Scribd Logo
Upload

Welcome to Scribd!

  • 39 views

    Credit Risk Assessment 1 - May 2015

    Uploaded by

    Basilio Maliwanga
    This document contains an examination for a Diploma in Banking from the Institute of Bankers in Malawi. [SECTION A] contains multiple choice and short answer questions about credit risk assessment, including characteristics that affect assessment for different entities, financing options, and requirements. [SECTION B] requires answers for longer questions about working capital management, financial ratio analysis using provided financial statements, operating cycles for different businesses, and comparing business risk between a bank and retailer based on their cost structures. The exam is 3 hours and instructs candidates on the format and expectations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Credit Risk Assessment 1 - May 2015

    Uploaded by

    Basilio Maliwanga
    39 views6 pages
    This document contains an examination for a Diploma in Banking from the Institute of Bankers in Malawi. [SECTION A] contains multiple choice and short answer questions about credit risk assessment, including characteristics that affect assessment for different entities, financing options, and requirements. [SECTION B] requires answers for longer questions about working capital management, financial ratio analysis using provided financial statements, operating cycles for different businesses, and comparing business risk between a bank and retailer based on their cost structures. The exam is 3 hours and instructs candidates on the format and expectations.

    Original Title

    CREDIT RISK ASSESSMENT 1 -MAY 2015

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document contains an examination for a Diploma in Banking from the Institute of Bankers in Malawi. [SECTION A] contains multiple choice and short answer questions about credit risk assessment, including characteristics that affect assessment for different entities, financing options, and requirements. [SECTION B] requires answers for longer questions about working capital management, financial ratio analysis using provided financial statements, operating cycles for different businesses, and comparing business risk between a bank and retailer based on their cost structures. The exam is 3 hours and instructs candidates on the format and expectations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    39 views6 pages

    Credit Risk Assessment 1 - May 2015

    Uploaded by

    Basilio Maliwanga
    This document contains an examination for a Diploma in Banking from the Institute of Bankers in Malawi. [SECTION A] contains multiple choice and short answer questions about credit risk assessment, including characteristics that affect assessment for different entities, financing options, and requirements. [SECTION B] requires answers for longer questions about working capital management, financial ratio analysis using provided financial statements, operating cycles for different businesses, and comparing business risk between a bank and retailer based on their cost structures. The exam is 3 hours and instructs candidates on the format and expectations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    INSTITUTE OF BANKERS IN MALAWI

    DIPLOMA IN BANKING EXAMINATION


    SUBJECT: CREDIT RISK ASSESSMENT 1 (IOBM – D204)

    Date: Sunday, 3rd may 2015


    Time Allocated: 3 hours (13:30 -16:30 Hours)

    INSTRUCTIONS TO CANDIDATES
    1 This paper consists of TWO Sections, A and B.
    2 Section A consists of 20 multiple choice questions, each question carries 2
    marks. Answer ALL questions.
    3 Section B consists of 5 questions, each question carries 20 marks. Answer
    ANY THREE questions.
    4 You will be allowed 10 minutes to go through the paper before the start of the
    examination when you may write on this paper but not in the answer book.
    5 Begin each answer on a new page.
    6 Please write your examination number on each answer book used.
    Answer sheets without examination numbers will not be marked.
    7 All persons writing examinations without payment will risk expulsion from the
    Institute.

    8 If you are caught cheating, you will be automatically disqualified in all subjects
    seated this semester.

    9 DO NOT open this question paper until instructed to do so.


    SECTION A (60 MARKS)

    Answer ALL questions from this section.

    QUESTION 1

    Briefly discuss three characteristics of each of the following personalities that have an
    effect on the credit assessment conducted by banks. The characteristics should be on
    legal status, liabilities for debt and borrowing needs.
    a) Individual
    b) Sole Proprietor
    c) Partnership
    d) Registered Company
    e) Trusts Co-Operative (Total 15 marks)

    QUESTION 2
    In July 2014, Mr Gianopolis a Greek Tobacco farmer in Thuchila approaches your
    bank for advice on financing programs that can be availed to him for his farming
    business.

    a) Provide a concise outline of the financing facilities available.


    Discuss the benefits of each and the specific use of each in his business.
    (6 marks)
    b) Outline three basic requirements and three security arrangements for Mr.
    Gianapolis to obtain financing. (6 marks)

    c) In light of the recent heavy rains and flooding in the country, mention three of the
    credit risks impacting Mr. Gianapolis and their effect on the facility extended to the
    bank. (3 marks)
    (Total 15 marks)

    QUESTION 3

    a) Define fixed and variable costs providing two examples for each. (4 marks)

    b) Define Break-even point. (2 marks)

    A qualification examined by the Institute of Bankers in Malawi 2


    c) Calculate the break-even point for a business with fixed costs amounting to
    MK250,000, variable costs MK45 per unit, and each of its units sell for MK65.

