نظم إدارة الائتمان

Al – al Bayt University, Credit Management Systems (511372)
Department of Finance and Banking. Part 1, 1st Semester, 2021/2022
Credit
Management
Systems
(511372)
Part (1)
Sufian I. HRAZE, Lecturer

[email protected]
1st Semester 2021/2022
Department of Finance and Banking
Al – al Bayt University,*Part-1*
Jordan * Page-1*
Part 1
Key Notes
 Office Hours:
 Sun & Tue: 14:00 – 15:00, office No. 21.
 Thu: 14:00 – 16:00 (on-line)
 Med Term Exam: 30/11/2021
 Grading:
 Med Term Exam: 30%.
 Positive Participation: 20%.
 Final Exam: 50% .
 No Makeup at al.
Sufian HRAZE, Credit Management Systems, (511372),
*Part-1* * Page-2*
Department of Finance and Banking, AABU, 1st Semester, 2021/2022.
Sufian I HRAZE, Lecturer

[email protected] -1-
Core Reference
Jonathan Golin and Philippe
Delhaise, The Bank Credit
Analysis Handbook, John Wiley
& Sons, Singapore, 2nd Edition,
2013.

*Part-1* * Page-3*
Part 1
Chapter
1
Bank Lending: An Overview

*Part-1* * Page-4*

Credit Definitions
 Credit: Trust given to another person for future payment
of a loan, credit card balance, etc.
 Creditor: A person or company to whom a debt is owed.
 Be aware: When you use credit, you’re spending money
before you earn it.

*Part-1* * Page-5*
Part 1
Sources of Money
 Where you get the loan/money has an impact on the rate
and terms of the funds:
 Family & Friends
 Banks and Credits Unions
 Pay Day Loans
 Internet: Crowd Funding
 Each of these options have pluses and minuses associated
with the loans/money.

*Part-1* * Page-6*

Credit Importance
 One of the primary functions of a bank is to grant loans.
 Whatever money the bank receives by the way of deposits,
it lends a major part of it to its customers by way of loans,
advances, cash credit and overdraft.
 Interest received on such loans and advances is the major
source of its income.
 The banks make a major contribution to the economic
development of the country by granting loans to the
industrial and agricultural sectors.

*Part-1* * Page-7*
Part 1
Lending Terminology
 Principal is the amount borrowed.
 Interest is the amount you pay to use the principal.
 Fees are other charges for the loan.
 The finance charge is the total dollar amount to be paid
for the loan.
 Total payments is the total amount a consumer must
repay.
 Payment is the amount the borrower repays each
specified period.
*Part-1* * Page-8*

When to Use Credit?

 Can you describe a situation when it is a good time to use
credit? and when it is NOT a good time to use credit?
 Questions before using credit?
1.
2.
3.
4.

*Part-1* * Page-9*
Part 1
Who Cares about Your Credit?

 Creditors/Lenders
 Insurance Companies
 Landlords
 Employers
 Utility Companies
 Government Agencies
 YOU!

*Part-1* * Page-10*

Credit and Inflation

 Credit increases the purchasing power of the public.
 Increasing the purchasing power leads to increase the
money supply.
 Increasing the money supply will push – up the prices.

*Part-1* * Page-11*
Part 1
Types of Credit
 Secured vs. Unsecured
 Dischargeable vs. Non-dischargeable (Chargeable)
Revolving Credit Account
Credit cards: MasterCard, American Express, Visa,
… etc.
Charge Account
Utilities, dentist, cell phone, etc.
Installment Loans
Car loan, mortgage, student loan, payday loan, etc.
*Part-1* * Page-12*

… Types of Credit
 Short term vs. Long term Loans
 Direct vs. Indirect Loans
 Purpose of credit (Consumptive and Investments)
 Borrower types (Individuals, Business and Government)
 How many creditors in the same loan? (Syndicated
loans)
 How many debtors in the same loan? (Normal loans)

