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WorksheetsCredit and Collection (Chapter 3)
Total questions: 24
Worksheet time: 13mins
enables the banks to secure the detail information about the borrower’s business which can help in credit decision process.
Interview
Financial Statements
Report of credit rating agencies:
Bazaar report:
Bank’s own records:
include the balance sheet and the profit and loss account. The financial statements of the last few years should be obtained.
Interview
Financial statements:
Report of credit rating agencies:
Other non-formal methods:
Bank’s own records:
If the applicant is the existing customer of the bank, the banker can study the previous records, which provides an insight into the past dealings with the bank.
Bazaar report:
Financial Statements:
Interview:
Bank’s own records:
Report from other banks:
Report regarding applicant can also be obtained from various markets. The strengths and weaknesses of the borrowers are monitored by the markets continuously.
Interview:
Financial Statements:
Bazaar report:
Report from other banks:
Other non-formal methods:
The most popular non-traditional method is to understand the personality, motive and the capabilities of the borrowers, based on non-verbal clues as trying to predict the results of a human mind.
Bank’s own records:
Report from other banks:
Interview:
Other non-formal methods:
Bazaar report:
Bank credit department may ask to other banks in which the applicant has dealings.
Other non-formal methods:
Report from other banks:
Bazaar report:
Bank’s own records:
Interview:
Reviewing a borrower’s probability of default is basically done by evaluating the borrower’s current and future ability to fulfill its interest and principal repayment obligations.
Exposure at Default
Loss Given Default
Probability of Default
Maturity
is affected by the collateralized portion as well as the cost of selling the collateral. Therefore, the calculated value and type of collateral also have to be taken into account in designing the credit approval processes.
Exposure at Default
Maturity
Probability of Default
Loss Given Default
In the vast majority of the cases described here, the exposure at default corresponds to the amount owed to the bank.
Probability of Default
Exposure at Default
Maturity
Loss Given Default
is required to calculate the required capital, it plays a minor role in exposure review.
Exposure at Default
Probability of Default
Loss Given Default
Maturity
are the starting point to find the optimal design of credit approval processes in terms of risk.
Risk drivers
Risk analysis
Credit risk
The credit department of a bank collects various important information regarding borrower from different sources to evaluate the customer.
Credit analysis:
Gathering credit information:
Credit decision:
After gathering the credit information, banker analyses it to evaluate the creditworthiness of the borrower.
Credit analysis:
Gathering credit information:
Credit Decision:
means the reputation of the prospective borrower. This includes certain moral and mental qualities of integrity, fairness, responsibility, trust worthiness, industry, etc. The honesty and integrity of the borrowers is of primary importance.
Capital:
Collateral:
Capacity:
Character:
Conditions:
It is the management ability factor. It indicates the ability of the potential borrower to repay the debt. It also shows the borrower’s ability to utilize the loan effectively and profitably.
Character:
Collateral:
Capital:
Capacity:
Conditions:
refers to the general financial position of the potential borrower’s firm. It indicates the ability to generate funds continuously over time.
Character:
Capacity:
Capital:
Collateral:
Conditions:
means assets offered as a pledge against the loan. It serves as cushion at the time of insufficiency of giving a reasonable assurance of repayment of the loan.
Capital:
Capacity:
Character:
Collateral:
Conditions:
It refers to the economic and business conditions of the country and position of particular business cycle, which affect the borrower’s ability to earn and repay the debt.
Capacity:
Character:
Conditions:
Capital:
Collateral:
After passing through whole this process, the banker has to take decision about sanctioning of credit facility. The creditworthiness should be matched against the credit standards of loan policy.
Credit analysis:
Gathering credit information:
Credit decision:
is an essential best practice because it is the foundation for all succeeding steps in the credit risk management process.
PRICE THE DEAL.
UNDERSTAND THE NUMBERS.
ANALYZE NON-FINANCIAL RISKS.
KNOW YOUR CUSTOMER.
STRUCTURE THE DEAL.
Information gathered in this step is critical to positioning yourself as a financial consultant to your customer and a valued member of your financial institution’s lending team.
UNDERSTAND THE NUMBERS.
KNOW YOUR CUSTOMER.
ANALYZE NON-FINANCIAL RISKS.
ANALYZE NON-FINANCIAL RISKS.
STRUCTURE THE DEAL.
is a continuous process (not a static exercise) of identifying risks that are sometimes subject to quick and volatile changes.
Risk management
Risk drivers
Risk Analysis
What are the fur risk components?
(CAPITAL LETTERS ONLY)
(a)
what are the two sources of Credit approval process?
(CAPITAL LETTER ONLY)
(a)
