個人及商業(yè)信貸

1、Personal and Commercial Lending Fang Ming（方明）0271Teaching ContentsPersonal and Commercial Lending :An IntroductionPersonal and Commercial Lending :Advanced2This Unit is designed to enable candidates to understand the principles and products that apply when lending to personal and commercial borrower

2、s. It prepares the candidate for practical lending situations that would arise in the banking and related financial services industries and is relevant to candidates with no experience or to those who have a limited experience in lending. Unit purpose3AssessmentIt is preferred that this Unit be asse

3、ssed by an instrument of assessment that would require candidates to answer questions based on a case study relating to a personal and commercial lending situation. 4Section 11 Importance of Lending practice Main source profit of financial institutions Risk of nonpayment Funds entrusted to a financi

4、al institution by depositors-principal and agent relationship, moral hazard Responsibility to protect the investment of shareholders of financial institutions Legal implications52 A systematic approach to lending 2.1Introduction stage Non-customers Existing customers62.2 The application form2.3 Revi

5、ewing the application CAMPARI CCCPARTS PARSERS 2.4Evaluation 2.5 Monitoring and Contol7Section 21 Principle of lending 1.1 Personal aspects character- integrity, honesty and reliability capital capability81.2 Amount and purpose Fiscal or government directives, or strategic reason Personal customer-t

6、he ability to repay the loan Business customer-supporting evidence91.3 Repayment Nature of the loan and interest 1.4 Safety short and medium-term personal borrowing is unsecured Main danger to the repayment by regular salary is redundancy and illness101.5 Expediency Occasionally decisions on lending

7、 are made that do not always follow an expected pattern 1.6 Remuneration Interest Commission 1.7Selling112 Personal information relevant to personal lending 123. Importance of source and timing of income in relation to personal lending Salary Overtime payments, bonuses, commissions Timing of lending

8、 13Section 3 5.3.1Restrictions on lending Legal restrictions Credit rating restrictions The lenders policy145.3.2Additional Factors Relating to Personal lending lending to joint applicants lending to young persons lending to trustees lending to executors 155.3.3 Personal lending Sources 1 The provid

9、er16 2 Methods of delivery Direct sales Postal lending Electronic sale Regulatory aspects of loan sales17Section45.4.1 The products Short-term borrowing a.Overdraft features of overdrafts b. credit card features ofcredit card185.4.2Medium-term borrowing Personal loans Secured personal loans Students

10、 Loans Graduates/Overdrafts Career Development Loans Executor Loans 19Section 55.5.1Long-term borrowing What is Mortgage? A mortgage is a loan you take out to buy property. Most banks and building societies offer mortgages, as well as specialist mortgage lending companies. If you change lenders but

11、dont move home its referred to as a remortgage.Concerned parties: Mortgagor Mortgagee20Repayment methods The two main ways to repay your mortgage are repayment and interest only. With a repayment mortgage you make monthly repayments for an agreed period (the term) until youve paid back the loan and

12、the interest.With an interest only mortgage you make monthly repayments for an agreed period but these will only cover the interest on your loan (endowment mortgages work in this way).Youll normally also have to pay into another savings or investment plan thatll hopefully pay off the loan at the end

13、 of the term.21 Mortgage types Capital and interest mortgages Interest-only repayment mortgages225.5.2 Other loans Bridging loans23Section 65.6.1Interest rates Flat rates APR24Interest and Interest RatesSome basic information on interest rates Bank of England base rateSet by Monetary Policy Committe

14、eProvides a basis for other ratesNo-one can trade at a lower rate (arbitrage) Objectives of the MPCTo control the rate of inflation (target band)Increase in interest rate reduces demandReduction in interest rate stimulates demandBase decisions on economic data25Other Important RatesLIBOR: London Int

15、erbank Offered RateThe rate at which banks are willing to lend to each otherThe basis for many financial calculationsMortgage ratesMortgages are the safest form of lending to individual so have lowest interest ratesMarket rate is determined by competition between lenders26Other Important RatesPerson