*Part-1* * Page-13*
Part 1
Syndicated Loans (150 Mln

 Bank A: 60mln, 5.0%
 Bank B: 40mln, 3.5%
 Bank C: 30Mln, 6.0%
 Bank D: 20Mln, 5.50%
 Weighted Average of Interest rate???
 = (60*5.0%+40*3.5%+30*6.0%+20*5.5%) / 150
 =4.866%

*Part-1* * Page-14*

Credit Facilities Extended By The Licensed Banks

2021
Economic Activity 2020 2019 2018 2017 2016 ‫النشاط االقتصادي‬
Aug
Agriculture 422.0 416.8 336.5 336.7 337.3 304.5 ‫الزراعت‬
Mining 204.0 236.6 296.4 355.7 255.2 288.4 ‫التعذين‬
Industry 3,560.1 3,525.4 3,353.6 3,064.3 2,724.2 2,203.4 ‫الصناعت‬
General
4,442.9 4,524.3 4,231.1 4,470.6 4,230.9 4,075.5 ‫التجارة العامت‬
Trade
Construction 7,736.6 7,261.5 6,975.4 6,830.9 6,601.0 5,827.7 ‫االنشاءاث‬
Transportation Services 399.0 385.6 343.1 328.9 354.3 355.8 ‫خذماث النقل‬
Tourism, Hotels and Restaurants 690.9 735.6 638.0 592.1 619.7 597.7 ‫السياحت والفنادق والمطاعم‬
Public Services and Utilities 4,726.1 4,360.9 4,269.0 3,852.9 3,707.2 3,296.2 ‫خذماث و مرافك عامت‬
Financial Services 724.4 655.7 634.8 768.2 632.5 577.2 ‫الخذماث الماليت‬
Other, of which: 7,000.8 6,536.7 6,004.3 5,511.5 5,274.5 5,379.4 :‫ منها‬،‫اخرى‬
Buying Shares 333.9 268.7 212.2 152.1 158.0 168.6 ‫شراء أسهم‬
Total 29,906.8 28,639.1 27,082.2 26,111.8 24,736.8 22,905.8 ‫المجموع‬
of which in Foreign Currencies 3,563.1 3,496.8 3,265.6 2,931.5 2,595.4 2,719.2 ‫منه بالعمالث االجنبيت‬
*Part-1* * Page-15*
Part 1
… Credit Facilities Extended By The Licensed Banks

2021
By Type Aug
2020 2019 2018 2017 2016 ‫حسب النوع‬
Total Credit 29,906.8 28,639.1 27,082.2 26,111.8 24,736.8 22,905.8 ‫اجمالي التسهيالت االئتمانية‬
Overdraft 2,775.1 2,709.9 2,937.8 3,085.6 2,672.4 2,510.0 ‫جاري مدين‬
Loans and Advances 18,882.0 18,471.8 17,557.1 16,962.4 16,364.7 14,957.6 :‫قروض وسلف‬
Due within 3 months 1,489.9 1,770.0 1,850.1 2,009.2 1,818.0 1,352.5 ‫ أشهر‬3 ‫تستحق خالل‬
Due within 3-6 months 1,355.3 1,437.2 1,299.0 1,352.5 1,129.9 948.8 ‫ أشهر‬6-3 ‫تستحق خالل‬
Due within 6-12 months 1,575.0 1,633.8 1,579.2 1,501.4 1,448.9 1,319.1 ‫ أشهر‬12-6 ‫تستحق خالل‬
More than (12) Months 12,776.4 12,178.5 11,648.3 11,059.7 11,147.0 10,587.3 ‫ شهر‬12 ‫اكثر من‬
Receivable 0.0 0.0 0.0 0.0 0.0 0.0 ‫برسم التحصيل‬
Accrued 1,685.4 1,452.3 1,180.5 1,039.6 820.9 749.9 ‫مستحقة‬
Discounted Bills & Bonds 192.7 214.1 182.4 242.7 207.2 241.8 ‫كمبياالت واسناد مخصومة‬
Due within 3 months 131.8 149.5 99.4 142.2 88.2 135.2 ‫ أشهر‬3 ‫تستحق خالل‬
Due within 3-6 months 14.1 17.7 22.4 21.5 26.4 29.4 ‫ أشهر‬6-3 ‫تستحق خالل‬
Due within 6-12 months 11.1 14.5 15.7 27.1 27.6 25.7 ‫ أشهر‬12-6 ‫تستحق خالل‬
More than (12) Months 20.1 16.5 17.5 20.3 33.5 22.6 ‫ شهر‬12 ‫اكثر من‬
Receivable 0.8 0.0 1.3 1.9 5.0 1.1 ‫برسم التحصيل‬
Accrued 14.8 15.9 26.1 29.7 26.5 27.8 ‫مستحقة‬
Islamic Banks Receivables 7,849.1 7,048.7 6,230.6 5,653.8 5,340.1 5,046.1 ‫ذمم بنوك إسالمية‬
Credit cards 207.9 194.6 174.3 167.3 152.4 150.3 ‫بطاقات االئتمان‬
*Part-1* * Page-16*