    (4 marks)
    d) Discuss the importance of break-even analysis to credit risk assessment.

    (5 marks)
    (Total 15 marks)

    QUESTION 4

    a) Define the following items in the Financial Statements:


    (i) Current Assets and Current Liabilities
    (ii) Debtors and Creditors
    (iii) Leverage
    (iv) Stock Turnover –
    (v) Liquid Assets (5
    marks)

    b) Mr. Dimba has operated his stationery business for the past 12 months since
    inception. In the first year he had turnover amounting to MK0.5 million and capital
    of MK0.1 million. However, of late he has experienced a large increase in orders
    amounting to MK7.9 million without a growth in capital. He has since gone to the
    bank to apply for a loan to finance his business and Ms. Ntere, the Credit Analyst
    at NBH, has advised him that the loan may not be granted as the bank has
    concerns of overtrading on the part of Mr. Dimba.

    (i) With reference to the case, define overtrading. (2 marks)

    (ii) Mention the three causes of overtrading. (3 marks)

    (iii) What are five effects caused by overtrading? (5 marks)


    (Total 15 marks)

    A qualification examined by the Institute of Bankers in Malawi 3


    SECTION B (40 MARKS)

    Answer ANY TWO questions from this section

    QUESTION 5

    a) Briefly explain four components mentioned below of working capital that requires
    managing and how each one of them should be managed.

    (i) Cash or Bank overdrafts


    (ii) Debtors and Creditors Control
    (iii) Stock Control
    (iv) Overheads and Operating Expenses (12 marks)

    b) Discuss the three different approaches of financing working capital. (8 marks)


    (Total 20 marks)

    QUESTION 6

    Balance Sheet as at 30th September 2014


    Non-Current Assets
    Plant and Machinery 84,500
    Office Equipment 19,200
    103,700
    Current Assets
    Inventory 53,000
    Recievables 30,400
    Prepayments 5,000
    Petty Cash 1,000
    89,400
    193,100

    Capital and Reserves


    Equity Shares of 50t each 100,000

    A qualification examined by the Institute of Bankers in Malawi 4


    General Reserves 25,000
    Retained Earnings 21,500
    146,500

    Current Liabilities
    Payables 30,400
    Accruals 8,600
    Bank Overdrafts 3,600
    Income Taxes Payable 1,000
    Final Dividend proposed 3,000
    46,600
    193,100

    Income Statement for year to 30th September 2014


    Sales Revenue 3,536
    Cost of Sales (2,290)
    Gross Profit 1,246
    Selling and Distribution Costs (221)
    Administration (252)
    Interest Payable (85)
    Income from Investments 24
    Profit Before Tax 712
    Income Tax Expense (210)
    Profit After Tax 502

    Using the above information, calculate the following ratios:


    (i) Return on Assets
    (ii) Return on Equity
    (iii) Debtors Period
    (iv) Creditors Period
    (v) Current Ratio
    (vi) Quick Ratio
    (vii) Stock Turnover
    (viii) Gross Profit Margin
    (ix) Earnings Per Share
    (x) Debt Ratio (Total 20 marks)

    A qualification examined by the Institute of Bankers in Malawi 5


    QUESTION 7

    a) Define the operating cycle? (2 marks)

    b) Discuss the key differences between the operating cycles of a retailing business
    and manufacturing business. (6 marks)

    c) Malambe Co buys raw materials from suppliers that allows Malambe 2.5 months
    credit. The raw materials remain in stock for a month, and it takes the business 2
    months to produce goods. The goods are sold soon after production and
    customers take on average 1.5 months to pay. Calculate the operating cycle for
    Malambe Co. (8 marks)

    d) A statement of financial accounts (Financial Statements) is one of the key


    documents required in the assessment of a client’s credit risk. Specify the meaning
    of a qualified and unqualified auditor’s report.

    Discuss how these reports would impact on the credit assessment of the client.
    (4 marks)
    (Total 20 marks)

    QUESTION 8

    Compare the business risk of XYX Bank and Shoprite in light of their cost structures.
    Your discussion should highlight why cost structure is important in the discussion of
    business risk, and how different cost structures increase or decreases business risk.

    a) Elaborate with examples from the two institutions. (15 marks)

    b) Explain five assumptions and limitations of break-even analysis. (5 marks)


    (Total 20 marks)

    END OF THE EXAMINATION PAPER

    A qualification examined by the Institute of Bankers in Malawi 6

    You might also like