Question

QUESTION 5.

(a) One key consideration banks assess before opening an account for a prospective customer is capacity.

Explain in detail why it is important that banks consider capacity of the individual in opening accounts

for them. [8 MARKS]

(b) Mention at least 4 parties and explain why they lack capacity to open and operate an account at a bank

Answer 1

a) The one key consideration bank assess before opening an account for a prospective customer is capacity because lenders must be sure that the borrower has the ability to repay the loan based on the proposed amount and terms. For business-loan applications, the financial institution reviews the company's past cash flow statements to determine how much income is expected from operations. Individual borrowers provide detailed information about the income they earn as well as the stability of their employment. Capacity is also determined by analyzing the number and amount of debt obligations the borrower currently has outstanding, compared to the amount of income or revenue expected each month.Most lenders have specific formulas they use to determine whether a borrower's capacity is acceptable

b)There is no general rule that prevents people from opening a bank account.Some common reasons for refusal by many banks are:

• Lack of ID: For most people trying to open an account, the biggest problem is ID to check the citizenship and residential address
• Record of fraud: All account providers reserve the right to reject applications from people who have a ‘record of fraud’ as a result of money laundering regulations
• Undischarged bankrupts: Most banks also reserve the right to reject applications from people who are ‘undischarged bankrupts’. This is someone against whom a bankruptcy order has been made and who has not been discharged from bankruptcy (which usually happens 12 months after bankruptcy).
• Poor credit rating: These days lots of people have a less than perfect credit record. This can cause problems when you apply for a standard current account because they tend to include credit facilities (like overdrafts, cheques and credit cards).