Ideal Loan
As all of the bank’s loans are not considered as an ideal loan; in the same way, all of the bank’s loans are not treated as problem loans. There are borrowers who have both willingness and ability to repay the loan at the time of taking the loan. But with the passage of time, both the willingness and ability of repayment may be negative, which ultimately results in problem loans.
Let’s consider the following four scenarios:
Loan classification may be shown in the following ways:
- Willingness to repay + Ability to repay = Ideal loan
- Unwillingness to repay + Ability to repay = problem loan
- Willingness to repay + Inability to repay = problem loan
- Unwillingness to repay + Inability to repay = problem loan
The willingness & ability of the borrowers to repay the’ loan may change over time after the loans are made, to then. On the other hand, Bankers may also make mistakes in the process of lending.
