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Bank Lending and Securities

Executive Summary of Bank Lending and Securities

The main purpose of this report was to determine the problems posed in the process of consumer lending, which includes discussion about present development in consumer lending, fraudulent activities in consumer lending, accountable lending, costing and the exploration of credit points by using the FICO framework and the Vantage score framework. In the report, a detailed study of literature on the topic of consumer lending was even conducted, enabling the readers to properly understand the concept of consumer lending and its applications. In this report a comparative analysis was conducted between the commodities and services of the ANZ bank and the Westpac Bank in Australia and it was determined that both offered interests at lower rates of interest and both had options for stable and flexible lending. In the report, the various advancements in the field of consumer lending was discussed including products like personal lending, domestic capital lending, automatic lending as well as domestic capital lines of lending.

Introduction to Bank Lending and Securities

The main purpose of this report is to conduct a literature review on the concept of customer- oriented loans. Also, it will take into consideration determining problems in terms of the customer-oriented loans provided by the banking organizations. This review will be conducted on the basis of the advancements in the present times. In this report five different issues in the context of consumer lending would be selected and discussed and the same would be compared with the ANZ bank in Australia. In the final part the products of the ANZ bank would be compared with the Westpac bank in Australia and recommendations would be given on the basis of that.

Literature Review of Bank Lending and Securities

Customer Loans

Customer loans is referred to as the process of boosting of funds by a person for the purpose of fulfilling their private expenses and even for the purpose of procuring any tenacious commodities of the customers (Agarwal et al, 2015). Also, it is referred to as a platform that offers funds for private expenses, family-oriented expenses as well as home related expenses. Such type of lending emerges from different areas, even comprising banking organizations, loan providing organizations.

Moreover, consumer lending is known to be a technique of raising funds for long-lasting or partially long-lasting commodities and services. Also, it helps the customers in terms of procuring properties for themselves as well as help them to occupy the same as soon as they compensate a portion of the total cost of that particular property (Bartlett et al, 2018). The remaining amount is compensated by the customers in part as per the established terms and conditions as well as in the stipulated period of time. These installments vary from a span of three months to six months. Furthermore, it is known to be a deal that is generated between both the groups involved in the concerned process. In this context, if only two individuals or groups are included then it is known as the Bipartite contract, which consists of the consumer and the contractor or the fund raising body and if three individuals or groups are involved, then it is known as Tripartite contract, which consists of the consumer, contractor and the fund raising body.

Current Developments in Consumer Lending

Personal Lending- In this particular product of customer lending, only the authentication of the consumers are required as a commitment that they are going to compensate the borrowed amount. In the product, the loan providing organization analyzes the solvency quotient of the concerned customers along with other conditions on the basis of which they decide whether the concerned customer is eligible for getting credit and the rate of interest that the customers would be liable to pay (Bertsch et al, 2020). But, the concerned product of customer lending is not considered to be a secured product.

Domestic Capital Line of Loans- In this particular product of customer lending, the investments at the house of the customers are utilized to obtain a credit that is offered in terms of particular span of time. In this context, it is the customers who determine the extent of the securities they would like to use and also the duration for which they want to use the same (Bilton, 2016). Also, it provides a time for withdrawal during which the customers can take their loan amount, in an increasing way or they can even opt for compensating a portion of it and then opt for borrowing the remaining amount.

Domestic Capital Lendings- In this particular product, the total loan amount is given to the customers together and a specific rate of interest is assigned to it. In this product the household investment of the customers is applied as a mortgage to obtain the loan amount.

Automatic Loans- Lending money for the purpose of buying a new vehicle or even old vehicle is considered to be a type of customer-lending (Dobbie et al, 2018). This type of a loan is authorized by means of adding a claim on the vehicle purchased.

