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In about 200 words, provide insights as to why this initiative in mortgage lending may have...

In about 200 words, provide insights as to why this initiative in mortgage lending may have adverse consequences for a bank's risk exposure.

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Answer #1

This initiative in mortgage lending would increase the concentration of the bank loan portfolio and increase the proportion of home mortgages in the overall portfolio. Such an increase in loan concentration affects the diversification requirements of the loan portfolio.

Moreover a thrust to increase the share of home mortgages would imply that the quality of borrowers may get impacted and consequently the asset quality could also get affected. This in turn would definitely impact the margins of the bank and the need to have higher margins would go up. Ultimately it would adversely impact the net interest margins of the bank and the risk profile of the bank would deteriorate to a large extent.

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