aframeworkforcreditanalysis加拿大著名咨詢公司在課件

AFrameworkforCreditAnalysisI. RiskAssessmentII. TheClient’sFunding NeedsIII. LoanStructuringIV. LoanManagement1CreditAnalysisAFrameworkforCreditAnalysiI. RiskAssessmentMonitoringtheEconomicEnvironmentAnalyzingIndustryConditionsAssessingaClient’sMarketingManagementAppraisingtheClient’sOperationsManagementEvaluatingManagementCapabilitiesandCharacterAnalyzingtheBorrower’sFinancialManagement2CreditAnalysisI. RiskAssessmentMonitoringtMonitoringtheEconomicEnvironmentMuchoftheriskassociatedwithaloanisduetobroadeconomicforcesasshownonthenextslideLendermustmanageitsexposuretocertaintypesofbusinessesLendermayhavetocurtaillending,eventobusinesseswithagoodtrackrecord,inperiodsofeconomicadversityNecessarytomonitorthecurrentandforecastedeconomicenvironment3CreditAnalysisMonitoringtheEconomicEnviroTheEconomicEnvironment-Cont.KeyelementsoftheeconomyEconomicgrowth-thebusinesscycleInflationratesInterestrates-thelevel,termstructureandriskstructureGovernment-politicaltrendsandcurrentfiscalandmonetarypoliciesInternationalrelationships-balanceofpayments,currencyvalue,internationalmarkets4CreditAnalysisTheEconomicEnvironment-ConTheEconomicEnvironment-Cont.Itisimportantforthelendingofficertokeepontopofbroadeconomicconditionsbecauseoftheirpotentialimpactonthebank’sclientsandthequalityoftheofficer’sloanportfolio5CreditAnalysisTheEconomicEnvironment-ConAnalyzingIndustryConditionsAborrower’sfinancialperformancedependson:

CurrentconditionsandprospectsforitsindustryHowwellthecompanyispositionedrelativetothecompetition?Itisnecessarytounderstandboththerisksandopportunitiesforthemajorindustrysectorsinthebank’smarketDeterminetwofactors:Aretheindustry’sprospectsattractive?Whichtypesoffirmsaremostlikelytosucceedintheindustry?6CreditAnalysisAnalyzingIndustryConditionsAAnalyzingIndustryConditionsBanksnowcreateportfoliomanagementgroupsMonitorindustryconcentrationsinthebank’sloanportfolioDeterminefutureprospectsforkeyindustriesSetlimitsonthemaximumexposurethebankwillpermitforanindustryorspecificborrowerRiskclassificationsystems-usedtoassignanumericriskratingtoallborrowersorloanrequests.Industryconditionsformpartofthisriskrating.7CreditAnalysisAnalyzingIndustryConditionsBFactorsaffectingIndustryConditionsMichaelPorter’sModelEaseofEntryAvailabilityofSubstituteProductsBargainingpowerofbuyersandsuppliersCompetitiverivalry.Rivalrytendstobegreatestwhentherearenumerouscompaniesproducinglargelyundifferentiatedproductsorservices.Dependenceonotherindustries8CreditAnalysisFactorsaffectingIndustryConAssessingaClient’sMarketingMarketingisacriticalfactorformostborrowers,especially“start-ups”,thoseenteringanewbusinessorfacingtoughcompetitionFirmshouldhaveaplanwhichcovers:ProductPoliciesPricePoliciesPromotionPersonalSellingActivitiesDistributionPolicies9CreditAnalysisAssessingaClient’sMarketingAppraisingtheClient’sOperationsManagementOperationsmanagement-thesetofactivitiesrequiredtotransforminputssuchasrawmaterialandlabourintothefinalproduct.Majorcomponentsofoperationsinclude:Quality-valueformoneyProcessDesign-technology,plantlayoutFacilitiesPlanningandSchedulingInventoryManagement-howmuchisnecessarytocarry?Employeemanagement10CreditAnalysisAppraisingtheClient’sOperatEvaluatingManagementCapabilitiesandCharacterDeterminetheexperienceandskillsofkeyprincipalsThisincludestechnicalknowledge,contacts,resourcesinmarketing,operationsandfinanceplusskillinmanagingandmotivatingothersAssessmanagement’scharacter:integrity,financialconservatismandrespectforcreditors11CreditAnalysisEvaluatingManagementCapabiliAnalyzingtheBorrower’sFinancialManagementStrongfinancialmanagementisanessentialingredientforsuccessFinancialcapacityisthecompositeofmanagementpoliciesandpracticesinseveralareas:Isthereadequateliquidity?Thefirm’srelationshipswithtradecreditors,lendersandinvestorsTheequitycapitalcontributedbytheownersTheextentoftheowner’swithdrawals12CreditAnalysisAnalyzingtheBorrower’sFinanBorrower’sFinancialManagementcont’dCalculatekeyfinancialratios 1. Profitabilityratios 2. Assetutilizationratios 3. FinancialcapacitytestsWhichratiostocalculatewillvarywiththetheindustryandtypeofbusiness(example-serviceormanufacturing)13CreditAnalysisBorrower’sFinancialManagemenProfitabilityRatiosProfitMargin:Netprofitaftertax/netsales.GrossProfitmargin:Theportionofrevenuesremainingafterthecostofsales.(NetSales-CostofSales)/NetSalesSalesGrowth:Measuredovertime.Usuallyexpressedasa%growthperyear.ReturnonAssets:

