What Do You Know About the Credit Lines in the Philippines and Abroad?

It is important to use the experience of foreign banks that apply certain mechanisms for the operation of credit lines in the Philippines.

First of all, it concerns:

  • the procedure for granting credit resources;
  • loan repayment terms;
  • principles of setting and charging interest rates;
  • options for changing the basic terms of lending.

In certain cases, the provision of a loan is accompanied by a special procedure for opening a loan. Essentially, this procedure is a preliminary agreement of the client with the bank on the possibility of obtaining a loan without hindrance at the time of the need for a bank loan. This is a promise of banking assistance that is provided to the client under certain conditions and for a certain time.

Benefit of a Preliminary Agreement With the Bank Fir the Client

For the client, the benefit of a preliminary agreement with the bank is quite obvious:

  • First, as a result of this framework agreement, the client is fully confident in receiving borrowed funds in the amount agreed with the bank.
  • Secondly, this agreement does not obligate the client to really use the unconditional right to receive a loan. He can use this right completely, partially or not at all.
  • Thirdly, after receiving a loan, the client can repay the loan by a lump sum or gradually, at the time that he himself has determined.

Of course, the promise of help is not the lending process itself, it is only a prelude to the stage of a real loan agreement. However, here the bank does not remain at a loss. For established but not used credit lines (for example, the so-called revolving or for the obligations of the bank to provide credit resources on a certain date), the client usually pays a fee for the unclaimed amount of liabilities. As the statistics show, the usual size of this commission is 0.05-0.5% per annum, depending on credit risk. An alternative method of payment is the accrual of interest on the established amount of the credit line, regardless of its use; margin for the actual use of credit resources usually takes into account this fee.

International Practice of Permanent Credit Lines

In foreign practice, there are also so-called permanent credit lines , so-called evergreen credit (https://financial-dictionary.thefreedictionary.com/Evergreen+credit). Agreements on them differ from different credit institutions, but their main feature remains unchanged for all – the absence of a fixed loan repayment date. If the bank nevertheless wants to claim its resources back, it sends a notification to the borrower. Otherwise, the credit lines remain at the borrower’s disposal for an arbitrarily long time, up to the full repayment of the loan.

Permanent credit lines attract borrowers with maximum flexibility. Banks usually do not send notice to the borrower until his financial situation or market conditions seriously deteriorate. This means that under normal conditions, the borrower receives a quasi-permanent source of funds that does not burden him with repayment schedules. A long notice period makes it easy to find an alternative source of resources. Paying for these resources gives an advantage to the client, since banks, as a rule, reduce the fee in the period after the notification, and it turns out to be even lower than the rates on long-term loans.

Types of Credit Limits and Methods for Determining the Credit Limit

The rationale for determining the credit limit is among the most important problems of crediting an enlarged object within the credit line. This is due to the fact that the size of the credit line is due to two factors: the client’s need for borrowed funds and his ability to repay the loan debt in the required amount. In other words, the value of the client’s need for borrowed funds must be measured against the potential possibility of repaying the loan. To reconcile these values, it is advisable to calculate two indicators:

  1. the limit of the client’s need for borrowed funds and
  2. the borrower’s credit risk limit (loans).

Comparison of two types of credit limits

The first type of limit is best calculated on the basis of a feasibility study of the need for a loan. In this case, its value will be determined by the aggregate of the client’s costs associated with the object being credited.

The second type of limit, expressing an assessment of the borrower’s credit risk, it is advisable to calculate on the basis of an assessment of the possible sources of repayment of the loan. By comparing these limits, the bank can decide on the most rational limit of the credit line. In this case, in our opinion, it is important to choose the minimum value of one of the two specified limits. This can be a value either within the limits of a feasibility study, if the amount received is within the credit risk limit. It can also be a value within the credit risk limit, if this limit is less than the amount of the need for a loan, calculated on the basis of a feasibility study.

To understand the system of interrelationships between loans and deposits, read the article by John Carney https://www.cnbc.com/id/100497710

Approaches to calculating credit limits

Techniques of calculating credit limits can be recommended to Filipino credit organizations. It is also important to pay attention to the method of assessing the borrower’s credit risk. Here, in principle, two approaches are possible. The first approach focuses on assessing the creditworthiness of the client based on the calculation of financial ratios. However, it does not provide an opportunity to determine the absolute amount of the limit. For this, a method of assessing the client’s creditworthiness based on analysis and assessment of cash flows is more suitable.

