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166 SUMMARY Bank operates and arranges everything in the field of money, capital and credit. They try to meet with the requirements of money, capital, credit for private - juristic persons as well as the state and all public - private institutions. Especially the capital market cannot be improved properly in such the countries as Turkey, banks which undertakes the responsibility to cover enterprises' fund demand, are most important intermediaries. Modern bank is very different and distinguished from classical bank because of variety and complexity of procedures, effectiveness of its instruments in whole economy and characteristics of its management. In this point of view, it can be said that every bank undertakes three basic functions;. collect savings and reserve them,. get money flow inter - accounts or drawing on accounts,. give loans to persons and enterprises from definite part of current deposit. Loan can be defined as lending money to private - juristic persons, letter of guarantee in response to colleteral or not, but dependably state laws, internal rules and deposits. The defination of loan includes four elements as time, security, risk and profit. Security means that the loans would be certainly paid at its due. So, time element is the base of security element for a loan. For that reason, security is the major element of loan. If security is lost, paying back the loan would be risky. The risk, which occured from unpaid loan or interest at its due by borrower, defined as credit risk. Loans are profitable for lots of financial institutions as well as they are risky. Risk is unpreventable element of banking system. Almost all decisions of banks include some risks. Management and monitoring of lending167 process increase bank's profitability at acceptable risk level. Otherwise, banks may go through crisis in the short or long run. If the paying back the given loan is not certain, this credit takes place in watch - list. Following up a loan occured inadequate solvency of borrower and unpaying loan or interest at its due by borrower. Effective credit management to eliminate unpaid loans is necessary because of rational using scarce sources of the state. On the other hand, when bankruptcy of a bank become, all the economic and social units would be negatively affected its results as well as the bank shareowners. A bank, which has unpaid loans at due, possibly can not collect some part of them. Bank has try to minimize the losses which causes from unpaid loans. Otherwise, increasing losses indicate failure of bank's lending and collection policies. For that reason, banks have to set up strategies which helps to determine problem loans and eliminate them. Even if problem loans are determined earlier, banks may have solutions against them. 194 |