NetProfit/TotalAssets.Thismaybedistortedduetotheageofthefirm’sassets.14CreditAnalysisProfitabilityRatiosProfitMarProfitabilityRatiosReturnonEquity=NetProfit/TotalEquity Thismeasurestherateofreturnonthecapitalprovidedbyequityinvestors.Equityincludescommonstock,retainedearnings,andminorityshareholders’interestBanksnormallyrequireanagreementfromtheownersthatequityfundswillnotbewithdrawnwithoutthebank’spriorpermission15CreditAnalysisProfitabilityRatiosReturnonAssetManagementRatiosTurnoverofCurrentAssets.Daysofinventory=Inventory/(CostofSales÷365days).Thisshowshowcarefullymanagementiscontrollingit’sinvestmentininventory.Costofsalesisusedtoensurethatbothgoodssoldandinventoriesarecomparedonthesamebasis,namelyatthecostofpurchaseorproduction.

16CreditAnalysisAssetManagementRatiosTurnoveAssetManagementRatiosCollectionperiodforReceivables=AccountsReceivable/(NetCreditsales÷365)TellsushowquicklyAccountsReceivablesarecollectedInaddition,thelendershouldobtainanagingschedulewhichclassifiesAccountsReceivablebyhowlongtheyhavebeenoutstandingForexample,ifthebusinesssellsonnet30daysthenmostreceivablesshouldbenolongerthan30days17CreditAnalysisAssetManagementRatiosCollectTypicalAgedAccountsReceivableSchedule

0-30days 31-60 61-90 90+GradeACompanyInc 12,000AGoodBet&Associates 23,000NotSoBadCo. 4,500APoorDealInc. 6,000

