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COMMERCIAL CREDIT ANALYSIS – LENDING TO SME's

Overview

In financial lending, surprise outcomes usually turn out negative for financial institutions. Low efficiency and high default rates are the major risks in SME lending. The pressure is therefore on the financial institutions to make sure that right lending decisions are made using practical tools that minimise risk exposure and maximise profitability.

This course is designed to provide your Relationship Managers with a comprehensive understanding of the essential principles of SME credit analysis and to strengthen their professional skills and knowledge for managing a healthy loan portfolio. It is tailored to meet the skills needs of the bank to cope with the challenges stemming from the rapidly changing and fast-growing SME market.

Target Participants

  • Relationship Managers
  • Credit Analysts
  • Business Development Managers

Learning Outcomes

At the end of the training, participants will come away with;

  • An understanding and methodology for assessing risks within different SME segments and for performing industry sector analysis
  • The ability to identify, understand and mitigate non-financial business risks that could adversely affect the company's operations and ability to repay debt
  • An understanding of financial accounting and how to perform financial statements and ratio analysis
  • An appreciation of cash-flow analysis and how they are used to assess the borrower's ability to service debt and structure loans
  • The ability to structure and negotiate a credit facility and to effectively use loan covenants to mitigate risks
  • Different types of repayment methods and how to enhance repayments
  • Understanding of the bank's credit policy and why it matters to Relationship Managers

What it will cover;

DAY 1

Overview of project appraisal

  • Understanding the risks of lending to SME's
  • The project appraisal process
  • The role of a Relationship Manager
  • Understanding the bank's credit policy and its application

Analysis of applicants' business plan

  • Why a business plan is useful first requirement
  • Adequacy and reliability of the information
  • Relevance of information provided to the appraisal process
  • New client – other sources of credit information – references from other banks, trade, information bureaus etc.
  • Understanding the real enterprise financial requirements

Enterprise analysis

  • The entrepreneur – understand the ownership/capital structure
  • Assessing the entrepreneurial competences
  • Complexity of the enterprise structure – ownership/management structure
  • Interrelationship between enterprise and its environment

Market analysis

  • Evaluating the market potential – is it a growing or declining market?
  • Proposed marketing strategies and the cost structure
  • The industry structure and level of competition
  • Bank's experience with the market/industry

DAY 2
Analysis of technical viability

  • Assessing the technical viability of the project
  • Appropriateness of technology/skills available
  • Determination of capacity to meet demand

Analysis financial viability of the project

  • The quality of financial information
  • Overview of the key financial ratios and their interpretation
  • Understanding and identifying the source of repayments
  • Linking repayment source to the loan purpose
  • Limitations of financial statements and projections
  • Cash flow analysis – projections and ability to service the debt
  • Key elements in loan structuring – Amount, tenor and covenants

Analysis of collateral

  • Review of assets commonly offered as collateral – fixed and floating charges; and other forms
  • Role and limitation of collateral in Secured lending
  • Assessing the adequacy of collateral and vulnerability to market changes

Appraisal report/project paper

  • Project viability analysis
  • Elaboration of appraisal report
  • Presentation to the approval/credit commit

DAY 3

Legal documentation/disbursements

  • Execution of legal documentation – why it should be completed before disbursement
  • Structure and timing of disbursements

Monitoring of the project

  • Objectives and requirements
  • Relevant monitoring parameters
  • Analysis and interpretation of monitoring data
  • Spotting the warning signs

Managing defaults

  • Dealing with temporary non-performing accounts – debt restructuring, extension of repayment periods etc.
  • Dealing with permanent defaults
  • Realisation of security

Portfolio management

  • Relationship management
  • Identifying opportunities for portfolio growth
  • Quality versus quantity of the portfolio