Accrued rate (Credit risk rate)

 2016: 749.9/14,957.6 = 0.050 = 5.0%
 2020: 1,452.3/18,471.8 = 0.078 = 7.8%

*Part-1* * Page-17*
Part 1
Interest Rates Structure (%)
2021
Item 2020 2019 2018 2017 2016 ‫البيـــان‬
August
Central Bank Interest Rates ٌ‫أسعار الفائدة لدي البىك المركز‬
CBJ Main Rate 2.50 2.50 4.00 4.75 4.00 2.75 ً‫سعز الفائذة الزئٍس‬
Re-Discount Rate 3.50 3.50 5.00 5.75 5.00 3.75 ‫سعـز اعادة الخصم‬
Advances to Specialized Credit Inst. 3.50 3.50 5.00 5.75 5.00 3.75 ‫سلف الى مؤسساث االقزاض المخخصصت‬
Advances to Licenced Banks 3.50 3.50 5.00 5.75 5.00 3.75 ‫سلف الى البنوك المزخصت‬
Overnight Deposit Window Rate 2.00 2.00 3.25 4.00 3.00 1.75 ‫سعز فائذة نافذة االٌذاع للٍلت واحذة‬
Interest Rates on Treasury Bills (6 months) 2.300 2.212 3.571 4.289 3.101 2.080 )‫ اشهر‬6( ‫سعر الفائدة علً اذوواث الخزيىت‬
Interest Rates on Treasury Bills (12 months) - 2.410 3.650 4.450 - 2.462 )‫ شهرا‬12( ‫سعر الفائدة علً اذوواث الخزيىت‬
Average Interest Rates on Interbank 2.114 2.150 3.397 4.116 3.250 2.34 ‫متىسط سعر الفائدة بيه البىىك لليلت واحدة‬
Average Deposits % with Licenced Banks ‫متىسط سعر االيداع لدي البىىك المرخصت‬
Demand 0.27 0.27 0.33 0.38 0.34 0.26 ‫ححج الطلب‬
Saving 0.33 0.34 0.63 0.71 0.55 0.56 ‫حوفٍز‬
Time 3.43 3.65 4.92 4.73 3.80 3.04 ‫الجل‬
Average Lending % with Licenced Banks ‫متىسط سعر االقراض لدي البىىك المرخصت‬
Overdrafts 7.01 7.30 8.47 8.41 8.77 7.60 ‫جاري مذٌن‬
Loans and Advances 6.98 7.17 8.46 8.69 8.64 7.83 ‫قزوض وسلف‬
Discounted Bills & Bonds 9.46 8.51 9.55 9.64 10.23 10.42 ‫كمبٍاالث واسناد مخصومت‬
Prime Lending Rate 8.35 8.33 9.33 9.57 8.83 8.37 ‫سعر اإلقراض ألفضل العمالء‬

*Part-1* * Page-18*

Secured and Unsecured Loans

A secured loan is one in which some item of value backs
the loan in case the borrower defaults on the loan.
An unsecured loan is a loan backed only by the reputation
and creditworthiness of the borrower.

*Part-1* * Page-19*
Part 1
Banking Cards: What’s the Difference?