FlybyNightLtd. 99918CreditAnalysisTypicalAgedAccountsReceivabAssetManagementratio-cont’dIfalargenumberofcustomershavenotpaidfor40or50daysorlonger,thenthecompanymaybelaxincollectingoverdueaccountsorhasextendedcredittocustomerswhohavedifficultypaying.Olderreceivablesmayindicatethatthequalityofthereceivablesissuspect.Thismeansthatthebankmaynotbeabletocollectallofitsreceivablesiftheborrower’sassetsneededtobeliquidated.19CreditAnalysisAssetManagementratio-cont’FinancialCapacityRatiosThefirmmustbesufficientlyliquidtomeetitsrecurringcommitmentsandhaveadebtstructurethatcanbeservicedfrombothitsprofitsanditscashflowsLiquidityMeasures:CurrentRatio=CurrentAssets/CurrentLiabilitiesIsagoodmeasureofsolvencyasitindicatestheextenttowhichclaimsofshort-termcreditorscanbecoveredbyliquidassets20CreditAnalysisFinancialCapacityRatiosThefFinancialCapacityRatiosQuickratio=(Cash+ShortTermsecurities+receivables)/CurrentLiabilitiesShowsthemostliquidassetswhichcanbeliquidatedtomeetshort-termobligations21CreditAnalysisFinancialCapacityRatiosQuicFinancialCapacityRatiosDebtRatiostellushowmuchfinancialleveragethefirmhas.Higherleverageincreasestheriskoftheloanandwhetherthefirmwillbeabletoserviceitsinterestandprincipalpayments.Theamountofequityinvestedsignalsthecommitmentofthemajorshareholderstothebusiness.22CreditAnalysisFinancialCapacityRatiosDebtFinancialCapacityRatiosContinuedDebttoAssets=(CurrentLiabilities+Long-termdebt)

Assets*Measurestheproportionofassetsfinancedbyotherpeople’smoneyincludingthebank.DebttoEquity=(CurrentLiabilities+long-termdebt)(Totalequitycapital+postponedshareholder’sloans) *Measuresthedebtrelativetotheinvestmentoftheowners.InterestCoverageRatio=(Earningsbeforeinterestandtaxes)/interest.*Thismeasuresafirm’sdebt-worthinessanditsabilitytomeetinterestpaymentsoutofrecurringprofit.23CreditAnalysisFinancialCapacityRatiosContSummaryofFinancialRatioAnalysisProfitabilityRatios:NetProfitMargin NetProfit/SalesGrossProfitMargin GrossProfit/SalesReturnonAssets NetProfit/SalesReturnonEquity NetProfit/EquityAssetManagementRatios:TotalAssetsTurnover NetSales/TotalAssetsFixedAssetsTurnover NetSales/NetFixedAssetsDaysofInventory Inventory/(Costof Sales÷365)24CreditAnalysisSummaryofFinancialRatioAnaFinancialRatiosContinuedAccountsReceivableCollectionPeriod AccountsReceivable(AverageDailySales)FinancialCapacityRatios:Currentratio CurrentAssets/CurrentLiabilitiesQuickratio (CurrentAssetslessinventoryless prepaidexpenses)/Currentliabilities 25CreditAnalysisFinancialRatiosContinuedAccoFinancialRatiosContinuedFinancialCapacityRatios(Continued):Accountspayablepaymentperiod=Accountspayable/ AveragedailypurchasesDebttoassetsratio=TotalDebt/TotalAssetsInterestCoverage= (Earningsbeforeinterestandtaxes) Interest26CreditAnalysisFinancialRatiosContinuedFinaCashFlowAnalysisThepurposeofariskassessmentistojudgethecompany’sabilitytoserviceitsobligationstothebank.Aborrower’srepaymentcapacityisprimarilydeterminedbythecashflowsthatthebusinessgeneratesThemajorsourcesandusesofcashinthebusinessmustbeidentifiedtopredictfuturecashflowsStatementofchangesinfinancialpositionareprovidedaspartofthecashflowstatementsTellswherethecashiscomingfromandwhereitisbeingused:operating,investingandfinancingactivities27CreditAnalysisCashFlowAnalysisThepurposeII.TheClient’sFundingNeedsEstimatingTotalFinancingNeedsIdentifyingNon-BankSourcesofFinancing28CreditAnalysisII.TheClient’sFundingNeedEstimatingTotalFinancingNeedsAbankerhastoidentifythetotalfundingthatthecompanyrequirestosupportitscurrentoperationsandtocarryoutitsplansforexpansion.Themajormethodsofforecastingafirm’sfinancialneedsCashFlowbudgetsProformafinancialstatementsTheloanfacilitymustbesetatalevelthatisbothrealisticforthecompany’sneedsbutisnotexcessiverelativetotheavailablecashflows29CreditAnalysisEstimatingTotalFinancingNeeFinancingNeedsFinancialforecastsmustbepreparedbymanagementoranoutsideaccountantandthebankercanonlyassessthereasonablenessoftheforecasts.Providesboththeamountandtimingofthefirm’sneedsHelpsthebankerbetteranalyzetherisksassociatedwithaloanrequest.Sensitivityanalysisshouldbedonewheretheforecastsarepreparedusingdifferentassumptionsaboutfutureevents30CreditAnalysisFinancingNeedsFinancialforecFinancingNeedsBankerstoooftenseeloanapplicationsonlyafterfinancialneedshavebecomeimmediateandurgent.Financialforecastsprovidethebankwithcheckpointsformonitoringaborrower’sprogressandperformance.Anunanticipatedneedisnotnecessarilybad.Itcouldalsoindicatethatthefirmhasfoundanewbusinessopportunitytopursue.31CreditAnalysisFinancingNeedsBankerstoooftCashFlowForecastsCashflowforecastestimateswhenandinwhatamountscashwillflowinandoutofthebusinessCashbudgetsareusefulforshorttermforecastsandforthosecompanieswithseasonalsalesandproductioncyclesPrepareCashReceiptsbasedonprojectedsalesandthenpreparecashoutlayswhicharecloselylinkedtothesalesforecast.32CreditAnalysisCashFlowForecastsCashflowf

