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Answer: A lending policy should provide an outline of the scope and allocation of credit facilities and the management of the credit portfolio, including the origination, appraisal, approval, disbursement, monitoring, collection, and handling procedures for various credit functions.
## Explanation Let's analyze each option: **Option A**: Incorrect. In reality, larger banks typically have decentralized lending authority with various approval levels based on loan size, while smaller banks tend to have more centralized lending authority. **Option B**: Incorrect. A sound lending policy should establish clear limits and authorities for lending officers to ensure proper risk management and prevent excessive risk-taking. **Option C**: Incorrect. Prudent banking practice actually requires that facilities extended to related parties receive board approval to prevent conflicts of interest and ensure proper oversight. **Option D**: **Correct**. This statement accurately describes what a comprehensive lending policy should include. A well-structured lending policy should outline: - Scope and allocation of credit facilities - Credit portfolio management framework - Complete credit lifecycle procedures including origination, appraisal, approval, disbursement, monitoring, collection, and handling procedures This comprehensive approach ensures consistent credit risk management practices throughout the organization.
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Q-129. Which of the following statements about the scope and allocation of a bank's credit facilities and the management of its credit portfolio is correct?
A
In larger banks, lending authority is usually centralized, whereas in smaller banks, it tends to be decentralized based on geographical area, lending products, and customer types.
B
The lending policy should not establish limits for lending officers, allowing them flexibility in approving loans according to their authority and experience.
C
Prudent banking practice dictates that facilities extended to related parties should not require board approval.
D
A lending policy should provide an outline of the scope and allocation of credit facilities and the management of the credit portfolio, including the origination, appraisal, approval, disbursement, monitoring, collection, and handling procedures for various credit functions.