Consumer Credit Model（二）

3.objectives of lenders

1. to maximize the profit achieved on its lending
2. keep the risk and return profiles of its lending within pre-agreed limits.
3. increase the size of the lending portfolio either by increasing the number of loans of particular types that are made or by increasing the different types of lending undertaken.

two major strategic trade-off between profit and volume or market share:
one is between risk and return and the other is between profit and market share or volume.

one might decides on what is the optimal current trade-off on the current trade-off curve AOB, one also could try to move the curve so that the bank gets more profit from the same size of portfolio(like in curve CD).

Lending process(bank):

• acquisition of money:

1. equity holders pays the money;
2. borrow money from its depositors at agreed rates of interest;
3. use the money its current account holders have in their accounts in exchange for the services it provides

for them

• acquisition of portfolio of borrowers:

  acquisition & management of the portfolio so that it produce profit

• realization money of loans:

1. issue corporate bonds;
2. sell the portfolio of loans to another investor but more commonly it will securitize(convert) the loans intoe asset-backed or mortgage-backed securities where they are bundled together, and sold in the marketplace.