Issues with Consumer Lending Banks

Here are the few problems that might emerge in the context of the consumer lending banks:

1. Accountable Lending: An accountable lending is a process in which the person who is taking the loan is secured from any kind of credits, about which the fiscal organizations are aware that you will not be able to compensate it back. According to the Australian regulations, it is the responsibility of the person or organization offering loans to make sure that the deal they are creating is appropriate for the person seeking for the loan. In other words, it means that by the time, the banking organization or an individual providing loans accepts the credit request is sure that the borrower has the potential to compensate the amount and will not have to struggle to do the same. Moreover, if the borrower feels that the credit deal is not appropriate for him, the provider of credit has no right to hold that person back into the deal. Also, the loan provider doesn’t have any right to compel the borrower to increase their credit range.

Banking organizations as well as other regulating bodies have established a platform for accountable credit and fair business by means of analyzing the financial background of the borrowers. The lenders are required to check their revenue, properties, living condition, liability, job condition, constant and unstable expenses, the people whom the borrower supports in terms of money, if there is any predictable shift in the fiscal position of the borrower and other aspects that can create an impact on the borrower’s potential to compensate the loan amount (Gutiérrez et al, 2016). Furthermore, it is even significant for the lender to ask for relevant papers from the borrower to authorize the amount they are claiming to earn, most the borrowers are asked to present their salary slips. Also, PayG papers as well as business examination papers are required on the part of the borrower or any other proof of the commercial activities they are conducting.

Adhering to the following criterias generated by the ASIC ( Australian Securities and Investment Commission, still the credit providing organizations or individuals experience few issues which will be discussed below:

  • Till date, banking organizations in Australia are adhering to the giving guidelines of verifying the required background of the borrowers. But in order to assist with the huge amount of verification, a higher number of human resources is required by an organization, this in turn will rise the expenses of such organizations and will create a negative impact on their profits as well.
  • Also, when the process of verification is too lengthy, it will be late for the customers to be informed if the loan would be granted to them or not.

2. Analysis of Credit Loan Application by Banks

A credit scoring framework is known to be a statistics-based explorations that is executed by loan providing organizations that will measure the suitability of an individual in terms of receiving the loan. Such organizations make use of statistics-based attributes that are determined from their customer’s loan payment styles, which in turn is explored and a credit point is generated from it.

Here are the list of few models:

  • FICO Scoring Framework- It is known to be the most trustworthy framework as it has been determined to have the most effective performance history. The concerned framework was established in 1989, after which there were several upgrades due to transforming conditions that created an impact on the accuracy of the credit points. Such changes have been taking place for the past 30 years. The concerned framework provides scores to the customers in between 300 and 850. A customer receiving a score under 600 is considered to have a weak credit score. The developmental problem in the FICO 8 framework was that it penalizes its customers in a situation, when their expenditure is in proximity to the loan limit. FICO 9, which was developed in 2014, proved to be very effective as it did not into consideration the due medical bills, while computing the credit scores of its customers.
  • Vantagescore Framework- This particular framework was developed in the year 2006, a time when three important credit providing organizations that are Experian, Equifax and TransUnion, took the decision to provide FICO with few challenges in terms of determining the credit points of a particular commercial activity. The concerned framework gives consideration towards analyzing the known information, like whether the customers have paid back their credit in the right time, if their loan amount is low, if they have ignored any credit regulations along with their accounts on the back and other properties to compute the credit points. The effectiveness of this framework lies in its ability to deal with the trending sets of information that are in the level of all the three important CRA. Also, it provides a sense of stability that is not present in other frameworks (Milne et al, 2016). Furthermore, the developmental problem in this framework lies in the fact that it will not be able to create points in the absence of any data related to the credit factor. Moreover, if the customers don’t have any credit record, no credit oriented points will be generated for them.

