The document outlines the objectives and process of bank credit analysis and lending. It discusses evaluating the 5 C's of credit - character, capacity, capital, collateral, and conditions. The objectives are to thoroughly understand the customer and business, assess creditworthiness based on financial performance rather than just collateral, and develop a professional credit culture. The process involves data collection, credit analysis, evaluating proposals, and administering approved loans.
The document outlines the objectives and process of bank credit analysis and lending. It discusses evaluating the 5 C's of credit - character, capacity, capital, collateral, and conditions. The objectives are to thoroughly understand the customer and business, assess creditworthiness based on financial performance rather than just collateral, and develop a professional credit culture. The process involves data collection, credit analysis, evaluating proposals, and administering approved loans.
The document outlines the objectives and process of bank credit analysis and lending. It discusses evaluating the 5 C's of credit - character, capacity, capital, collateral, and conditions. The objectives are to thoroughly understand the customer and business, assess creditworthiness based on financial performance rather than just collateral, and develop a professional credit culture. The process involves data collection, credit analysis, evaluating proposals, and administering approved loans.
The document outlines the objectives and process of bank credit analysis and lending. It discusses evaluating the 5 C's of credit - character, capacity, capital, collateral, and conditions. The objectives are to thoroughly understand the customer and business, assess creditworthiness based on financial performance rather than just collateral, and develop a professional credit culture. The process involves data collection, credit analysis, evaluating proposals, and administering approved loans.
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Banking Supervision
School
Bank Indonesia @ 2006
Credit Application
Data Collection Collateral/Guarantee
Credit Analysis
Evaluating Credit Proposal
Complement Data Collection
Credit & Collateral Agreement
Lending Administration
Facilities Opening
Loan Disbursement The objectives are :
Know your customer and his business
Lens on the basis of Financial Performance rather than collateral Pick up early warning signals Be aware of risk concentrations “Depersonalize” credit decisions Develop a professional credit culture in which both Bank and Borrowers expect debts to be repaid Restrukturisasi ANALISA ASPEK KREDIT /
Kredit KEL.USAHA ( PRINSIP 5+ ) Kredit Baru
KELAYAKAN KREDIT PRINSIP2 PENILAIAN KREDIT/ PEMBERIAN KEL.TEKNIS. KREDIT (PRINSIP 5C+dll)
Tambahan Kredit 1. Purpose 2. The Five C’s of Credit • Qualitative Analysis • Quantitative Analysis 3. Ways Out 4. Structure 5. Conclusion a. Why does the obligor need the proposed credit facilities? b. Purpose of the loan must be clearly defined.
c. Purpose of the loan determines the type of credit line
or loan to be extended. General categories of loan purpose:
a. Working Capital Financing
b. Capital equipment acquisition
c. Project Finance
d. New Venture e. Others: take-out of existing debt 1). Inventory Financing
2). Receivable Financing
3). Other Current Assets Financing
a) Inventory consists of: * Raw materials * Goods in process * Finish goods
b) Inventory purchased locally
c) Imported inventory a) Receivable consists of: * Trade receivables * Due from subsidiaries/affiliates * Others
b) Long term receivables
c) Local & foreign currency denominated
a) Operating * Factory supplies like oil & lubricants * Advances to suppliers
b) Non - Operating * Advances to stockholders * Due from subsidiaries/affiliates 1. Capital Equipment Acquisition
2. Project Finance
3. New Venture
4. Others – take-out of existing debt/refinancing
Character
Collateral Capacity 5C Condition Capital This criterion is exactly what the name implies. It involves a review of honesty, integrity, trustworthiness and management skills. Who are we lending money to ? What is their past credit history ? Do they have expertise in this company/industry ? Marketing, Operations, Finance ? Human Resources ? Can we trust them ? Do they have the ability to repay and to manage their credit ? The company’s ability to repay their loan or credit.
Use your Projected Statements to help evaluate the
company. Look at Past and Projected Financial Ratios to see the current situation. The capital structure of company is important to a lender because it helps determine the level of risk associated with borrower’s loan request.
