PAPER NO.17 CORPORATE LENDING
GENERAL OBJECTIVE
This paper is intended to equip the candidate with the knowledge, skills and attitudes required for management of the corporate lending function.
LEARNING OUTCOMES
A candidate who passes this paper should be able to:
- Assess the creditworthiness of corporate customers
- Identify various risks associated with collateral
- Assess and manage credit risk
- Apply canons of lending in evaluating corporate customers
- Monitor and control lending
- Comply with professional ethics applicable in corporate lending
CONTENT
Types of corporate customers
- Companies and groups of companies
- Multinational companies
- Partnerships
- Registered groups
- Trusts
- Not-for-profit organisations
- Parastatals and governments agencies
- County governments
- NGOs
Corporate strategy and lending
- Analytical models
- Analysis of corporate strategy in relation to lending
- Financial strategy
- Business strategy
- Corporate goals
- Competitive environment
- Strategic alternatives
Canons of lending
- Principles of good lending
- Attributes of good lending
- Approaches to assessing the viability of a lending proposition
- Borrowing requirements
- Credit risks associated with various types of customers
- Special considerations when lending to registered groups
- Special considerations when lending to SMEs
- Terms and conditions of lending
- Lending requirements
- Ethics in corporate lending
Managing credit risk in lending
- Risk posed by different types of corporate customers
- Credit scoring and credit rating
- Identification of interest and exchange rate risk posed by corporate customers
- Techniques for managing risk – internal and external techniques
Financial statements analysis
- Trends in financial statements
- Projected profit and loss accounts
- Ratio analysis
- Cash flows analysis
- Budgets analysis
- Linking financial analysis to lending propositions
- Limitations of financial analysis in credit assessment
Principles of collateral management
- Introduction
- Types of collateral
- Qualities of good collateral
- Merits and demerits of collateral
- Periodic valuation and monitoring of collateral
- Perfection processes and lodging of collateral
- Qualitative and quantitative collateral evaluation
- Collateral review
Monitoring and control of lending
- Reviewing customers’ accounts
- Sources of information for review
- ‘Out of order’ report
- Warning signs of bad and doubtful debts
- Overtrading – emphasis on link to cash flow
- Control measures in lending
- Interim management accounting information
- Credit reporting mechanisms
Prudential guidelines in lending
- Introduction
- Reasons for prudential guidelines
- Non-performing loans
- Non-performing overdraft
- Risk classification of debt
- Management of non- performing debts
- Provisioning requirements
- Renegotiated substandard loans
- Multiple facilities
- Renegotiated doubtful loans
- Write offs
- Treatment of securities
- Insider borrowing
Alternative sources of finance
- Introduction
- Equity finance
- Corporate bonds
- Franchising
- Leasing
- Syndication of credit facilities
Credit crunch
- Definition of credit crunch
- Causes of credit crunch
- Effects to the business environment and the economy
- Managing risk under credit crunch
Emerging issues and trends