SampleCashBudget 33CreditAnalysis

SampleCashBudget ProjectedFinancialStatementsApproximateforecastscanbedevelopedbyapplyingthecompany’sexistingbalancesheetandincomestatementratiostoestimatesoffuturesalesvolumes.Extendforecastsseveralyearsintothefuture

ForecastedIncomeStatementsAreusuallythestartingpointindevelopingaproformastatementManyvariablessuchasinventories&accountsreceivablesmovecloselywithsales34CreditAnalysisProjectedFinancialStatementsProjectedFinancialStatementsStartwithforecastingtheestimatedsalesgrowthrate.Rawmaterialcosts,labourexpensesandproductionsuppliesasapercentageofsalesareforecastedtoremainatcurrentlevels.UsuallythebalancesheetismoredifficulttoforecastthananincomestatementEstimatesarerequiredandmaynotberelatedtoasinglekeyvariablesuchasthesalesfigure35CreditAnalysisProjectedFinancialStatementsProjectedFinancialStatementsAccountsreceivableandinventoryaretiedtosales

EstimatetheaccountsreceivablebalancebasedonthepastcollectionexperienceEstimateinventoriesbasedonthetypicalinventorylevels.EstimatetheplannedpurchaseofnewplantandequipmentlessdepreciationAccountspayableforecastshouldincorporatethecompany’splannedpurchasesofrawmaterialsanditspaymentpractices36CreditAnalysisProjectedFinancialStatementsProjectedFinancialStatementsCashandNotespayableshouldbeadjustedtobalancebothsidesofthebalancesheet.Cashaccountissetatanamountthatthecompanybelievestobeareasonableworkingbalance.Oncethecashaccountisforecasted,thebankloanpayablecanbecalculatedtofindtheamountthatmakesthebalancesheetbalance.Thisisknownasthe“plug”figure.Thisbalancingfigurerepresentstheclient’sfundingrequirementtosupporttheforecastedlevelofassets.37CreditAnalysisProjectedFinancialStatementsProjectedFinancialStatementsForecastsshouldbeconstructedwithdifferentbasicassumptions.Sensitivityanalysiscouldtestthefollowing:1. Slowdowninthecollectionofaccountsreceivable2. Declineininventoryturnoverrate3. Unanticipatedexpansionoffixedassets4. Higherexpensesthanplanned5.Lowersaleslevelsthanpredicted6. Tradecreditorsdemandingfasterpayment38CreditAnalysisProjectedFinancialStatementsIdentifyingNon-BankSourcesofFinancingThreebroadsourcesoffundsareavailabletothefirm:1. Fundsgeneratedbythefirmbyincreasingtheworkingcapita.lA. Shortencredittermsandincreasethequalityofcustomersreceivingcredit(usebetterscreening).B. Reducecompanyinventorylevelsandslowpaymentofaccountpayables(wherepossible)C. Improvefinancialplanning-cashflowbudgeting39CreditAnalysisIdentifyingNon-BankSourcesoIdentifyingNon-BankSourcesofFinancing2. Externalbusinesssources-