3. Developments of Commodities in Consumer Lending

  • Credit Card: In the context of consumer lending a credit card is known to be a type of lending for the customers. Even though private lending can even be termed as a consumer lending, it is actually used to elucidate uncertain dues in terms of the products and services purchased on a regular basis.
  • Motor Transport Lending: Motor vehicles lending is associated with the assets of the borrowers. The properties of the borrowers will support them to purchase a transport. However, the borrower will be prone to the danger of losing the hold of the vehicle, if they fail to compensate for the loan amount. Such a lending opportunity is offered by the banking organization or even by vehicle dealers. However, it would be easy to obtain a loan from the dealer of the vehicles but they are prone to high rates of interest and finally the total price will also increase.
  • Home Loans: It is a type of loan provided by a banking organization or loan providing company to purchase a house, either the basic home or even in the sense of making an investment.
  • Personal Loans: It is a type of loan that is utilized for the private expenditures of the borrowers and don’t have an established objective. It is known to be an excellent alternative for those individuals pending loans like that of credit card loans and who has the intention to minimize their rate of interests by means of shifting the balance amount. This also depends on the credit record of the borrowers.

Banking organizations differentiates their commodities by developing their subsidiaries at easily accessible places, this in turn will assist the banking organization in enhancing their shares in the market and also eliminate any scope for excellent rivalries as every client might have their individual choice of locations (Mikhed et al, 2018). The most interesting innovative product development made by banking organizations would be to constantly shift towards prediction-based banking activities. In the context of the banking sector it takes an initiative to collect all the bank related information both intrinsic as well as extrinsic nature. Also, they create prediction-based portfolios for the clients as well as participants at the time of its occurrence.

4. Costing- Banking organizations mostly don't have any kind of a restriction in terms of finding out the percentage of interest they are going put on the loans. But they should take into consideration their rivals in the market along with the standards prevailing in the market for several percentages of interest and Fed norms and regulations. The customers are charged a penalty on an occasion when they fail to compensate the loan amount as per the basic deal created between him, who is the lender and the bank who is providing the loan. In the context of consumer lending, this mostly occurs when the concerned lender is not able to pay back the amount continuously for many many weeks as well as months (Pearson, 2019). Moreover, an additional span of time is given to the customers prior to imposing any kind of fines. 

5. Frauds in Consumer Lending

  • Stealing of identity- This is a kind of fraud which takes place when an individual takes away the identity credentials of another individual, that consists of the name of the victim, bank details as well as credit card credentials via the process of information mining.

The key reason for this fraud is to use the identity they have stolen as their individual identity and also purchase credit cards on the basis of their stolen credentials (Škalamera et al, 2017).

In order to take an action against the same, the FTC ( Federal Trade Commission) takes an initiative to gather the redressal made by the customers and also takes charge against the company that is involved in such fraudulent activities.

  • Charity-based spam- It is a type of mechanism that is used to commit the theft of money in the name of charitable organizations who would be using these money raise finance for that particular organization.

Here the main purpose is to steal the money of individuals in the name of charity, hence as a precautionary measure it is required to determine whether the concerned organization is legal as well as IRS ( Internal Revenue Service) validated non-profit organizations.

ANZ ( Australia & New Zealand Banking Group Ltd)

  • ANZ banks was the first banking organization to launch a publicized as well as testable accountable loan commitments as a significant element of the updated regulation of the customers, introduced in the year 2005, in November. As per the concept of accountable lending, the concerned banking organization only provides loans to those consumers who they think has the capacity to compensate the loan amount (Worthington, 2016). In this way, the organization is portraying themself to be responsible at the public level. Also, their efficiency in keeping up with this promise will be evaluated by the extrinsic accountant of the organization and stated every year.
  • ANZ bank is majorly dependent upon the generation of credit points to take the decision of approving the various home lending requests made by their customers.
  • ANZ bank provides the customers with credit cards that offer a lesser rate of interest all throughout the process for the various buying done on a regular basis. Also, the concerned bank provides a series of different commodities with advantages like challenging percentages of interests, they do not ask for any security from their validated consumers and facilities of insurance given to the customers. The home loan commodity provided by the ANZ bank arranges home lending schemes to fit with the prevailing conditions. Also, it offers a mentor for its home loan product to assist their customers as and when it is needed. The personal loan commodities offered by the ANZ bank is only provided for only particular products like that of the latest cars. However, a least additional amount or prior compensation is applicable in the context of the internet-based banking service.
  • If a customer is engaging in the process of lending from the ANZ bank, they are even required to adhere to rules and regulations applicable to the process. Hence, they have a certain applicable rate of interests as well as certain fines due to late compensation of the loan amount.
  • ANZ bank assists in the task of protecting the funds of their customers but the individuals conducting fraudulent activities are greatly proficient in the same. Hence, it is significant to be watchful and monitor the finances on the part of the customers and they should also be aware of the actions they would be required to take in case of any suspicious deal they have determined.

