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what are covenants in a loan agreement? What are the objectives of covenants? (a) How do...

  1. what are covenants in a loan agreement? What are the objectives of covenants?
  2. (a) How do loan portfolio risks differ from individual loan risks?
    (b) What does loan concentration risk mean?
  3. What is migration analysis? How do FIs use it to measure credit risk concentration? What are its shortcomings?
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Answer #1

1. Loan covenant is a certain restriction in the loan agreement which will be restricting the borrower to do exercise certain things or not to do certain things, which are agreed upon the terms and conditions of the loans.

The objective of these loan covenants is to maintain the creditworthiness of the buyer so that he is efficient enough under any circumstances to pay back the loan and the value of the collateral should also be protected.

objectives of the loan covenants are to restrain the buyers to undertake such agreements will decrease the creditworthiness so that there is a protection on the part of the lender that his debt will be repaid.

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