Learning Activity Sheet Business Finance Quarter 1, Week 5 Lesson 1

LEARNING ACTIVITY SHEET
BUSINESS FINANCE
Quarter 1, Week 5 Lesson 1
Name: ________________________________________Date: ___________________

Grade and Section: ______________________________
BANK AND NON-BANK INSTITUTIONS and THE 5 C’s OF CREDIT
I. Learning Competency
At the end of this lesson, the learners will be able to:

- compare and contrast the loan requirements of the different bank and non-bank institutions
and cite these institutions in the locality. (ABM_BF12-IIIe-f-14)
II. Objectives
At the end of this lesson, the learners will be able to:

• Explain the difference between bank and non-bank financial institutions;
• Cite bank and nonbank institutions in the locality that would serve as possible sources of
funds for business operations; and
• Enumerate and explain the 5C’s of credit and their applicability in loan approval.
III. Key Concepts

BANK and NON-BANK INSTITUTIONS
Banks are financial institutions licensed to receive deposits and make loans. Banks
may also provide financial services such as wealth management, currency exchange and
deposit boxes. There are several different kinds of banks including retail banks, commercial
or corporate banks, and investment banks. In most countries, banks are regulated by the
national government or central bank. BDO, BPI, Metrobank, LandBank, UnionBank among
others, are examples of banks.
Non-bank financial institutions are not considered full-scale banks because they do
not offer both lending and depositing services. Non-bank can engage in credit card operations
or other lending services, provided they do not also accept deposits. Pawnshops, goverment
non-bank financial institutions, lending companies and insurance companies are examples of
non-bank financial institutions.
1
These two distinct banking systems cater to different needs and sets of customers.
Non-banking institutions cater to those whom banks do not usually cover. They provide
heavily to infrastructure companies but also cater to several micro, small and medium
enterprises who may not be covered by banks.
When it comes to obtaining mortgages, nonbank lenders, like pawnshops and lending
companies, for example, may provide an easier route to obtaining a mortgage than a
traditional bank, especially for those customers with less-than-stellar credit.
There are 36 commercial banks, 492 rural banks, 57 thrift banks, 40 credit unions, and
around 6000 plus non-banking institutions in the Philippines.
The Bangko Sentral ng Philipinas was established in July 1993 to regulate and help
these banks implement the right policies. It was created as per the Philippine Constitution,
1987 and also as per the New Central Bank Act, 1993.
List of Bank Requirements for Loan Application for a Corporation

(Arthur S. Cayanan)
Pre-approval Requirements:
• Duly accomplished application form
• Securities and Exchange Commission (SEC) registration
• Articles of incorporation and by-laws
• List of elected officers
• Board resolution or corporate secretary’s certificate regarding loan application
• Company profile or business background
• List of major suppliers and customers with contact information
• Audited financial statements (2 to 5 years depending on the bank)
• Bank statements (most banks require bank statements for the past 6 months)
• Collateral documents such as the following:
• Copy of transfer certificate of title (TCT) or condominium certificate of title (CCT)
• Copy of tax declaration
• Appraisal Fee with official receipt
• For construction loan
• Building plan or floor plan
• Bill of materials and labor cost
• Building specifications certified by architect/civil engineer
• Development permit
• Copy of lease contracts (if applicable)
Post-approval Requirements:
• Original owner’s duplicate copy of TCT/CCT
• Original certified true copy of latest tax declaration on land and improvement
• Master deed of declaration (for condominium)
• Electronic-certified true copy of TCT/CCT with original official receipt
• Original certified true copy of tax clearance
• Original real estate tax receipts
2
• Mortgage redemption insurance
• Fire insurance
THE 5C’s of CREDIT
The “5 Cs of Credit” is a common phrase used to describe the five major factors used to
determine a potential borrower’s creditworthiness. Financial institutions use credit ratings to
quantify and decide whether an applicant is eligible for credit and to determine the interest
rates and credit limits for existing borrowers. A credit report provides a comprehensive
account of the borrower’s total debt, current balances, credit limits, and history of defaults
and bankruptcies, if any.
1. CHARACTER – the willingness of the borrower to pay the loan. Character is the most
comprehensive aspect of the evaluation of creditworthiness. The premise is that an
individual’s track record of managing credit and making payments indicates their “character”
as relevant to the lender, i.e., their propensity for repaying a loan on time. Past defaults imply
negligence or irresponsibility, which are undesirable character traits.
2. CAPACITY - a borrower’s ability to generate cash flows. A borrower’s capacity to repay
the loan is a necessary factor for determining the risk exposure for the lender. One’s income
amount, history of employment, and current job stability indicate the ability to repay
outstanding debt. For example, small business owners with unsteady cash flows may be
considered “low capacity” borrowers. Other responsibilities, such as college-bound children
or terminally ill family members, are also factored in to evaluate one’s future payment
obligations.
3. COLLATERAL - security pledged for payment of the loan. When being assessed for a
secured product such as a car loan or a home loan, borrowers are required to pledge certain
assets under their name as collateral. They may include fixed assets such as the title of a
parcel of land or financial assets and securities such as bonds.
4. CAPITAL – a borrower’s financial resources. Capital represents the overall pool of assets
under the name of the borrower. It represents one’s investments, savings, and assets such as
land, jewelry, etc. Loans are primarily repaid using overall household income; capital is
additional security in case of unforeseen circumstances or setbacks such as unemployment.
3
5. CONDITIONS - current economic or business conditions. It also refer to the specifics of
any credit transaction, such as the principal amount or interest rate. Lenders assess risk based
on how the borrower plans to use the money, should they receive it.
IV. ACTIVITIES
Activity 1
Direction: Which requirements are meant to be used to evaluate each of the 5C’s of
credit? Match Column A with the correct answer in Column B.
COLUMN A COLUMN B
1. Interview, fully filled out loan application form,

CAPITAL
NBI clearance, Police Clearance, etc.
2. Income documents (Certificate of employment, CONDITION

Audited financial statements, Income tax return, etc.)
CHARACTER
3. Copy of TCT, Tax declaration, Building plan, etc.
Statement of Assets and Liabilities, COLLATERAL
Audited financial statements, etc.
CAPACITY
4. Latest news articles relating to the company (if listed),
Trends in the financial statements, Business
Background/Company Profile, etc.
Activity 2
Direction: Among the 5C’s of Credit, what do you think is the most important consideration
of banks in approving a loan? Explain your answer in 3-5 sentences.
Activity 3
Direction: In your opinion, why do banks conduct interviews for prospective borrowers?
Explain your answer in 3-5 sentences.
V. REFERENCES
https://www.investopedia.com/
https://corporatefinanceinstitute.com/resources/knowledge/credit/5-cs-of-credit/
Prepared by:
DEXTER ROSE P. FERNANDO
Writer
Reviewed By:
FLORENTINO RAMOS, Ph.D.

EPS, Mathematics
4
5
Activity 1
1. CHARACTER
2. CAPACITY
3. COLLATERAL
4. CAPITAL
5. CONDITION
Activity 2
Answers may vary.
Activity 3
Answers may vary.
VI. KEY TO CORRECTION

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LEARNING ACTIVITY SHEET

Name: ______________________Date: _

BANK AND NON-BANK INSTITUTIONS and THE 5 C’s OF CREDIT

At the end of this lesson, the learners will be able to:

At the end of this lesson, the learners will be able to:

III. Key Concepts

List of Bank Requirements for Loan Application for a Corporation

1. Interview, fully filled out loan application form,

2. Income documents (Certificate of employment, CONDITION

FLORENTINO RAMOS, Ph.D.

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