking Operations

Active operations of banks are those providing loans to customers directly or indirectly. In case of a direct loan the bank contracts its debtor and provides the contracted funds directly on the debtors account. In case of indirect loans the bank contracts with a third party, i.e. a mediatory who contracts with the ultimate user of the provided funds.
Credits are classified into three groups based upon their economic content.
➡ We talk about money credit if the client obtains the amount of credit based on a credit
application according to the classical rules of lending.
The bank maintains a credit limit at the other party’s disposal for a commission Its essence is that the debtor can take out the loan in whole or in parts, automatically, at any time at his own discretion within a specific period. We talk about a loan if the client takes out a specified amount of money from his bank based on the loan contract, and he assumes an obligation to pay it back together with interests.
➡ We talk about credit-like lending, if the bank grants credit not on the basis of credit application but due to any other legal relationship, for example joins in discounting bills of exchange, factoring happens, etc.
A typical type of credit like loan is the commodity credit. The debtor selects the suitable product, enters into the loan agreement (nowadays, in most of the cases it can be done at the place of purchase), and he can leave with the goods. The duration of the credit can be short-, medium- and long-term.
➡ In case of commitment credit the credit institution does not grant the amount immediately but only assumes an obligation that in the future it will fulfil its borrowing obligation under certain conditions. Such transactions are for example guarantee, letter of credit or credit availability.
Credit types according to the character of the coverage:
• collateral loans,
• non collateral loans (blank credit).
We talk about collateral loans if the ownership of any of the receiving party’s assets (land, real estate, equipments and even amounts on the debtor’s bank account) is transferred to the bank, in case the receiving party cannot repay the loan as agreed. Such lending has a relatively low risk, as the bank secures itself against non-payment. The bank has to value the collateral properly The credit is 100% covered if the value of the asset offered as coverage is equal to the amount of the debt.
In case a default a problem still can occur, if the bank cannot turn the asset into cash or at a lower price than the market value. Thus the bank usually applies a cut on the value of the collateral, and provides the loan accordingly. The Loan To Value (LTV) measure shows the ratio of the provided loan to the value of the collateral.