risk-based sme lending day two. session 6 first quiz recap of what we learned yesterday. what we...
TRANSCRIPT
Risk-BasedRisk-BasedSMESME LendingLending
Day TwoDay Two
Session 6Session 6
• First Quiz
• Recap of what we learned yesterday.
• What we shall do today?
• Question-and-answer
For TodayFor Today• Financial indicators and other ratios
• Third case
• Loan covenants and loan monitoring
• Organizational structure
• Calculating LGD
• Quiz No. 2
• Fourth case
Session 7Session 7
• Financial indicators and some illustrations
• How do we calculate these ratios and other financial indicators?
Session 8Session 8• Rating another actual SME Case
• Refer to 2nd case in page 55
• Explain or introduce briefly the case
• Work in small groups within time limit
Session 9Session 9• Report back
• What is the BRR rating? Will you lend to this company?
• What is the FRR rating?
• What risks did you identify?
• What loan covenants should you require or impose?
• Question–and-answer
Session 10Session 10• What are loan covenants?
• Why do we need to impose or require loan covenants?
• To control, mitigate, reduce and manage business risks
• Standard covenants in the Loan Contract plus some special covenants.
Loan covenantsLoan covenants• Two kinds of covenants: (1) affirmative
[or do] covenants and (2) negative [or don’t do] covenants.
• Examples of both types of covenants
• Common loan covenants, see SF page 26
Early warning systemEarly warning system• Banks should set an Early Warning
System through systematic and close monitoring of borrowers.
• Banks should identify various warning signals and take appropriate actions on timely manner
• This EWS could help prevent serious problems
Early warning systemEarly warning system• See Handbook page 86 for various
warning signals.
• Discuss these signals
Loan monitoringLoan monitoring• Loan officers should monitor the
accounts based on the BRR and FRR rating
• Risky accounts should require closer and more frequent monitoring
• The BRR rating should be repeated every 6 or 18 months
Loan monitoringLoan monitoring• A sample monitoring guide BRR 1 to 4: annually. BRR 5 to 6: every six months. BRR 7: every three months. BRR 8 to 10: ongoing (report once at least
a month)
• Another sample found in page 89
Collateral monitoringCollateral monitoring• What is collateral monitoring?
• How frequently should it be done?
• Who should do it?
• Why is it needed?
Loan pricingLoan pricing• Banks may implement a risk-based
pricing of its loans.
• The BRR rating of a borrower will determine how much interest should be charged.
• The higher is the risk, the higher is the price and vice-versa. Why?
• See suggested formula on page 115
FRRFRR• The FRR rating scale
• You can develop your own scale. It is very easy to create your own.
• FRR is very useful especially if the bank is strongly collateral-focused
Calculating LGDCalculating LGD• LGD considers the financial
implications to the bank in case the borrower actually defaults on his loan.
• It measures the potential losses
• The LGD can be calculated using a mathematical formula;
• See SF page 114
• Why is this LGD important?
Organizational structureOrganizational structure• The organizational structure will have
to be altered or modified in a bank to accommodate the new credit assessment functions
• Why is this so?
• Some examples of banks and financial institutions with various structures
Quiz No. 2Quiz No. 2• Let us stop for a while and see how
much new knowledge we have absorbed in our minds.
• Quiz No. 2
Session 11Session 11• Let us practice our rating skills by
doing another rating exercise
• Refer to 4th case in page 101
• Briefly introduce the case
• Work in small groups within time limit
Session 11Session 11• Report back
• What is the BRR rating? Will you lend to this company?
• What is the FRR rating?
• What risks did you identify?
• What loan covenants should you require or impose?
• Question–and-answer
HomeworkHomework• Reflect on what we learn today and write
in a piece of paper 1 or 2 questions to clarify things that are unclear.
• Think tonight – will your bank adopt BRR and how you will do it
• Does your bank need more money? Prepare your questions about SBC and its financing programs