Credit Cards
Debit Cards
Prepaid Cards
Secured Credit Cards

*Part-1* * Page-20*

What Is a Credit Card?

 A credit card is a card issued by a financial institution, typically
a bank, and it enables the cardholder to borrow funds from that
institution.
 Cardholders agree to pay the money back with interest,
according to the institution’s terms.

*Part-1* * Page-21*
Part 1
What Is a Secured Credit Card?

 Secured credit cards function a lot like traditional credit cards.
 The primary difference is that with a secured card, you pay a cash
deposit upfront to guarantee your credit line.
 While credit history may be used to determine eligibility for a
secured card, the line of credit it offers requires a security deposit.
 This security deposit acts as a safeguard for banks to cover any
purchases, should you miss payments.
 Making your monthly payments on time is just as crucial with a
secured credit card as with a traditional card.
 Remember, if you default on your payments, the card issuer may
keep your deposit.
*Part-1* * Page-22*

What Is a Debit Card?

 A debit card is a payment card that makes payments by
deducting money directly from a consumer’s checking account,
rather than on loan from a bank.
 Debit cards offer the convenience of credit cards and many of
the same consumer protections when issued by major payment
processors such as Visa or Mastercard

*Part-1* * Page-23*
Part 1
What Is a Prepaid Card?

 It’s a particular type of debit card, that requires to load money
onto the card.
 The obvious disadvantage of using a prepaid card is that you
can only complete transactions up to the amount you have
loaded onto it.
 If you add $100 to your prepaid debit card, you can only spend
up to $100. Anything greater will be declined until you add more
money to your card.

*Part-1* * Page-24*

Credit Cards
Pros (Advantages): Cons (Disadvantages):
 Credit history  Interest rates
 Emergencies  Fees:
 Perks  Late
 Disputes  Cash Advance
 $50 liability  Over limit?

 Annual fee?

*Part-1* * Page-25*
Part 1
Debit Cards
Pros: Cons:
 No interest  Credit History
 Quick cash  Fees:
 Limit spending  Point of sale
 Online payments  Who’s ATM?

 Over limit?
 $500 liability?

*Part-1* * Page-26*

Secured Credit Cards

Pros: Cons:
 Safer than cash  Ties up money
 Build savings  Interest rates
 Liability  Fees:
 Could build or  Maintenance
rebuild credit history  Late
 Over limit

*Part-1* * Page-27*
Part 1
Prepaid Debit Cards

Pros: Cons:
 No interest fees  Credit History
 No bank account  Earn no interest
 Online payments  Fees:
 Activation
 Safer then cash
 Monthly
 Limit spending  ATM
 Overlimit?

*Part-1* * Page-28*

Why do you need credit?

Renting an apartment
Buying a house
Buying, leasing or renting a car
Cell Phone Service
Buying online
Getting a job

*Part-1* * Page-29*
Part 1
How to Establish Credit?

A utility account in your name
Apply for a credit card and use responsibly
Take out a small loan/line of credit
Cell phone in your name
Obtain a co-signer for a loan

*Part-1* * Page-30*

Ways to damage your credit

Bankruptcy
Missing payments
Late payments
Owing lots of money
Irresponsible credit card use

*Part-1* * Page-31*
Part 1
Do’s & Don’ts

 Older cards – don’t close them. You want longevity in your credit
history.
 Simplify – close the newest account BUT not all at once. Your
creditworthiness also considers the ratio of credit used to
available credit.
 SINGLE MOST IMPORTANT indicator of creditworthiness –
paying your bills on time!

*Part-1* * Page-32*

Advantages of good credit

Low interest rates
More options
Saves you money

*Part-1* * Page-33*
Part 1
Disadvantages of Bad Credit

High interest rates
Lack of options
Spend more money than you have
Can be turned away
Unable to get a mortgage!

