Corporate lending – KASNEB Syllabus

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



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