Public Bank receives a loan application of RM 250 million from XYZ Inc. XYZ pledges to deposit RM 10 million in Public Bank. The average interest rate on loans is 10%, while the average interest rate on deposit balance is 3%. The bank will impose a commitment fee of 1.5%. However, the bank has to bear 2% monitoring and 3% loan processing costs, calculated based on the loanable amount. Bank Negara Malaysia maintains a statutory reserve requirement (SRR) of 2%. The loan committee hopes to estimate the following revenues and expenses and project the net return using the amount of the loan requested as a base for the calculations: Required a. Calculate the expected rate of return of the loan, excluding its servicing costs, given the estimated probability of default of 5%.

b. Assume the bank's internal lending policy requires a minimum 5% annual before-tax rate of return over all the costs. Estimate the net rate of return when lending to XYZ and evaluate whether the loan can be approved. Justify with workings.

c. Critically evaluate the adjustments that help improve this loan's projected return.