Advanced Techniques in Bank Lending

Advanced Techniques in Bank Lending – focus cash flow based lending approach

Program Objectives

To enable participants

  • Acquire latest techniques for analyzing financial and non financial risks in credit proposals
  • Effectively decide risk rating and pricing of loans
  • Identify early warning signals and initiate proactive measures
  • Understand and appreciate new techniques of measuring and managing credit risk

Program Coverage

Lending environment challenges ahead – increasing competition, more demanding customers, regulatory controls, changing focus of lending portfolio, how banks are meeting the challenges

Evaluation of financial risk – interpretation and limitations of financial ratios, optimal capital structure, sustainable growth rate, ROE decomposition analysis, window dressing of accounts

Evaluation of non financial risk – macro level risk, industry risk analysis through Porter Model, borrower specific risk analysis: four factors approach, SWOT analysis

Analyzing cash flows – limitations of traditional financial appraisal, why net profits do not repay loans, major sources and uses of cash, components of cash flow statement – operating, investing and financing cash flows, analyzing cash flows, cash flow based ratios, stage of a company and its cash flows

Financial projections and debt servicing capacity – misconceptions about projections, objectives of financial projections, critical factors and strategic influences, two approaches for projections, sensitivity and risk

Structuring of loans – how much to lend, issues related to working capital, seasonal, term and bridge loans, advantages of proper loan structuring, why use covenants, common financial covenants, monitoring covenants, handling covenant breaches

Loan administration and review – 5 Cs of bad credit, objectives of loan administration, essential components of good loan administration system, responsibilities of relationship manager, tools of loan administration, annual review, risk rating of borrowers, uses of risk rating

Pricing of loans – factors influencing loan pricing – internal and external, commonly used loan pricing methods

Customer Profitability Analysis – estimating return from loans and other services, net rate of return from whole customer relationship, customer profitability analysis, risk adjusted return on capital (RAROC)

Exploiting opportunities in lending to services sector – areas covered, lending approach, credit appraisal framework, organizational preparedness

Credit risk management – components of credit risk, organizational structure for credit risk management, credit policy, procedures and culture, credit risk models for measuring risk in individual loans and credit portfolio risk

Topics mentioned above will be supported by number of case studies, exercises and sharing of practical experience

Target Group: Those with minimum two years experience of working in corporate, commercial or SME lending. Those working in risk management and internal audit may also find the program useful.

Duration: 5 days

Trainer: Dr Satish Shinde