How mark-up is calculated on fund base advances?
 

AOA

How mark-up is calculated on fund base advances? names of any four fund base advances.


tomorrow i am going for viva voce plz pray for me

although i am not Raz bhai but still wanted to reply you as its an urgent matter for you.
As an example All Consumer Financing products of different banks fall under the category of Fund Based Advances. Any advance to customer where the Financial Institution has to part with money immediately is a fund based facility.
Names of 4 fund based advances include:
Running Finance
Home Loans
Car Loans
Personal Loans
cash finance etc.
however all these advances are definitely fully or partially secured according to product characteristics, consumer history, banks own margin requirements and SBP requirements.
Non fund based advances include Letter of Credits, Bank Guarantees, etc.
These facilities don't represent any immediate outflow of money for bank and are contingent in nature. These get converted into fund based facilities when called upon/default.

As far as the mark-up is considered the calculation will depend on the product characteristics.
like for car loans a single compound annual rate maybe used while the calculation will be more complex in case of running finance etc.
I hope this helps you dear.

[QUOTE=hafizask;278109]AOA

How mark-up is calculated on fund base advances? names of any four fund base advances.


tomorrow i am going for viva voce plz pray for me[/QUOTE]

[COLOR=black][FONT=Verdana]Haris has rightly responded you.[/FONT][/COLOR]


[COLOR=black][FONT=Verdana]In fund based facilities mark up is calculated on daily basis . Generally, (KIBOR + agreed spread) is the mechanism to calculate mark up. Fixed mark up or floating mark up is again dependent upon the nature of facility approved. Decision about KIBOR like one month, three months etc. and spread like 1.5 or 2 or 2.5 varies from product to product and borrower to borrower depending upon: [/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Risk involved: High, Medium, Low (for the Facility + for the borrower)[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Financial Capacity, financial soundness, cash flows, repaying capacity[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Repayment behavior, customer's intensions and his track record[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Strength or weakness of collateral / security [/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Business relations, group companies relations, future business opportunities, level of business[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Sector involved like energy, food, fertilizer, Textile, manufacturing, telecom etc.[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Level of comfort of bank's management over the borrower[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Bank's liquidity position[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]SBP Discount rate indication[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Market competition, Peer Banks' benchmarks[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Overall economic conditions[/FONT][/COLOR]

[COLOR=black][FONT=Verdana]Formula: Varies from case to case due to above mentioned factors[/FONT][/COLOR]
[COLOR=black][FONT=Verdana]Generally:[/FONT][/COLOR]
[B][COLOR=black][FONT=Verdana]= KIBOR(one month, 3 months etc.) + Agreed spread (0.5% or 1.00% or 1.5% or 2% p.a.)[/FONT][/COLOR][/B]


[B][COLOR=black][FONT=Verdana]Or = KIBOR + Specific Margin[/FONT][/COLOR][/B]
[B][COLOR=black][FONT=Verdana] Or KIBOR + Bank spread + Margin[/FONT][/COLOR][/B]


[COLOR=black][FONT=Verdana]~ KIBOR = Karachi Inter Bank Offered Rate[/FONT][/COLOR]

[COLOR=black][FONT=Verdana]>Consumer products attract fixed mark up.[/FONT][/COLOR]


[COLOR=black][FONT=Verdana]>Non fund facilities are subject to Commission.[/FONT][/COLOR]

[COLOR=black][FONT=Verdana]Every facility which appears on the balance sheet of bank is fund based facility. Some examples are as follows:[/FONT][/COLOR]

[B][I][FONT=Times New Roman]Fund Based[/FONT][/I][/B]
[FONT=Times New Roman]RF[/FONT]
[FONT=Times New Roman]CF[/FONT]
[FONT=Times New Roman]ERF–II[/FONT]
[FONT=Times New Roman]FATR[/FONT]
[FONT=Times New Roman]FAPC/ ERF-I (Pre)[/FONT]
[FONT=Times New Roman]FAFEB/ ERF-I (Post)[/FONT]
[FONT=Times New Roman]FADD[/FONT]
[FONT=Times New Roman]FBP[/FONT]
[FONT=Times New Roman]FIM[/FONT]
[B][I][FONT=Times New Roman]Non Fund Based[/FONT][/I][/B]
[FONT=Times New Roman]Guarantees[/FONT]
[FONT=Times New Roman]Letters of Credit - Usance[/FONT]
[SIZE=3][FONT=Times New Roman][FONT=Calibri]Letters of Credit – Sight[/FONT][/FONT][/SIZE]



[COLOR=black][FONT=Verdana]Wish you good luck for tomorrow[/FONT][/COLOR]

[COLOR=black][FONT=Verdana]Regards[/FONT][/COLOR]