PersonalAssetsFriends,familyandemployees-“l(fā)ovemoney”InformalInvestors-privateindividualsFactoring-afirmthatactsasthecreditandcollectionsdepartmentLeasingFranchisingorVentureCapitalOthertermlenders-eg.GECapitalPublicEquityMarkets40CreditAnalysisIdentifyingNon-BankSourcesoIdentifyingNon-BankSourcesofFinancing3. ExternalgovernmentSourcesGrantsForgivableLoansDirectloansGovernmentGuaranteesTaxbreaksDirectequityinvestmentsinthefirm41CreditAnalysisIdentifyingNon-BankSourcesoPartIII.LoanStructuring1. IdentifyingtheAmountandFormofBankFinancing2. LendingandtheLegalEnvironment3. SecuringtheLoan4. LendingandEnvironmentalLaw5.PricingtheLoan6.Designingtheloanagreementandloancovenants42CreditAnalysisPartIII.LoanStructuring1. TheAmountandFormofBankFinancingTheInitialScreen-Isthedeal“bankable?”.Doesithaveacceptablerisksrelativetothereturn?Isthereturnadequatetocompensatefortherisksaccumulatedandthecostofservicingtheaccount.Banksareinthebusinessofgrantingloansthattheyconsidertoberelativelylowrisk.PreparealistofprosandconsTurningdowntheloanshouldincludeafrankdiscussionofthecompany’sproblemsandoptions43CreditAnalysisTheAmountandFormofBankFiTheAmountandFormofBankFinancingSettingtheloanlimitDeterminetheclient’sabilitytopayCashflowsarederivedfrominternallygeneratedfunds.Long-termloanscanonlyberepaidfromprofitsifthebusinessistoremainaviableentity.Enforcedliquidationofthecompany’sassetsisa“fall-back”position,shouldcashflowsfromoperationsfallshortofrequirementsInjectionofowner’scapital-isitavailableifneeded?Collateralsecurity-determinethelendingvalueofaccountsreceivableandinventoryorthevalueofthefixedassets44CreditAnalysisTheAmountandFormofBankFiTheAmountandFormofBankFinancingBanksnormallyfinance75to80percentofthecostoffixedassets100%financingmaybewarrantediftheassetscouldbereadilysoldattheirpurchasepriceorifthecustomerhasadditionalcollateraltosupporttheloanTheamountoftheloanshouldbesufficienttomeetthecustomer’sfinancialneeds45CreditAnalysisTheAmountandFormofBankFiTheAmountandFormofBankFinancingTheRepaymentTermThetermoftheloanisthetimeperiodduringwhichtheloanpaymentsarefixed.Theamortizationperiodistheperiodoverwhichtheloanisscheduledtoberepaid.Forexample,someonepurchasingahousemayhaveamortgagewithatermof5yearsbutamortizedover25years.RepaymentperioddependsonwhatthemoneyisbeingusedforTransactionloansarefortemporaryfunding-eg.abridgeloan46CreditAnalysisTheAmountandFormofBankFiTheAmountandFormofBankFinancingOperatingloans(floatingprimebasedloans)areusedtofinanceacompany’saccountsreceivableandinventoryandfluctuateasthefirmmovesthroughdifferentsellingseasonsLetterofcredit-saysthatthebankwillpayacertainsumonthedeliveryofspecificdocumentstothebank.Theyarecommonlyusedforinternationaltrade.Whenthebankpays,theywillthenrequirepaymentfromtheborrowerTermloans-usedtobuyspecificfixedassetsandwillbepaidoutovertimefromthecashflowstheassetgenerates47CreditAnalysisTheAmountandFormofBankFiLendingandtheLegalEnvironmentAsecuredcreditorisonewithspecificlegalrightsagainstparticularassetsofthedebtorwhichmaybeexercised,shouldthedebtorfailtofulfillpromisesgiventothecreditorAnunsecuredcreditorisanyonetowhomthedebtorowesmoney-theunsecuredcreditorhasnospecificrightsagainstthedebtor’sproperty,otherthanthegeneralrighttosueforenforcementofthedebtor’spromisetopay.Abasicunderstandingofthelegalsystemisessentialtothosemakingdecisionsoncommercialcredit48CreditAnalysisLendingandtheLegalEnvironmSecuringtheLoanRoleofcollateralsecurityinvolves3tasksDetermineavailableassetsthatcouldbepledgedascollateralandestimatetheirnetrealizablevalueasasecondarysourceofrepayment.Beknowledgeableoftheproceduresfordocumentingandregisteringasecurityinteresttoensurethatthebank’sinterestareprotectedMonitortheborrower’scollateralpositionovertime49CreditAnalysisSecuringtheLoanRoleofcollaLendingandEnvironmentalLawLegislationmayincreasedefaultriskinseveralwaysLegislationwhichrestrictshowaborrowercancarryonitsbusinesseg.controlsonemissionsorwastedisposalincreasesthecostofrunningabusinessThevalueofthesecuritymaybediminishedbyenvironmentaldamagetocollateralsecurityIfthelenderassumescontrolsoftheborrower’sassets,thelendermayfacethecostofcleaningupthesiteunderenvironmentallegislation.Suchcostsmaywellexceedthevalueoftheloan.Ifenvironmentalriskisaconcernfromthestart,itmaybebettertodeclinetheloan.50CreditAnalysisLendingandEnvironmentalLawLPricingtheLoan Abankseekstoearnapositivemarginbetweenwhatitearnsonallofitsfinancialassets(primarilyloanstobusinessesandconsumers)andthecostofitsfunds(deposits).Netinterestincomeiscriticaltoabank’sprofitability!FactorsintheloanpricingdecisionincludePerceiveddefaultriskontheloanCostofhandlingtheaccountProfitabilityoftheentirerelationshipincludingfeeschargedNegotiatingabilityoftheborrowerandaccountmanagerCompetitiveconditionsbetweenfinancialinstitutions51CreditAnalysisPricingtheLoan AbankseeksPricingtheLoanTakeintoconsiderationthetypeofriskratingsystem.Whichkindsofloansareexcellent,verygood,goodandacceptable?Considerthebank’srequiredreturnoncapital.Typically15-20%ROE.Capitalisthelongtermfundsinvestedinabankintheformofdebenturesandvariousformsofequity.Thegreatertherisk,thegreaterthereturndemandedbythesuppliersofcapital52CreditAnalysisPricingtheLoanTakeintoconsDesigningloanagreementsandloancovenantsAloanagreementisacontractbetweenaborrowerandalenderwhichlaysouttheconditionsoftheloanLoanagreementscanvarybutwilltypicallyincludethefollowing:IdentifiestheBorrowerTheAmountThetypeoffacility;operating,revolvingortermAdvancesandConditionsPrecedentPurposeTermInterestRate53CreditAnalysisDesigningloanagreementsandDesigningloanagreementsandloancovenantsLoanAgreements(continued)RepaymentScheduleCollateralSecurityRepresentationandWarranties-statementsoffactabouttheclientwhichthebankhasassumedtobetruewhenmakingtheloanoffer.Forexample,theexistenceofcertaincontracts.Covenants-guidelineswhichtheborrowerpromisestofollowinthefutureoperationofthebusinessEventofdefault-theeventswhichleadtoadefaultoftheagreementCostsandPricing

