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阿德萊德代寫assignment

Business代寫 Development and credit analysis

•2.1  The Credit Process  
2.1  The credit process
2.2 
2.3 Credit Execution and administration
2.4 Credit Review


•Announcements
•Where we are….
•Learning Objectives
LO#1  Explain the process of credit
LO#2  Identify the basic principles governing   bank lending and explain their   importance
•Relevant Readings
•Main Text, pp15-25
•Class Activity #1
•A customer applies for a housing loan; how would the bank decide to approve/reject?
•Would the same criteria apply to commercial/business loans?
•Fundamental objective: profitable loans with minimal risk
•Profits: determined by loan volume and rates
•Risk minimisation: determined by quality of loans
•Consequences for: liquidity requirements, capital constraints
•How do you maintain a reasonable balance between above?
•Credit process includes 3 functions: (next slide), each reflects written policy determined by BOD (crucial!!) and properly disseminated through out the bank
•2.1 The Credit Process
But first, policy, philosophy and culture
•Loan Policy
–Formalizes lending guidelines that employees must follow very closely to conduct bank business
•establishes procedures for everything, including granting, documenting and reviewing loans
•Credit Philosophy
–Management’s philosophy determines how much risk the bank will take and in what form
Credit Culture
–The fundamental principles that drive lending activity and how management analyzes risk; can be very different across banks:
(i) Values Driven
•Focus is on credit quality, strong risk management systems and controls, soundness, stability, conservative underwriting, sig concentrations not allowed, fewer losses but lower profits
(ii) Current-Profit Driven
•Focus is on short-term earnings, profit plans, high risk, high return borrowers; higher profits in good times, lower in bad times
(iii) Market-Share Driven
•Focus is on having the highest market share, loan volume and growth, aggressive underwriting, loan concentrations acceptable, above average credit risk, modest profits in good times, lower in bad times
–Exhibit 13.9 (read): essentials of good banking fostered by strong credit culture
•2.2 Business Development and Credit Analysis
 Business Development (responsibility of every employee)
–To attract new customers; keep existing
–Market research: establish targets for loan composition, identify areas of potential bus, analyse market conditions, customer surveys, forecast demand
–Train employees:
•On what products are available
•What products customers are likely to need
•How they should communicate with customers about those needs
–Create awareness:
•Advertising and Public Relations
•Officer Call Programs (regular face-to-face contacts)
Credit Analysis
–Evaluate a borrower’s ability and willingness to repay
–Questions to address
•What risks are inherent in the operations of the business?
•What have managers done or failed to do in mitigating those risks?
•How can a lender structure and control its own risks in supplying funds?
Five C’s of Good Credit (borrower’s perspective)
–Character: honesty, trustworthiness; willingness to pay
–Capital: financial position, soundness, sustainability, commitment  to loan
–Capacity: repayment; difference between good and bad loan; identifiable cash flow, income/expense
–Conditions: market, business sector
–Collateral: secondary source of repayment
•Class Activity #2
•Which of the five Cs do you think is the most important?
•Which is most difficult to evaluate? Why?
Five C’s of Bad Credit (lender’s perspective)
Lender should guard against:
–Complacency: good in past, therefore good in future eg. overreliance on guarantors, reported net worth, past repayments
–Carelessness: poor underwriting, inadequate loan documentation, incomplete credit files
–Communication ineffectiveness: to borrower
–Contingencies: playing down circumstances in which a loan may default
–Competition: following competitor behavior; doing something that another is doing is not necessarily prudent practice
•Class Activity #3
•Can you give an example of “competition” that might have been disastrous for a bank, FI or other firm?
•2.3 Credit Execution and Administration
•Loan Decision (delegated lending authority (DLA); varies)
–Individual officer decision
–Committee
–Centralized underwriting
•Loan Agreement (legal document; contestable in court)
–Formalizes the purpose of the loan
–Terms of the loan
–Repayment schedule
–Collateral required
–Any loan covenants
–States what conditions bring about a default
•Documentation: Perfecting the Security Interest
–Perfected
•When the bank's claim is superior to that of other creditors and the borrower
–Require the borrower to sign a security agreement that assigns the qualifying collateral to the bank
–Bank legally obtains title to equipment or vehicles or other asset/property
•Position Limits
–Maximum allowable credit exposures to any single borrower, industry, or geographic local
•Risk Rating Loans (at time of granting)
–Evaluating characteristics of the borrower and loan to assess the likelihood of default and the amount of loss in the event of default (LIED)
•Loan Covenants
–Positive (Affirmative)
•Indicate specific provisions to which the borrower must adhere
–Negative
•Indicate financial limitations and prohibited events
•Sample Loan Covenants
•2.4 Credit Review
•Two functions:
(i) Monitoring the performance of existing loans and
(ii) Handling problem loans
•Loan review should be kept separate from credit analysis, execution, and administration
–The loan review committee should act independent of loan officers and report directly to the CEO of the bank
•Problem Loans
–Often require special treatment
•Modify terms of the loan agreement to increase the probability of full repayment
–Modifications might include:
»Deferring interest and principal payments
»Lengthening maturities
»Liquidating unnecessary assets
•Learning Objectives
LO#1  Explain the process of credit
LO#2  Identify the basic principles governing   bank lending and explain their   importance
•Next week/lecture…
•Thank you!
Hasta la próxima!

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