16、al loansLoans for purchases other than property (more risk)Higher interest rate than mortgagesMore variation in interest rates than for mortgagesCollateralSecured loan: an asset is held as collateralUnsecured loan: no collateralInterest rate is lower on a secured loan27Interest Rate CalculationsTo u

17、nderstand interest rates, need to go some through some basic calculationsInterest is compounded at a specified intervalThe interval can make a differenceAssume interval is one yearThen borrowing 100 at a rate of 10% for one year implies a total repayment of 28Compounding IntervalNow consider what ha

18、ppens if we compound interest more frequentlyIf every 6 months, then rate of 10% for a year becomes 5% for six months soIf compounded every 3 months The general formula for interest at rate r compounded m times a year for n years on a loan of L is29Continuous InterestContinuous interest is the limit

19、 of more frequent compounding: FrequencyRepayment Cost of 100 at 10%Annually (m = 1)110Semi-annually (m = 2)110.25Quarterly (m = 4)110.38Monthly (m = 12)110.47Weekly (m = 52)110.51Daily (m = 365) 110.52Continuous (m = )110.5230EffectsThe difference between 110 and 110.52 may seem smallIt is equivale

20、nt to 0.52% on the annually-compounded interest rate of 10%On a large loan this could be significant effectCompounding periodMatters for repaymentNeeds to be clarified before alternative loans can be compared31Flat Rate InterestInterest can also be quoted as a flat rateConsider 100 borrowed for 5 ye

21、ars, with a flat rate of interest of 10% This means 10 of interest is paid per yearOver 5 years the total payments on the loan are 10+10+10+10+10+100 = 150The repayment structure is 5 payments of 30This is equivalent to an APR of 15.2% (see later or use mortgage calculation)32Annual Percentage RateT

22、hese compounding issues motivate the need to find a standard of comparisonThe government has chosen to use the Annual Percentage Rate (APR)This interest rate converts any interest schedule (such as the flat rate) to the annual equivalentAnnual Percentage Rate33Annual Percentage RateConsider receivin

23、g m payments Ak at times tk and making n payments Ak at times tk The interest rate that makes the present discounted value of both flows equal solvesThe solution r to this equation is the APR34Example 1Receive 100 at t1 = 0Pay 10 at t1 = 1, pay 110 at t2 = 2Solution is r = 10%This is just a standard

24、 loan at 10% interest35Example 2Receive 100 at t1 = 0, receive 50 at t2 = 1.5Pay 90 at t1 = 1, pay 80 at t2 = 2Solution is r = 13.5%How is this found? Draw a graphTrial and error36Example 237Example 3Flat rate interest of 10% 100 is received at time 0Five payments of 30 are madeThe APR solvesThe sol

25、ution is 15.2% as claimed earlier38Example 339ComparisonThe APR is quoted with all adverts for loansIt is a simple means of contrasting the rates on loans with different structures405.6.2 Credit scoringScorecardsAdvantages of ScorecardsBehavioral scoring415.6.3 The use of external credit reference42

26、Section 75.7.1The need for security435.7.2 Types of security445.7.3 security margin1.cash2.land3.securities4.life policies5.third security6. Security taken against an irrevocable mandate45Section 85.8.1Protection products The need for protection 1.Loan repayment insurance 2.Life assurances 3.Buildin

27、gs and contents insurance46Section 95.9.1Commercial LendingLending to commercial customers take the same lending principles as personal lendingMore financial information before meetingCareful consideration of commercial lending 47The business planExecutive SummaryMarket AnalysisCompany DescriptionOr

28、ganization and ManagementMarketing and Sales StrategyServices and ProductsFunding (Financing) RequirementsFinancial InformationAppendices48Section 105.10.1Restrictions on Lending to BusinessesRestrictions on :The types of loans The types of customers BorrowerLegal Restrictions 495.10.2 Financial inf