54CreditAnalysisDesigningloanagreementsandDesigningloanagreementsandloancovenantsImportantCovenantsmayinclude:Submissionoffinancialstatements-interimmonthlystatementsandfinalannualstatementsSubmissionofotherdata-forexample,monthlyaccountsreceivablereportsMaintenanceofliquidity-maintaincertainlevelsofworkingcapitalandratiosMaintenanceofassets-maintainassetsingoodconditionMaintenanceofmanagementandownershipwithoutpriornotificationtothefinancialinstitution55CreditAnalysisDesigningloanagreementsandDesigningloanagreementsandloancovenantsInsuranceCoverage-eg.fireandtheftinsuranceovercompanyassetsMaintenanceofacertainnetworthortheratioofequitytodebtNegativeCovenants-preventtheclientfromtakingactionsunacceptabletothebank.Someexampleinclude:LimitondebtRestrictionsondisposalofassetswithoutpriornotificationtothebankRestrictionsonchangesinthenatureofthebusinessincludingacquisitionsandmergers.56CreditAnalysisDesigningloanagreementsandDesigningloanagreementsandloancovenantsNegativeCovenantscontinuedRestrictiononassetpurchaseorinvestmentsLimitonsalariesanddividendsGuidelinesinSettingCovenantsAllbanksprovidetheirlendingofficerswithaspecimenloanagreementwhichoutlinesthemostcommontermsandcovenants.Thebankermustthentailortheloanagreementtotheneedsandrisksofhisclient.57CreditAnalysisDesigningloanagreementsandPartIV.LoanManagementMonitoringtheLoanManagingProblemLoans58CreditAnalysisPartIV.LoanManagementMonitMonitoringtheLoanMonitoringinvolvesasetofactivitiesaimedatensuringthatanoutstandingloanisbeingrepaidasscheduled,theclient’sabilitytorepayisnotdeterioratingandthecollateralsecurityisbeingmaintained.Whatshouldbemonitored?Daytodayoperations-cashflowsTheacquisitionandsaleofassetsThetakingonorrepaymentofliabilities59CreditAnalysisMonitoringtheLoanMonitoringMonitoringtheLoanMonitorCashFlows-regularfinancialstatements,clientmeetingsandfollowingeconomiceventswhichmayinfluencetheclient’sbusinessMonitortheClient’sAssets

