The proposed lending policy may be able to address the problem faced by XYZ Bank with regards to the poor asset quality of their lending book. The two new executives noted the significant deterioration in the quality of the bank’s lending book for three consecutive years and thus proposed that the lending assessment be more stringent. Branch sales staff must assess potential customers carefully so as to ensure that the customer’s lending account will remain performing for the next three years in order for the sales staff to get the accelerated bonuses. Loan-to-value ratios will also be revised.
However, it is noted that the proposed policy seems to be bias. They offer good lending margin to those with strong evidence income and to potential borrowers with robust credit history. They also offer special mortgage deals to intended borrowers who wish to buy or re-mortgage luxury properties in booming areas. They impose new restrictions on loan-to-value ratios for mortgage applicants on properties located on unfavourable districts of the city. Those that have taken ‘payday loan’ in the two years prior to the application will be automatically declined. In view of that XYZ Bank may breach some of the regulatory guidelines imposed by the government.
Regulation is the system through which governments imposed mandatory standards. Financial services organisations are expected to comply with these regulations so that these organisations can operate in the best interests of certain stakeholders and for the benefit of the society as a whole. Financial organisations must comply with the financial services legislation which has been laid down, such as the UK Financial Services and Market Act 2000 or the Malaysian Financial Services Act 2013. Besides that, financial organisations must comply and be aware of other legislations in the countries in which they operate. Banking organisations have been subject to some form of regulation in several countries for over 200 years. It is important that banking organisations comply with all the regulatory requirement as any breaches will cause penalty, reputation risk and monetary loss. Let’s look at some of the possible breaches