*Part-1* * Page-34*

Key Notes
 Office Hours:
 Sun & Tue: 14:00 – 15:00, office No. 21.
 Thu: 14:00 – 16:00 (on-line)
 Grading:
*Part-1* * Page-35*
Part 1
Credit
Management
Systems
(511372)
Part (1)

[email protected]
Al –1stal
Department of Finance and Banking, AABU, Bayt2021/2022.
Semester, University, Jordan
*Part-1* * Page-36*

Al al – Bayt University, Credit Management Systems (511372)
Credit
Management
Systems
(511372)
Part (2)

[email protected]
Al al – Bayt University, Jordan *Part-1* * Page-1*
Part 2
Key Notes
 Office Hours:
 Sun & Tue: 14:00 – 15:00, office No. 21.
 Thu: 14:00 – 16:00 (on-line)
 Grading:
*Part-2* * Page-2*

Core Reference
Jonathan Golin and Philippe
Delhaise, The Bank Credit
Analysis Handbook, John Wiley
& Sons, Singapore, 2nd Edition,
2013.

*Part-2* * Page-3*
Part 2
Chapter
2
Bank Lending: Policies and Procedures

*Part-2* * Page-4*

Loan History

*Part-2* * Page-5*
Part 2
Bank Lending: Policies and Procedures

Why sound bank lending policies are important to
banks?
The public they serve.
How to spot and deal with problem loans when they
appear in a bank’s portfolio.

*Part-2* * Page-6*

Types of Loans Made By Banks

Bank loans are usually classified by the purpose of the
loans
 Real Estate Loans
 Financial Institution Loans
 Commercial and Industrial Loans
 Agriculture Loans, or any other sector
 Loans to Individuals
 Miscellaneous Loans
 Lease Financing Receivables

*Part-2* * Page-7*
Part 2
Factors Determining the Mix of Bank Loans

Characteristics of Market Area.
Bank Size.
Experience and Expertise of Management.
Expected Yield of Each Type of Loan.
Regulations.

*Part-2* * Page-8*

CAMELS Rating System

The CAMELS is a system used by Central banks’
examiners for evaluating the overall condition of a bank
based upon the
 Capital Adequacy
 Asset Quality
 Management Quality
 Earnings Record
 Liquidity Position
 Sensitivity to Market Risk

*Part-2* * Page-9*
Part 2
Asset Quality
Criticized Loans
Scheduled Loans
Adversely Classified Loans
 Substandard Loans
 Doubtful Loans
 Loss Loans

*Part-2* * Page-10*

Regulators’ Use of Market Forces

Because the Quality of Examination Information
Decays Very Quickly Regulators are Starting to
Use Market Forces and Private Market Discipline
to Monitor Bank Behavior

*Part-2* * Page-11*
Part 2
Bank’s Written Loan Policy

Goal Statement for Bank’s Loan Portfolio
Specification of Lending Authority of Each Loan Officer
and Committee
Lines of Responsibility in Making Assignments and
Reporting Information
Operating Procedures for Reviewing, Evaluating and
Making Loan Decisions
Required Documentation for All Loans
Lines of Authority for Maintaining and Reviewing Credit
Files
*Part-2* * Page-12*

…Bank’s Written Loan Policy

 Guidelines for Taking and Perfecting Collateral
 Policies and Procedures for Setting Loan Interest Rate
 Statement of Quality Standards for All Loans
 Statement of Upper Limit for Total Loans Outstanding
 Description of the Bank’s Principal Trade Area
 Discussion of the Preferred Procedures for Detecting, Analyzing
and Working Out Problem Loans

*Part-2* * Page-13*
Part 2
The Six Basic C’s of Lending

 Character: Specific Purpose of Loan and Serious Intent to Repay
Loan
 Capacity: Legal Authority to Sign Binding Contract
 Cash: Ability to Generate Enough Cash to Repay Loan
 Collateral: Adequate Assets to Support the Loan
 Conditions: Economic Conditions Faced By Borrower
 Control: Does Loan Meet Written Loan Policy? and How Would
Loan Be Affected By Changing Laws and Regulations?

*Part-2* * Page-14*

Payment-to-Income Thermometer
50% or More Danger
39% - less than 50% High
24% - less than 39% Fair
16% - less than 24% Good
Less than 16% Great

*Part-2* * Page-15*
Part 2
Another Approach for Lending 5 P’s

People.
Purpose.
Protection.
Payment.
Perspective.

