Which one of the following is a reason for a bank to keep a commercial loan in its portfolio until maturity?

Which one of the following is a reason for a bank to keep a commercial loan in its portfolio until maturity?

I. Commercial loans usually have attractive risk-return profile.

II. Commercial loans are difficult to sell due to non standard features.

III. Commercial loans could be used to maintain good relations with important customers.

IV. The credit risk in commercial loans is low.
A . I, II and III
B . III and IV
C . II and IV
D . IV only

View Answer

Answer: A

Explanation:

Banks may choose to keep commercial loans in their portfolio for several reasons. First, commercial loans often have an attractive risk-return profile (I). Second, due to their non-standard features, commercial loans are difficult to sell (II). Third, maintaining commercial loans can help sustain good relations with important customers (III). These factors combined make keeping commercial loans until maturity beneficial for banks.