Handbook of Asset and Liability Management: From models to optimal return strategies

12

Loans

Crédit est mort, les mauvais payeurs l'ont tué.

Ahead of deposits, loans make up the largest part of the asset side of bank balance sheets. Before the definition of the prepayment modelling in the next chapter, we will introduce some basic definitions applied to loans.

12.1 DIFFERENT TYPES OF LOAN

12.1.1 General considerations

To distinguish between loans, it is important to know the reason for which the customer has borrowed money:

• Mortgage loan: a loan to an individual using a property as security for the repayment of the loan cash flows.
• Consumer loan: another loan to an individual, not a mortgage loan but still with a specific purpose (car, boat, recreational vehicle).
• Student loan: a loan proposed to students to assist them in the payment of the costs of education.
• Corporate loan: every kind of credit provided to corporations:
  • Investment loan: a corporate loan with a specific investment purpose.
  • Cash credit: a short-term loan proposed to corporations' treasurers.
  • Export credit: a corporate loan for export financing.
  • Buyer credit.
  • Supplier credit.
• Bridge loan: a temporary loan (when waiting for a complete established refinancing).
• Credit card loan or revolving credit: a credit to an individual without a fixed number of repayments. This credit may be used repeatedly.
• Overdraft: an implicit credit when withdrawals from a bank account exceed the available balance.
• Credit facilities or lines of credit.
• Home equity loan: a loan in which the borrower uses the equity ...