Critical Analysis of Bank Lending and Securities

The credit card offered by the ANZ bank has an advantage that it can be moulded as per the prevailing conditions of their consumers but at the same it can be a disadvantage if the credit amount is paid in the stipulated period of time. Hence, it is required for the customers to use the same in a wise manner. The motor vehicle loan offered by the ANZ bank is available at a lesser percentage interest, customers can enroll for the same virtually and it is also applicable for the subscribers of Visa 457 cards (Zhao, 2020). However, the drawback here is that a fee is required to be paid every month along with enrollment fees. But since, the rate of interest is low, customers can easily apply for it. ANZ bank provides home lending and personal lending for its customers at an unstable rate of interest that will provide more adaptability to the customers as per their fiscal situation can be a great source of advantage. However, the rate of interest can rise and fall turn by turn which can be a disadvantage for the customers.

Commodities

 

 ANZ Bank

Westpac Bank

Comparative Analysis

Credit Cards

● Interest rates

● Type of cards

● Interest free period

● Fees Repayment

● Rate of interest is on the lower side.

● Low rate of interest card, lesser yearly fees card, rewarding card.

● 44-55 days no interest is required to be paid.

● 55 days before the date of payment.

● Rate of interest is low.

● Amount transferring cards.

Promotion cards

Rewarding cards.

● 45-55 days

55 days

Both ANZ and Westpac bank are providing credit cards with interests on the lower side.

Motor Vehicle Loans

Interest rates Type of loans Fees Repayment Period Collateral Terms and conditions

● Stable: 12.45% and flexible: 15.99%

● Finance rent & Chattel Mortgage lending.

● 6 months-7 years.

● An appropriate period of collateral is considered paying heed to the functional life of the vehicle.

● The person applying for the loan should be more than 18 years of age and should not have any bankrupt record in the current few years.

● Yearly interest rate of 8.49%

● Vehicle rent loan & Vehicle funding loan.

● 1-7 years

● No collateral is needed.

● As per the rules and regulations both second-hand as well as first hand vehicles can be brought for a span of maximum 7 years.

Both ANZ and Wespack bank are offering the assets of a third person to the consumers (Swanton et al, 2019).

Home Loans

interest rates Type of loans

Fees Repayment Period Collateral Terms and conditions

● Flexible interest: 0.5%- 0.7%

Stable Interest: 0.15%

● Flexible

● 1-30 years

● 2years

● 2 years package as per the terms and conditions.

● Flexible: 2.79%-3.19%

Stable: 2.59%

● Fixed and Flexible

● 1-5 years depending on the commodity

● 1-5 years.

● 3 years package

Both provide a stable as well as flexible form of home loans to its customers.

Personal Loans

Interest rates Type of loans Fees Repayment Period Collateral Terms and conditions

● 12.45%

● Flexible and stable

● 15.99%

● 2 years

● The credit amount should be paid to bank along with the stipulated rate of interest as a charge.

● 16.49%

● Flexible lendings and vehicle lendings

● $175

● 1-5 years

● The customer can provide all rights to the bank to compensate the due amount as per the mentioned conditions of the items.

