EC21A,MS28F Michael Willacy 876 919 8817 By Appointment

ECON3066 : Credit Analysis and Lending

Course Description This course is designed to provide students with a basic, but solid, understanding of the theoretical and practical issues associated with credit analysis and lending. Course topics include lending theory, credit risk management, analysis of various lending products, management of loan portfolios and problem loans. Course Objective The fundamental objective of the course is to present students with an understanding of sound banking practices in the area of lending by banks. In addition, students will be able to identify a borrower’s needs as well as structure a loan for the client of a financial institution and manage the loan. Students will be exposed to the fundamentals of modern credit analysis.  At the end of this course students should be able to:  ·   Understand and apply the fundamental elements of the credit analysis process.  ·   Critically analyse the banker-customer relationship within a credit context.    Understand the theoretical and practical aspects of consumer and commercial  Lending.   ·   Assess loan applications to identify and evaluate risk and make recommendations.  ·   Calculate the main categories of ratios used in the credit analysis process  ·   Explain the relationship between financial and non-financial information in the credit analysis process  ·   Determine the action to be taken with respect to problem loans. Teaching Method Two (one-hour) lectures and one (one hour) tutorial weekly.  The course will be conducted in a manner geared towards encouraging student participation. It will be taught by a combination of lectures by both the course lecturer as well as persons with relevant expertise and experience from the financial sector. Students will be required to carry out practical exercises related to various aspects of credit analysis and lending. These would include analyzing the major decisions involved in structuring a loan for a client, risk assessment, loan management and treatment of problem loans. Case studies will be used as a means of stimulating students’ research and intellectual effort.  Course Assessment There will be a research project and a final examination. Final course grade will be assessed as follows:-   Research project                      40%  Final examination                      60% Course Outline Credit Risk Analysis • What is Credit Risk • How do we analyse Credit Risk The Fundamental Principles of Lending • 5 Cs of Credit • COMPARI • Modern approaches to Credit Risk measurement Consumer Lending • Types of Consumer loans • Evaluating Personal Loans • Personal Lending and Security The Credit Environment -   Macroeconomic environment -   Industry Risk Analysis -   Business Risk Analysis Qualitative Analysis of the Borrower - Proceeds of Crime Act (POCA) - Anti-Money Laundering (AML) - Management Assessment   Quantitative Analysis of the Borrower - Borrowing Causes - Projections - Cash flow Analysis - Ratio analysis - Estimating total financing needs Loan structuring   - form of loan financing - securing the loan - loan pricing - loan agreements - Loan conditions Special Types of Borrowers:- Advances to builders Different ways of Lending - Leasing Finance - Factoring and invoice discounting - Securitization and disintermediation Credit Administration - loan management - management of problem loans Prescribed Texts Rouse, C.N. Bankers’ Lending Techniques, Financial World Publishing, U.K. , 2nd Edition, 2002.   Recommended Texts Fraser, Donald R., Benton E. Gup and James W. Kolari. Commercial Banking: The Management of Risk, South-Western College Publishing, USA, 2001. Milind Sathye, James Bartle, Michael Vincent, Raymond Boffey. Credit Analysis & Lending Management, John Wiley & Sons Australia, Ltd Glantz, Morton. Managing Bank Risk, Academic Press, USA, 2002. Fraser, Donald R., Benton E. Gup and James W. Kolari. Commercial Banking: The Management of Risk, South-Western College Publishing, USA, 2001. Rose, Peter S. Commercial Bank Management, McGraw-Hill/Irwin, 2002. Rose, Peter and James Kolari. Financial Institutions: Understanding and Managing Financial Services. Richard D. Irwin, USA, 1995 Miller, Roger L. and David D. VanHoose. Money Banking and Financial Markets, South-Western, USA, 2004. Koch, Timothy W. and S. Scott McDonald. Bank Management, South-Western, USA, 2003.