29、ormation It is to assess the true financial position, operating performance and cash flow.One important information source:Bank RecordsIncluding:Turnover(Revenue)Bank balancesStanding order and direct debitsDetails of unpaid itemsCharges505.10.3 Business StructureSole trader(Single proprietorship)Pa

30、rtnershipLimited company51Section 115.11.1 The Management TeamThe success or failure of a business often comes down to the quality of the management team.So the strengths and weaknesses of the management team.525.11.2 The Use of Annual AccountsThe chairmans statementThe directors reportThe profit an

31、d loss accountA balance sheetThe cash flow statementAuditors reportNotes to the accountsA satement of total recognised gains and losses53Section 125.12.1 Management AccountsAlternative information source to the balance sheet and a profit and loss account.For management decision making and with no ge

32、nerally accepted principlesThe main emphasis of management accounts is in providing useful, timely, detailed and resonably accurate information for decision-makingTo take the individual parts or divisions of a business as objects rather than the whole business545.12.2 Profit Budgets and Cash Flow Fo

33、recastsIt is an estimate of the future profit returns from future trading.Cash flow forecast:future expenditure, income and shortfall financingIt is based on the short and longer-term objectives.55Elements of Financial PlanningInvestment in new assets determined by capital budgeting decisionsDegree

34、of financial leverage determined by capital structure decisionsCash paid to shareholders dividend policy decisionsLiquidity requirements determined by net working capital decisions56Role of Financial PlanningExamining interactions helps management see the interactions between decisionsExploring opti

35、ons gives management a systematic framework for exploring its opportunitiesAvoiding surprises helps management identify possible outcomes and plan accordinglyEnsuring Feasibility and Internal Consistency helps management determine if goals can be accomplished and if the various stated (and unstated)

36、 goals of the firm are consistent with one another57Financial Planning Model IngredientsSales Forecast many cash flows depend directly on the level of sales (often estimated using a growth rate in sales)Pro Forma Statements setting up the plan as projected financial statements allows for consistency

37、 and ease of interpretationAsset Requirements how much additional fixed assets will be required to meet sales projectionsFinancial Requirements how much financing will we need to pay for the required assetsPlug Variable management decision about what type of financing will be used (makes the balance

38、 sheet balance)Economic Assumptions explicit assumptions about the coming economic environment58Example: Historical Financial Statements59Example: Pro Forma Income StatementInitial AssumptionsRevenues will grow at 15% (2000*1.15)All items are tied directly to sales and the current relationships are

39、optimalConsequently, all other items will also grow at 15%60Example: Pro Forma Balance SheetCase IDividends are the plug variable, so equity increases at 15%Dividends = 460 NI 90 increase in equity = 370Case IIDebt is the plug variable and no dividends are paidDebt = 1,150 (600+460) = 90Repay 400 90

40、 = 310 in debt61Percent of Sales ApproachSome items tend to vary directly with sales, while others do notIncome StatementCosts may vary directly with salesIf this is the case, then the profit margin is constantDividends are a management decision and generally do not vary directly with sales this aff

41、ects the retained earnings that go on the balance sheetBalance SheetInitially assume that all assets, including fixed, vary directly with salesAccounts payable will also normally vary directly with salesNotes payable, long-term debt and equity generally do not because they depend on management decis

42、ions about capital structureThe change in the retained earnings portion of equity will come from the dividend decision62Example: Income StatementAssume Sales grow at 10%Dividend Payout Rate = 50%63Example: Balance Sheet64Example: External Financing NeededThe firm needs to come up with an additional

43、$200 in debt or equity to make the balance sheet balanceTA TL&OE = 10,450 10,250 = 200Choose plug variableBorrow more short-term (Notes Payable)Borrow more long-term (LT Debt)Sell more common stock (CS & APIC)Decrease dividend payout, which increase Add. To RE65Example: Operating at Less than Full C