*Part-2* * Page-16*

Another Approach for Lending SOWT

Strength. (p., i.)
Opportunity. (p., e.)
Weakness. (n., i.)
Threat. (n., e.)

*Part-2* * Page-17*
Part 2
Common Types of Loan Collateral

Accounts Receivables
Factoring
Inventory
Real Property
Personal Property
Personal Guarantees

*Part-2* * Page-18*

Parts of a Typical Loan Agreement

The Note
Loan Commitment Agreement
Collateral
Covenants
 Affirmative
 Negative
Borrower Guaranties and Warranties

Events of Default

*Part-2* * Page-19*
Part 2
Loan Review
Examination of Outstanding Loans to Make
Sure Borrowers are Adhering to Their
Credit Agreements and the Bank is
Following Its Own Loan Policies

*Part-2* * Page-20*

Key Notes
 Office Hours:
 Sun & Tue: 14:00 – 15:00, office No. 21.
 Thu: 14:00 – 16:00 (on-line)
 Grading:
*Part-2* * Page-21*
Part 2
Warning Signs of Problem Loans

 Unusual or Unexpected Delays in Receiving Financial Statements
 Any Sudden Changes in Accounting Methods
 Restructuring Debt or Eliminating Dividend Payments or
Changes in Credit Rating
 Adverse Changes in the Price of Stock
 Net Earnings Losses in One or More Years
 Adverse Changes in Capital Structure
 Deviations in Actual Sales from Predictions
 Unexpected and Unexplained Changes in Deposits

*Part-2* * Page-22*

Loan Workouts
The Process of Resolving a Troubled Loan
So the Bank Can Recover Its Funds

*Part-2* * Page-23*
Part 2
Loan Workout Process

 Goal is to Maximize Full Recovery of Funds
 Rapid Detection and Reporting of Problems is Essential
 Loan Workout Should Be Separate From Lending Function
 Should Consult With Customer Quickly on Possible Options
 Estimate Resources Available to Collect on Loan
 Conduct Tax and Litigation Search
 Evaluate Quality and Competence of Management
 Consider All Reasonable Alternatives

*Part-2* * Page-24*

Recent Trends in Loan Growth Quality

Wholesale Bank
 Emphasizes lending to businesses
Retail Bank
 Emphasizes lending to individuals
 Primary funding is from core deposits

*Part-2* * Page-25*
Part 2
…Recent Trends in Loan Growth Quality

Larger banks have, on average, recently reduced their
dependence on loans relative to smaller banks.
Real estate loans represent the largest single loan
category for banks.
Residential 1-4 family homes contribute the largest
amount of real estate loans for banks.

*Part-2* * Page-26*

…Recent Trends in Loan Growth Quality

Commercial and industrial loans represent the second
highest concentration of loans at banks of Jordan.
Loans to individuals are greatest for banks with more
than $1 billion in assets
Farmland and farm loans make up a significant portion
of the smallest banks’ loans

*Part-2* * Page-27*
Part 2
Trends in Competition for Loan Business

Most firms can obtain loans from many different sources
 Bank loans
 Finance companies
 Life insurance companies
 Commercial paper
 Junk bonds
Reduced regulation, financial innovation, increased
consumer awareness, and new technology have made it
easier to obtain loans from a variety of sources

*Part-2* * Page-28*


Banks still have the required expertise and experience to
make them the preferred lender for many types of loans
Technology advances have meant that more loans are
becoming “standardized,” making it easier for market
participants to offer loans in direct competition to banks
Structured Note
 Loan that is specifically designed to meet the needs of one or a
few companies but has been packaged for resale

*Part-2* * Page-29*
Part 2

Many types of loans can be standardized, credit scored
and securitized:
 Mortgages
 Government-guaranteed student loans
 Small business loans (sponsored by the SBA)
 Credit cards
 Auto loans

