Theory question 109
BankingCommerce 2 (essay)
(a) Mention and explain five ways by which the Central Bank regulates the activities of commercial banks.
(b) State five factors which a bank manager considers in granting loans to customers.
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(a) Any five, explained: bank rate (raising it makes borrowing dearer); open market operations (selling securities reduces banks' cash); cash reserve ratio; liquidity ratio; special deposits; selective credit control/directives; moral suasion; licensing and supervision/inspection of banks.
(b) Any five: character and credit-worthiness of the customer; purpose of the loan; customer's ability to repay (income/viability of the business); collateral security or guarantor offered; amount and repayment period; the customer's past dealings with the bank; government/central bank credit policy; the bank's own liquidity.
In (a) say whether each method expands or reduces bank lending.