Bank loan contract and its execution Bank credit is an economic category, in the form of individual relationships born in reproducing the social product. It is the main activity of commercial banks that consists in a first phase in the collection of temporarily free assets of natural and legal persons (in this phase, the bank is indebted to these persons), and in a second phase in their distribution (lending ), in the form of loans for short-term, medium-term or long-term needs of service, trade, and production. Bank credit is the financial activity of banks that enters into its active operations. The bank is presented as a lender, and the loans granted are reflected in the bank balance sheet assets.
Banking activities are many and varied, but based on some key features they are distinguished in:
-Pas Passive (mobilizing) work.
-Active job (lending).
-Neut Neutral work (commissioner; otherwise called indifferent work).
-Personal work of the bank.
The lending activity of banks enters into their active operations, an event from which they also derive income against the interest on the money lent. Bank credit has its functions. First, it plays a vital role as an aid provided temporarily to natural or legal persons, private or state, to supplement and carry out their economic and financial activities. Second, it also plays the role of control using money.
Bank credit, as an essential financial lever in the hands of the bank, operates based on several fundamental principles: First, it is given for strictly defined purposes, at the right destination, and the request of the person himself. Second, is the repayment of this loan to the bank, after a fixed term and specified in the contract. Third, the amount lent in monetary values, materials, and goods is guaranteed until the real estate is mortgaged.
Lending is done through a regular banking contract containing all the elements and the right conditions for its validity.
The term “credit” in everyday life has different treatments and interpretations; the purpose here is to break down and analyze the principal and most essential elements of “BANKING CREDIT.” In addition to the term “bank credit,” there is also the term “state credit.” These terms differ substantially from each other.
“State credit” is the cash assistance (in credit) that the state gives to various entities from the state budget, based on a financial policy determined by itself (the country), money that will inevitably come from the counters of banks where they are collected. This is because usually, the legal institutions of a state that maintain and temporarily hold free cash are the banks.
“bank credit” works differently. The bank lends money (credit) based on a financial policy that pursues itself, necessarily based on the law and its bylaws, while maintaining the independence that the law recognizes visas-country-visas the state.
The term “bank loan” usually indicates “the set, foreseen limit within which the bank declares its readiness to lend to its customer.” In its correct wording, the term “bank loan” is followed by the expression “usable through … “It contains the forms and technical ways in which the loan is realized.
Banks carry out a full and quality activity that is always enriched with new elements. Therefore, banking is numerous and diverse, but, as we said above, they are traditionally classified into:
-Passive (mobilizing) work, short-term, and long-term.
-Akt Active (credit) work, short and long-term.
-Cent Central work (commissioner; indifferent work of the bank).
-Vet Personal work of the bank.
Passive banking is about mobilizing the assets of various entities in the hands of the bank. In this case, the bank is a debtor, and borrowing occurs in its balance sheet liabilities. Active or credit banking is related to lending by the bank. In this case, the bank is a lender, and the loans are presented in the balance sheet asset. Both processes are organically related to each other. (Money deposited by customers in the bank’s coffers – the bank credits them based on the criteria set by law or sub-legal act). These types of bank revenues occupy the most significant position compared to other resources that the bank may have.
From a technical view, there are several types of loans:
a. Short-term loans
- Discount loans. It is one of the oldest works of banks and, at the same time, the most widespread. The credit is granted based on a bill of exchange after the bank has secured that The signatory of the law of trade ensures the return of the money on the specified time and conditions. This loan is generally granted for three months.
- Lombardy loan. Born and raised in Lombardy, hence the name. It is one of the oldest bank jobs. The bank gives the credit on the real basis of the pledge. Securities or precious metals can serve as hostages. In such cases, the bank does not provide more than 70-80% of these securities’ prices if the loan of this type is not returned in the term and conditions set by the bank, then the latter reserves the right to sell the securities on their stock exchange.
- Credit Romburse. This loan applies to import-export between countries at sea distance between them. The outbound work begins with the conclusion of the contract, where it is determined that the payment will be made with the bill of exchange that will be accepted by either the bank of the importer or that of the exporter or a third bank.
- Avale Credit. In this loan as a guarantee is taken a letter of assurance with which the seller is guaranteed that the buyer will fulfill all obligations. If the buyer (the debtor) does not meet the commitments in good faith, the bank intervenes on its initiative.
- Credit in the current account. It is one of the most common types of banking, based on a contract entered into between the bank and the borrower, the bank transfers to the borrower’s current account a sum of money used by itself.
b. Long-term loans
Through these works, funds are provided for financing investments to construct new facilities and the modernization of existing ones. The role of the bank in this work is irreplaceable. In these types of loans, the interest rate is higher because the assets’ financial liability belongs to a more extended period. The degree of guarantee in the maturity of this loan, compared to the short-term, is lower. To be noted, the fact that for the granting of these loans, the bank must have skilled experts to calculate everything with high guarantees. Otherwise, the repayment of the given loans would be extremely endangered.
- Mortgage loan. This loan is granted based on the loan applicant’s real estate mortgage right. The credit is issued at a certain percentage on the value of the real estate. This loan is usually given for housing construction or public work.
- Credit for investments in the economy. It is the most common type of long term loan. It has, in its content, all the additional needs that arise from different investors for investment financing, i.e., those not covered by their financial funds and the assistance they may have.
The security of this loan can be done in various forms, such as mortgaging the facility under construction or guarantees given by other banks.
Depending on the time of the loan, they can generally be: - short-term (up to one year);
- medium
- term
There are no fixed deadlines for any of the loans mentioned above, the same for all banks. They vary for different banks, conditioned by the financial policy implemented by each of them. Thus, for long-term loans, different banks use terms ranging from 20-25 or 30 years. Today, the most preferred loans are medium and long-term ones because they provide broader economic activities, with more significant amounts of money and longer repayment terms. Mandatory higher bank interest rates also correspond to these.
The difference between the three types of loans lies not only in the time of repayment of the obligation and the kind of activity where they are destined but also in the criteria applied in their granting, in the required guarantees, etc., because in long-term credit activities the bank engages more considerable monetary assets over a more extended period, while the rate of warranty on its repayment is lower than on short-term credit.
In the doctrine on “bank credit,” you will find other classifications for loans given by banks, such as:
-I Business loans;
- Real estate loans;
- Consumer loans;
-International investments, etc .;