*Part-2* * Page-30*


Not all loans can be standardized
 Farm loans
 Many small business loans
 Repayment schedules and collateral are often customized so
that they do not conform to some standard
 Medium to large businesses will have specialized needs as well
This is the area of lending that is still dominated by
commercial banks and the area in which the bank is
uniquely qualified

*Part-2* * Page-31*
Part 2
The Credit Process

Business Development and Credit Credit Execution and Credit Review
Analysis Administration
 Market research  Loan committee reviews  Review loan documentation
 Advertising, public relations proposal/recommendation  Monitor compliance with loan
 Officer call programs  Accept/reject decision made, terms agreement:
 Obtain formal loan request negotiated Positive and negative loan
 Obtain financial statements,  Loan agreement prepared with covenants
borrowing resolution, credit collateral documentation Delinquencies in loan
reports  Borrower signs agreement, turns payments
 Financial statement and cash over collateral, receives loan Discuss nature of delinquency or
flow analysis proceeds other problems with borrower
 Evaluate collateral  Perfect security interest  Institute corrective action:
 Line officer makes  File materials in credit file Modify credit terms
recommendation on  Process loan payments, obtain Obtain additional capital,
accepting/rejecting loan periodic financial statements, call collateral, guarantees
on borrower Call loan
*Part-2* * Page-32*

The Credit Process

Loan Policy- Formalizes lending guidelines that
employees follow to conduct bank business
 Credit Philosophy
 Management’s philosophy that determines how much risk
the bank will take and in what form
 Credit Culture
 The fundamental principles that drive lending activity and
how management analyzes risk

*Part-2* * Page-33*
Part 2
The Credit Process

Credit Culture
 The fundamental principles that drive lending activity and
how management analyzes risk
 Values Driven
Focus is on credit quality
 Current-Profit Driven
Focus is on short-term earnings
 Market-Share Driven
Focus is on having the highest market share

*Part-2* * Page-34*

Business Development and Credit Analysis

Business Development
 Market research
 Train employees:
 On what products are available
 What products customers are likely to need
 How they should communicate with customers about those
needs
 Advertising and Public Relations
 Officer Call Programs

*Part-2* * Page-35*
Part 2

Credit Analysis
 Evaluate a borrower’s ability and willingness to repay
 Questions to address
 What risks are inherent in the operations of the business?
 What have managers done or failed to do in mitigating those
risks?
 How can a lender structure and control its own risks in
supplying funds?

*Part-2* * Page-36*


Six C’s of Good Credit
 Character
 Capital
 Capacity
 Conditions
 Collateral
 Control

*Part-2* * Page-37*
Part 2

Six C’s of Bad Credit
 Complacency.
 Carelessness.
 Communication.
 Contingencies.
 Competition.
 Crisis.

*Part-2* * Page-38*

Key Notes
 Office Hours:
 Sun & Tue: 14:00 – 15:00, office No. 21.
 Thu: 14:00 – 16:00 (on-line)
 Grading:
*Part-2* * Page-39*
Part 2
Credit Execution and Administration

 Loan Decision
 Individual officer decision
 Committee
 Centralized underwriting
 Loan Agreement
 Formalizes the purpose of the loan
 Terms of the loan
 Repayment schedule
 Collateral required
 Any loan covenants
 States what conditions bring about a default

*Part-2* * Page-40*


 Documentation: Perfecting the Security Interest
 Perfected
 When the bank's claim is superior to that of other creditors and
the borrower
 Require the borrower to sign a security agreement that assigns the
qualifying collateral to the bank
 Bank obtains title to equipment or vehicles

*Part-2* * Page-41*
Part 2

 Position Limits
 Maximum allowable credit exposures to any single borrower,
industry, or geographic local
 Risk Rating Loans
 Evaluating characteristics of the borrower and loan to assess the
likelihood of default and the amount of loss in the event of default

*Part-2* * Page-42*


 Loan Covenants
 Positive (Affirmative)
 Indicate specific provisions to which the borrower must adhere
 Negative
 Indicate financial limitations and prohibited events