44、apacitySuppose that the company is currently operating at 80% capacity.Full Capacity sales = 5000 / .8 = 6,250Estimated sales = $5,500, so would still only be operating at 88%Therefore, no additional fixed assets would be required.Pro forma Total Assets = 6,050 + 4,000 = 10,050Total Liabilities and

45、Owners Equity = 10,250Choose plug variableRepay some short-term debt (decrease Notes Payable)Repay some long-term debt (decrease LT Debt)Buy back stock (decrease CS & APIC) Pay more in dividends (reduce Add. To RE)Increase cash account66Growth and External FinancingAt low growth levels, internal fin

46、ancing (retained earnings) may exceed the required investment in assetsAs the growth rate increases, the internal financing will not be enough and the firm will have to go to the capital markets for moneyExamining the relationship between growth and external financing required is a useful tool in lo

47、ng-range planning67The Internal Growth RateThe internal growth rate tells us how much the firm can grow assets using retained earnings as the only source of financing.68The Sustainable Growth RateThe sustainable growth rate tells us how much the firm can grow by using internally generated funds and

48、issuing debt to maintain a constant debt ratio.69Determinants of GrowthProfit margin operating efficiencyTotal asset turnover asset use efficiencyFinancial leverage choice of optimal debt ratioDividend policy choice of how much to pay to shareholders versus reinvesting in the firm70Section 13 5.13.1

49、 Financial AppraisalThree main areas(limited in HND textbooks)Financial structureLiquidityProfitability71Financial structure(Gearing)Assets(Capital that is injected into the business)=Equity+DebtThe relationship between equity and debt is important, which decides the borrowing potential and the abli

50、ty to repay the commercial loans.72Capital gearing ratioCapital Gearing Ratio=Liability/OwnerequityAn investment ratio that compares the borrowing made by a company with the finance contributed by the shareholders. Capital gearing ratio is mainly used to analyze the capital structure of a company. T

51、he term capital structure refers to the relationship between the various long-term form of financing such as debentures, preference and equity share capital including reserves and surpluses. Leverage of capital structure ratios are calculated to test the long-term financial position of a firm. 73Cap

52、ital gearing ratio is important to the company and the prospective investors. It must be carefully planned as it affects the companys capacity to maintain a uniform dividend policy during difficult trading periods. It reveals the suitability of companys capitalization.74Interest Cover RatioIt is imp

53、ortant to pay the interest lending on any lending.Interest Coverage Ratio = Net Profit Before Interest and Tax / Fixed Interest Charge 75Interest cover ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the

54、business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges. It is calculated by using the above formula. 76The interest coverage ratio is very important from the lenders point of view. It indicates the number of times interest is covered by the

55、 profits available to pay interest charges. It is an index of the financial strength of an enterprise. A high debt service ratio assures the lenders a regular and periodical interest income. But the weakness of the ratio may create some problems to the financial manager in raising funds from debt so

56、urces77LiquidityThe true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due. The two components of liquidity are liquid assets and liquid liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and marketable secur

57、ities or temporary investments. In other words they are current assets minus inventories (stock) and prepaid expenses. Inventories cannot be termed as liquid assets because it cannot be converted into cash immediately without a loss of value. In the same manner, prepaid expenses are also excluded fr

58、om the list of liquid assets because they are not expected to be converted into cash.78Similarly, Liquid liabilities means current liabilities i.e., sundry creditors, bills payable, outstanding expenses, short term advances, income tax payable, dividends payable, and bank overdraft (only if payable

59、on demand). Some time bank overdraft is not included in current liabilities, on the argument that bank overdraft is generally permanent way of financing and is not subject to be called on demand. In such cases overdraft will be excluded from current liabilities. 79AssetsLiabilityFunding trends80Prof

60、itabilityGross Profit MarginWhat remains from sales after a company pays out the cost of goods sold. To obtain gross profit margin, divide gross profit by sales. Gross profit margin is expressed as a percentage.For example, if a company receives $25,000 in sales and its cost of goods sold were $20,0