-financialstatements,accountsreceivable&inventoryreportsandvisitstothecustomers,pluspersonalfinancialinformationforsmallbusinessownersMonitorclientliabilities-toseewhatthecompetingclaimsare.Dothiswithfinancialstatementsandwithperiodicsearchesatkeyregistryoffices60CreditAnalysisMonitoringtheLoanMonitorCasMonitoringtheLoanTheannualreviewisthemostsignificantmonitoringevent.Analyzethefirm’skeysuccessfactorsandwhathaschangedDeterminehowthefirmhasorwillrespondtothesechangingsuccessfactorsDiscussthepreviousyear’scashbudgetandprojectedstatementsDiscussthecurrentfinancialstatements.Probeforreasonsiftheyhavedeterioratedorimproved.61CreditAnalysisMonitoringtheLoanTheannualMonitoringtheLoanReviewtheclient’saccountprofitabilityUsingtheprojectedfinancialstatement,identifytheclient’sfuturefundingneedsDiscusstheclient’suseofotherbankservicesandidentifyfuturemarketingopportunities62CreditAnalysisMonitoringtheLoanReviewtheManagingProblemLoansThreemajorcomponents; 1. Identifyingproblemloans 2. Workingouttheloan 3. EndingtherelationshipProblemloansarestatisticallyinevitable

Allriskcannotbeeliminated,ratheritmustbemanagedAProblemLoanisonewheretheborrowerisunableorunwillingtorepaytheobligationandthereispotentialforpartialortotallosstothebank63CreditAnalysisManagingProblemLoansThreemaManagingProblemLoansEarlyWarningSignalsDelinquentLoanPaymentsDelayedfinancialinformationChangeindepositpatterns,excessesandreturnedchequesMajordifferencesinplannedresultsversusactualLossofborrowerrapport-poorcommunicationAdverseinformationfromthe