Both ANZ and Westpac bank provide security-based as well as non-security based consumer lending.

Conclusion & Recommendations on Bank Lending and Securities

Through this report it can be concluded that both the selected banking organizations in Australia, that is ANZ and Westpac bank offers credit cards facilities with interests payable on the lower side, both flexible as well as stable loans, secured and unsecured loans as determined. But it is recommended to carefully analyze the terms and conditions as well as other criterias prior to the selection of an appropriate option.

References for Bank Lending and Securities

Agarwal, S., Chomsisengphet, S., Mahoney, N. and Stroebel, J., 2015. Do banks pass through credit expansions? The marginal profitability of consumer lending during the great recession. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2663437

Bartlett, R., Morse, A., Stanton, R. and Wallace, N., 2018. Consumer-lending discrimination in the era of fintech. Unpublished working paper. University of California, Berkeley. Retrieved from https://lending-times.com/wp-content/uploads/2018/11/discrim.pdf

Bertsch, C., Hull, I., Qi, Y. and Zhang, X., 2020. Bank Misconduct and Online Lending. Journal of Banking & Finance, p.105822. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0378426620300893

Bilton, S., 2016. Satisfied, loyal…. and leaving? The effect of trust and commitment on consumer satisfaction and loyalty: a study of a non-bank deposit taker and retail banks in New Zealand. Retrieved from https://epubs.scu.edu.au/theses/517/

Dobbie, W., Liberman, A., Paravisini, D. and Pathania, V., 2018. Measuring bias in consumer lending (No. w24953). National Bureau of Economic Research. Retrieved from https://www.nber.org/papers/w24953

Gutiérrez-Nieto, B., Serrano-Cinca, C. and Camón-Cala, J., 2016. A credit score system for socially responsible lending. Journal of Business Ethics, 133(4), pp.691-701. Retrieved from Gutiérrez-Nieto, B., Serrano-Cinca, C. and Camón-Cala, J., 2016. A credit score system for socially responsible lending. Journal of Business Ethics, 133(4), pp.691-701.

Milne, A. and Parboteeah, P., 2016. The business models and economics of peer-to-peer lending. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2763682

Mikhed, V. and Vogan, M., 2018. How data breaches affect consumer credit. Journal of Banking & Finance, 88, pp.192-207. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0378426617302881

Pearson, G., 2019. The HEM and Hayne’s normative principles–credit data and the individual. Law and Financial Markets Review, 13(2-3), pp.131-140. Retrieved from https://www.tandfonline.com/doi/full/10.1080/17521440.2019.1616888

Swanton, T.B., Gainsbury, S.M. and Blaszczynski, A., 2019. The role of financial institutions in gambling. International Gambling Studies, 19(3), pp.377-398. Retrieved from ,https://www.tandfonline.com/doi/abs/10.1080/14459795.2019.1575450

Škalamera-Alilović, D. and Dimitrić, M., 2017, January. (Ir) Responsible Lending and Personal Indebtedness: Consumer Credit Marketing. In 21st International Scientific Conference on Economic and Social Development. Retrieved from https://bib.irb.hr/datoteka/878427.ESD_Belgrade_2017_Skalamera_Dimitric_IrResponsible_Lending.pdf

Worthington, A.C., 2016. Financial literacy and financial literacy programmes in Australia. In Financial Literacy and the Limits of Financial Decision-Making (pp. 281-301). Palgrave Macmillan, Cham. Retrieved from https://link.springer.com/chapter/10.1007/978-3-319-30886-9_14

Zhao, L., 2020, March. Risks Faced by Bank of Australia and How to Deal with It. In 5th International Conference on Financial Innovation and Economic Development (ICFIED 2020) (pp. 339-342). Atlantis Press. Retrieved from https://www.atlantis-press.com/proceedings/icfied-20/125935859.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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