7
development of skills in selling loans and other products. UFSB
employed a sales training officer who met with UFSB platform
employees monthly to promote the sale of new UFSB products and
services.
Banks generally are able to earn profits only if they
successfully manage their "net interest margin", which is the
difference between interest earned and interest paid. In order
for banks to operate profitably, their net interest margin plus
revenues from fees and other sources must exceed their losses on
loans and investments (i.e., losses from bad debts) plus
operating costs. A bank's ability to operate profitably is in
large part determined by its credit risk management, since loan
losses are one of the largest controllable expenses at a bank.
Many of the activities that are part of a bank's lending function
are related to credit risk management. These activities include
the establishment of written policies and procedures, the loan
application process, credit investigation, credit evaluation,
documentation, collections, and portfolio supervision. A bank
establishes its written policies and procedures with respect to
loans after it has determined the types of loans that it will
offer and the markets that it will target.5 Once the loan
products are identified, the bank develops written policies
5During the years in issue, the banks offered various kinds
of loans and loan commitments to their existing and prospective
customers at varying rates of interest and for varying periods of
time. Some loans were offered at fixed rates of interest and
others at variable rates of interest.
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Last modified: May 25, 2011