CREDIT POLICY

Credit Policy and Global Banking Operations

Credit Policy and Global Banking Operations

Introduction

This paper intends to explore the credit policy of banks and global banking operations. The paper focuses on the credit policy of the Bank of America and main causes that led to credit crunch in the economy. Further, global strategies are recommended that suits Bank of America credit policy. In addition, this paper discusses the credit policies for various types of customers individually.

Bank of America

The history of Bank of America dates back to 1904, when Giannini established Bank of Italy in San Francisco to provide services to the immigrants who refused to avail services from their banks. After the San Francisco earthquake, Giannini got all the deposits of the bank out and away from fires. Later through various transitions and progress it turned into one of the leading banks of the world. Bank of America provides a wide range of financial and banking services in about 28 million households. It is an American global financial services company and the largest bank by market capitalization, and by assets. It serves clients in 150 countries and has a relationship with 99% of U.S fortune 500 companies. The main areas it covers are the United States. After it merged with the Boston Financial Corporation, the portfolio increased. The banking segments are divided into commercial and consumer banking (Bonadio, 1994).

Discussion

Credit Policy- Definition

Credit policy defines the objectives and priorities of the bank's lending activities, means and methods of their implementation, as well as the principles and organization of the credit process. It creates a basis for organizing the credit of the bank in accordance with the overall strategy of its activities, as a necessary condition for the development of documents regulating the lending process (Schaeffer, 2009). Commercial Bank's credit policy should clearly define the purpose of lending, contain rules for the implementation of specific objectives, including standards and guidelines include representing the methodological support for its implementation.

Credit policies establish the conditions general to be observed in granting credit, for example the maximum amount of credit that granted, the interest rate, the timing, form of payment customers, the grace period, discounts allowed for prompt payment discount period allowed etc.

2.Global strategy for the banks credit policy

The global strategy of credit policy of banks is aimed at maintaining acceptable credit standards by holding reasonable risk limits, evaluating new business opportunities, complying with regulatory requirements and providing adequate liquidity for the effective running of the bank. This aim is achieved through the following objectives:

1. Attract and maintain a High Quality Portfolio of Assets

2. Efficiently manage its assets to ensure liquidity

3. Finance the needs of Corporate, medium and small scale as well as individual clients.

4. Join syndicates with other banks and financial institutions.

The importance of these objectives is to ensure that clients who borrow from the bank have the ability to repay the funds they borrow on schedule and with interest. Businesses that borrow from the bank should demonstrate an ability to repay from their current and future net cash ...