Description
Book SynopsisSophisticated banking is vital for modern society to function and prosper. Banks lend to individuals and corporations but do so after carefully exploring the risks they undertake to each customer. This book examines the important role of lending in banking operations and how banks can implement safe and effective loan initiatives. Banks rely on lending to generate profits, but it can be a risky venture. It is important for banking professionals to understand how to mitigate those risks. Bank Lending from the Hong Kong Institute of Bankers discusses a variety of topics that impact a bank's loan strategy. This is an essential read for candidates studying for the HKIB Associateship Examination and those who want to acquire expert knowledge of Hong Kong's bank lending system. Topics covered in this book include: Assessing and reducing lending riskUnderstanding the customer through financial statementsUsing ratios to determine riskSetting up an internal structure to reduce riskPric
Table of ContentsPreface ix
PART 1 PERSONAL AND CORPORATE LENDING 1
1 Lending to Personal Customers 3
Introduction 4
General Lending Principles 4
Types of Personal Customers 5
General Purposes of Personal Advances 6
Types of Lending to Individuals 7
Consumer Credit Data 22
Evaluating a Personal Advance Application 24
Summary 26
Key Terms 26
Study Guide 27
Further Reading 27
2 Lending Considerations for Corporate Customers 29
Introduction 30
The Balance Sheet 30
The Profit and Loss Account 37
The Cash Flow Statement 42
Cash Budget and Cash Flow Forecast 49
Reliability of Accounting Information by Source 50
Summary 55
Key Terms 55
Study Guide 56
Further Reading 56
Appendix 2.1: Comparing FIFO, LIFO, and AVR Inventory Methods 57
3 Financial Ratios and Operating Risks 61
Introduction 62
Techniques of Financial Analysis 62
Understanding Ratio Analysis 63
DuPont Analysis 80
Limitations of Financial Ratios 81
Operating Risks of the Borrower 82
Analysis Tools and Approaches 86
Summary 94
Key Terms 94
Study Guide 95
Further Reading 95
PART 2 CORPORATE CREDIT 97
4 Credit Assessment 99
Introduction 100
Lending Principles 100
Credit Decision Tree 102
Credit Risk Rating 110
Summary 118
Key Terms 118
Study Guide 118
Further Reading 119
5 Structuring a Loan Facility 121
Introduction 122
Security in Bank Lending 122
Conditions and Covenants 132
Pricing a Loan Facility 134
Summary 140
Key Terms 141
Study Guide 142
Further Reading 142
Appendix 5.1: Sample Loan Agreement 142
Appendix 5.2: SME Funding Schemes 148
6 Meeting Business Needs 151
Introduction 152
Business Sectors in Hong Kong 152
Types of Credit 163
Trade Finance 169
Working Capital Management 180
Summary 186
Key Terms 186
Study Guide 187
Further Reading 187
7 Credit Control and Problem Loans 189
Introduction 190
Credit Management Process and Structure 190
Characteristics of a Sound Credit Monitoring System 196
Credit Risk Mitigation 197
Corporate Failure 198
Remedial Actions 202
Summary 206
Key Terms 206
Study Guide 206
Further Reading 207
Index 209