Unfortunately, this approach in the Philippines context can only be applied mainly to borrowers who have a stable business and have been placing their resources on current accounts with this bank for a long time. Here, however, it should be borne in mind that the definition of future flows, based on data from past years, is not entirely correct. In this regard, the degree of reliability of the forecast may be insufficient.

How to determine the limit of credit risk?

Therefore, to determine the limit of credit risk, you can use another approach – on the basis of assessing the secondary sources of loan repayment: discounting the assets of the borrower or the surety assets.

In this case, the calculation of the credit risk limit should be carried out in the following sequence:

  1. first, to assess the borrower’s creditworthiness based on the financial ratios chosen by the bank and the criteria levels;
  2. secondly, to carry out discounting of the borrower’s assets, taking into account the allocation of four groups of assets liquidity and the established discount rate, differentiated depending on the group of liquidity and the class of solvency of the borrower;
  3. thirdly, to compare the amount of the credit risk limit of the loan to be issued with the maximum value of “large loans”, based on the regulatory requirements of the Central Bank of the Russian Federation.

When calculating the size of the credit line, in our opinion, one should also take into account the particular circulation of the borrower’s funds – its uniform (off-season) or irregular (seasonal) nature. It is known, for example, that trade organizations are credited with their entire cumulative turnover, while the turnover of funds is non-seasonal. This means that a certain part of the loan debt will always be at the disposal of the borrower.

Quick cash loan in the Philippines is not cheap. Or is it?

In the current economically unstable country, lending is gaining a special, previously unseen popularity and demand. The speed and ease of obtaining a loan plays the highest role. The banks of the Philippines are also trying to adapt to the consumer and to rapid changes in the economy, which is quite successful for them.

There are many opportunities to receive funds, ranging from a simple consumer loan and ending with almost instant cash lending sure approval for unemployed. We will not argue about whether to save money or try to borrow it from friends because we deliberately reject such an opportunity, based on the realities of present life. Let us understand what a quick loan is and how it differs from a consumer loan.

Large overpayments for express loans, what is the reason

As you can already guess, the faster you get the service – this concerns not only finance – the more expensive you will have to pay for it. Banking institutions remove from the borrower the most important and troublesome obligation – to prove their solvency. Having come to a large store, for example, with the desire to buy a mobile phone, in order to get an express loan within a few hours, or even less, and take the equipment with you, you only need a passport.

The inability to verify the income of the client turns into increased risks for banks. That is why institutions insure themselves in case of non-payment of the loan. When deciding whether to get the fastest loan, be prepared to thoroughly overpay. If your plans do not require haste, it would be more rational to pay attention to simple consumer credit.

Of course it is worth noting one nuance. Incredibly important condition for obtaining a loan is that you have a good credit history. That is, the bank issues a loan only on the basis of your reputation with other banks. To avoid spoiling it, it is necessary to fulfill the terms of the agreement on time and in full. By the way, there is an opportunity to check your credit history online, without leaving your home, in order to know what status is assigned to you. It is worth doing this when planning to get an express loan and your suspicions about a possible failure.

The fastest loan without leaving home

Online lending service is also popular now. By contacting the online service you can get a quick cash loan online and it will take less than 15 minutes of your time. Transparent terms of the transaction and the convenience of obtaining finance make this service a leader in the race for location and demand from borrowers.

Terms of services are different, but they combine small amounts of loans. It is possible to increase the size of loans gradually and depends on the number of calls to the service and timely repayment of the debt.

In order to get a quick cash loan for unemployed, you must have a passport and a credit card from any bank. Faced with financial difficulties or driven by a simple desire to buy appliances, furniture, it is worthwhile to properly assess your possibilities and conditions of the loan. Carefully choose a company that will provide express loans, pay attention to the following:

  • additional items of expenditure,
  • insurance and commission.

Choose the best terms of the transaction, with a decrease in the interest rate on the balance of the debt, given the monthly payments.