An analysis of capitalization includes a review of equity,
total debt, the value of assets and permanent working capital. Looking at the industry as a whole and then looking how the company fits in the industry. Political Economic Social Technological Competition To ensure that the creditor gets his/her money back if the debtor cannot pay the loan.
How does it work ? Secure enough assets to cover the
entire amount of the loan. a. Primary objective of analysis:
1) Identify pre-dominant risks
2) How can these be controlled/mitigated?
b. Achievement of these objectives require analysis of: 1) Management 2) Product/service 3) Production Process 4) Customers 5) Industry 6) Macro-economic environment a) Why analyze management? b) Historical record of business failures indicate more than 85% is traceable to management incompetence. c) Cash pays off loans, but is management who decides where cash will be applied to. a) Areas for analysis (not all inclusive):
1) Track record/experience 2) Experience in crisis management 3) Independence (management vs. owner) 4) Reputation/integrity 5) Management style 6) Contact persons/decision-influencers/ gate- keepers a) Areas for analysis (not all inclusive):
7) Decision making process:Slow? Past?
Autocratic? Consensus? 8) Connections/contacts 9) Labor relations 10) Quality of middle management (succession issue/depth) 11) Management policies, practices, controls 12) Health, age, durability a) Types/mix of products
b) Product cycle c) Product characteristic a) Raw materials sourcing
b) Process c) Plant facilities Who are their customers? * Domestic vs. export * Retail vs. wholesaler * Consumer vs. corporate end users * Distribution channels a). Industry position * Priority vs. non priority
b). Competition * How many firms? * Demand * Market share * Barriers to entry * Price vs. cartel c). Industry characteristics * Cyclical? Boom/Burst? * Position in industry cycle: Sunrise? Mature? Sunset? * Obsolescence: R & D * Import dependency? a) Area of concern: * Inflation * Exchange rates * Money supply * Taxes * Government spending * Price control b) Wage adjustments c) Unemployment d) GNP growth e) FX availability f) FX controls g) Government regulations a. Financial analysis of historical performance addressing:
1) Profitability 2) Cash Generation 3) Liquidity & Solvency 4) Capital Structure 5) Other Financial Indicators b. Analysis of financial projections 1) Cash cycle = days inventory + days receivables
2) Days Payable dilemma
3) Loan Tenor = cash conversion cycle
As a general rule, there should be identified two unrelated ways out in a loan transaction: * First way out is internal cash generation * Second ways out is collateral/security a. Amount
b. Type
c. Tenor/Repayment
d. Availability e. Pricing f. Conditions g. Security 1) Assess customers’ need
2) Determine how much loan exposure to grant
3) Local currency
4) Foreign currency 5) Combination of the above 1) Overdrafts/Short-term loans
2) Term Loans
3) Letters of Credit
4) Trust Receipt Financing
5) Bankers’ Acceptances 6) Pre-export Credit/Packing Credit 1) What pay off a loan? First way out is internally generated cash (applicable for short-term and long-term loans).
2) Establish the cash conversion cycle
3) Cash cycle dictates the tenor of the short term
loan & how much of the loan will be repaid.
4) Financial projections required to assess term
loan repayment schedule. 1) Available but cancelable without notice
2) Committed facility 1) Fixed interest rate either discounted or based on diminishing balance
2) Floating rate – spread over agreed reference rate
(Libor, Sibor, Jibor, etc.)
3) Pricing reflects risks and reward
Some examples: 1) Submission of promissory note 2) Insurance policy 3) Shareholder agreement 1) Submission of promissory note * Real estate mortgage * Deed of Assignment over shares
2) Percentage of collateral coverage
Credit Analysis ends with a summary of the reasons why the proposed loan transaction should be approved:
* Assessment of the obligors’ character & management
effectiveness * Capacity to pay as evidenced by debt service coverage analysis * Capital structure of the business * Collateral/security
