A large loan is a loan that exceeds a certain amount and represents a particularly high risk for a bank or group of institutions. One speaks of a large loan as soon as it exceeds a maximum of 10 percent of the equity or the equity of a bank or banking group.
However, this refers to the entire lending to a borrower within a bank or bank group. Colloquially, the large loan can also be called a million dollar loan, although these are two completely different types of credit.
From what amount is a loan classified as a large loan?
There is actually no guideline for this. The percentage connection to the bank’s equity makes a classification in Germany almost impossible. Different regulations apply in Austria, where a credit from $ 350,000 is already considered a large loan. Anything that goes beyond a large loan is classified as a million dollar loan.
A bank loan is a loan of over 1 million dollars. The boundaries between a large loan and a million dollar loan are blurred.
Is the granting of a large loan subject to a reporting obligation?
Large loans must be reported to the Evidence Center in Berlin. If certain limits are exceeded, the approval of the Federal Financial Supervisory Authority must also be obtained. This is where the credit information of all companies is collected so that a bank can easily get the current status of a borrower.
Is there a limit on large exposures?
For trading book and non-trading book institutions, the rule applies that all loans added together may not amount to more than 25 percent of liable equity. If the large credit limit is exceeded, the approval of the Federal Financial Supervisory Authority is required. This simplified regulation applies to interbank claims; in principle, an absolute upper limit of 150 million dollars applies to non-trading book institutions.
It also applies to credit institutions that their subsidiaries, together with the parent company, form a unit in the large credit business. Large loans may therefore not be granted in unlimited amounts, with this upper limit regulation all large loans granted by the bank must be used.
In general, the bank applies that all loans added together must not exceed eight times the capital of a bank. These limits for the banks put them on a safe footing to keep the credit risk of the banks relatively low. However, due to the percentage regulation, these limits differ from bank to bank.
How is a large loan applied for?
In contrast to a normal loan, not only a bank clerk is sufficient to apply for a large loan. A large loan usually has to be countersigned by all bank executives before it can be paid out to the borrower. Every manager should be informed about the financial risk of the bank and confirm this with their own signature.
Which loans are added together?
Basically, all loans taken out by a borrower are added together. Certain collateral allows the loan amount to be reduced. The nominal amount of each loan is used to calculate the total. The Large Loans and Million Loans Ordinance specifies which loans must be used here.
Who needs a large loan?
Large loans are usually needed by constantly growing companies. Large loans are constantly needed to expand a large company and to acquire the necessary halls and machines, but the start-up of a large company is often also financed by a large loan. Large loans are relatively rarely given to private individuals, this type of loan is quite common among entrepreneurs.
Can a company apply for multiple large exposures?
Each large loan is subject to notification, should there be multiple applications from the same borrower, the Agree Bank will inform the reporting company of this. This means that multiple applications and thus over-indebtedness are avoided.
What documents need to be submitted to apply for a large loan?
The bank may only accept the credit transaction if the borrower has the economic situation confirmed in the form of the presentation of the annual financial statements.
Does a large loan need to be disclosed?
If the borrower secures the large loan through mortgages on owner-occupied residential property and the loan does not exceed four fifths of the property, the drawn bank may refrain from disclosing the loan. However, this only applies if the borrower duly fulfills his repayment and interest agreement. A large loan is also subject to a normal repayment and interest payment, which is due monthly.
Since the credit business has a direct impact on the development of a bank or an institution, the large and multi-million dollar credit business is particularly well monitored. The banks are subject to a special reporting requirement, so the credit performance of all large loans granted must be reported to the Agree Bank every quarter. Amounts are entered here on a specially provided platform extranet, master data of the individual borrowers are still submitted in writing to the Agree Bank for entry. The information collected in this way is used for internal analyzes but also for global evaluations. Potential risks to the stability of the financial system should be recognized in good time.
The data collected is equally interesting for bank supervisory authorities and banks and serves as an extremely important source of information. Large-scale lending is so strict because this lending business has a direct impact on overall economic stability. Central regulations must be monitored regularly by all citizens in order to keep the risk as low as possible and to avoid endangering economic stability.