The first mentioned or conservative strategy means that in times of boom the bank cannot achieve too high profits. In turn, at a time when the economic situation is at a low level, the bank will not suffer too high financial losses. The application of this strategy in practice means that the bank’s basic management is a high level of asset quality, and hence the quality of the loan portfolio.
By implementing a conservative strategy
The bank is able to grant loans of the highest quality with low risk. Also the strategy of enabling constant monitoring of the diversification of the loan portfolio. Conducting this type of credit policy imposes certain requirements on the bank.
It must be characterized by a considerable internal discipline regarding the granting of loans without the intervention of changing market sentiment. At the same time, the bank is gaining the trust of customers who perceive it as a strong branch.
In turn, the bank’s offensive strategy results in quick profits. In the long run, this translates into the bank’s development and increasing its share in the financial and economic market. However, you should be aware that this type of strategy is difficult to implement.
This is due to the fact that it requires a great deal
Of concentration on the assumptions made. It is also necessary to react quickly to any emerging changes on the financial market. In addition, the offensive policy does not ensure a constant, high standard of services towards the bank’s clients. Then the customer has the opportunity to get a cheaper loan faster in another such facility.
At the same time, when large income changes occur during a business cycle, the bank must achieve high income during good times. To achieve this, the bank provides expensive loans to clients with high risk classes.
As a consequence, the bank becomes unstable and reliable for both potential customers and future business partners. Credit operations carried out in banks are important for the functioning of this type of facility because they account for half of all bank assets. Therefore, it becomes necessary to pursue a specific credit policy primarily in the area of lending.
Through such tasks it is possible
To permanently ensure the bank’s stability on the market in a given country. It should be realized that banks nowadays rely mainly on the technique of selling their credit products and services offered in their branch. For a bank to be able to enter the contemporary financial market, it must first determine its loan offer. Importantly, this offer must meet the expectations of potential customers.
The increase in lending offered by the bank depends on the resources at its disposal individually. This increase also depends on the success of the bank’s deposit operations. When the loan growth rate is higher than the deposit growth rate, we are facing a significant reduction in liquidity.
It should also be understood that maintaining the credit growth rate is not only dependent on the development of bank deposits, but on their quality characteristics.