*Part-2* * Page-43*
Part 2
Sample Loan Covenants

Negative Affirmative
 Capital outlays cannot exceed $3  Borrower must maintain following financial
million annually ratios:
 Cash dividends cannot exceed 60% Current ratio >1.0
of periodic earnings Days receivables outstanding <50 days
 Total officers' salaries cannot exceed Inventory turnover >4.5 times
$500,000 annually Debt to total assets <70%
 No liens on assets beyond existing Net worth >$1 million
liens Fixed charge coverage >1.3 times
 No mergers, consolidations, or Cash flow from operations >dividends
acquisitions without bank approval + current maturities of long-term debt
 No sale, lease, or transfer of more  Certified financial statements must be provided
than 10% of existing assets within 60 days of end of each fiscal year
 No change in senior management  Borrower will maintain $500,000 key man life
 No additional debt without bank insurance policy on company president, with bank
approval named as beneficiary
 Bank will be allowed to inspect inventory,
receivables, and property periodically
 Borrower must pay all taxes and government fees,
unless contested in good faith, and comply with
all laws
 Borrower must inform bank of any litigation or
claim that might materially affect its performance
 Borrower must maintain all property in good
condition and repair
*Part-2* * Page-44*


Loan Review
 Monitoring the performance of existing loans
 Handling problem loans
Loan review should be kept separate from credit

analysis, execution, and administration
 The loan review committee should act independent of loan
officers and report directly to the CEO of the bank

*Part-2* * Page-45*
Part 2

Problem Loans
 Often require special treatment
 Modify terms of the loan agreement to increases the
probability of full repayment
Modifications might include:
• Deferring interest and principal payments
• Lengthening maturities
• Liquidating unnecessary assets

*Part-2* * Page-46*

Key Notes
 Office Hours:
 Sun & Tue: 14:00 – 15:00, office No. 21.
 Thu: 14:00 – 16:00 (on-line)
 Med Term Exam: 10th Week
 Grading:
*Part-2* * Page-47*
Part 2
Credit
Management
Systems
(511372)
Part (1)

[email protected]
Department of Finance and Banking, AABU, – Bayt2021/2022.
Al al1st Semester, University, Jordan
*Part-2* * Page-48*


نظم إدارة الائتمان

Uploaded by

Copyright:

Available Formats

نظم إدارة الائتمان

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

نظم إدارة الائتمان

Uploaded by

Copyright:

Available Formats

Al – al Bayt University, Credit Management Systems (511372)

Department of Finance and Banking. Part 1, 1st Semester, 2021/2022

Sufian I. HRAZE, Lecturer

Sufian I HRAZE, Lecturer

Sufian HRAZE, Credit Management Systems, (511372),

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Sufian HRAZE, Credit Management Systems, (511372),

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

When to Use Credit?

Sufian HRAZE, Credit Management Systems, (511372),

Who Cares about Your Credit?

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Credit and Inflation

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Sufian HRAZE, Credit Management Systems, (511372),

Syndicated Loans (150 Mln

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Credit Facilities Extended By The Licensed Banks

… Credit Facilities Extended By The Licensed Banks

Sufian I HRAZE, Lecturer

Accrued rate (Credit risk rate)

Sufian HRAZE, Credit Management Systems, (511372),

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Secured and Unsecured Loans

Sufian HRAZE, Credit Management Systems, (511372),

Banking Cards: What’s the Difference?

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

What Is a Credit Card?

Sufian HRAZE, Credit Management Systems, (511372),

What Is a Secured Credit Card?

Sufian I HRAZE, Lecturer

What Is a Debit Card?

Sufian HRAZE, Credit Management Systems, (511372),

What Is a Prepaid Card?

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

 $50 liability  Over limit?

Sufian HRAZE, Credit Management Systems, (511372),

 Online payments  Who’s ATM?

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Secured Credit Cards

Sufian HRAZE, Credit Management Systems, (511372),

Prepaid Debit Cards

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer

Why do you need credit?

Sufian HRAZE, Credit Management Systems, (511372),

How to Establish Credit?

Sufian HRAZE, Credit Management Systems, (511372),

Sufian I HRAZE, Lecturer