KING BOM

8/6/2019 KING BOM

1/20

1 Banking Operation Management

[Pick the date]

SUBMITTED TO:SIR SALMAN KHAN

Topic:Critically analysis different technique of analyzing a business customer by a Bank?

SUBMITTED TO:

Sir. SAYYED ATIF ALISUBMITTED BY:

BASHARAT ALI MC10257 M.COM (B)ADNAN ARSHAD MC10226

BANKING OPRATION MANGEMENT

8/6/2019 KING BOM

2/20


[Pick the date]

ACKNOWLEDGEMENT:

A million thanks to the Almighty, without whose support, there can be no work. I would also like

to take this opportunity to extend my appreciation and gratitude to Sir. Sayyed Atif Ali ,

without their counseling and parallel skills I would have never been able to prepare this project.

Finally we owe many thanks for the participation of all group members and their coordination to

accomplish the task.

8/6/2019 KING BOM

3/20


[Pick the date]

Table of ContentsAcknowledgement: ............................................................................... 2

Introduction: ......................................................................................... 4

Camels Rating: ..................................................................................... 5 Credit Analysis Of The Loan Application: ......................................... 9

Structuring And Documenting Loans: .............................................. 12

Sources Of Information About Loan Customer: ............................. 13

Analyzing Business Loan Application: ............................................. 13

Analysis: .............................................................................................. 19

References: .......................................................................................... 20

8/6/2019 KING BOM

4/20


[Pick the date]

Introduction:

While discussing about the Analysis of Business Customer by Bank , we see that banks areexpected to make loan to all qualified customer and there by aid to communities this serve to

grow and to improve there living slandered. But it is also risky function because both externalfactor and internal factors can result in substantial losses for the bank. In order to keep this factor the bank lending function is closely regulated to insure prudent polices and procedure. Bank alsocontrol risk in the lending function by setting up written polices and procedure for each bank loan request. While analysis and emulating the business customer bank uses different techniquein which they use fives of credit CAMEL rating and credit scoring rating technique. To knowabout is the customer is creditworthy?

For this purpose bank demand different information and document from customer. The mostimportant document is demanded by bank is financial stamen of corporate customer which is useto analysis. Bank uses the different ratios such as liquidity ratio, coverage ratio, andmarketability of customer product, control over expenses, leverage ratio, profitability indicatorsand contingent liabilities.

Partnership concerns and corporate entities (both listed and unlisted) are categorized under Corporate Borrower. The system provides unique borrower code to each entity/concern.Member financial institutions are required to report all financial obligations under unique

borrower code assigned to each entity/concern. The corporate credit information report containsdetails of outstanding liabilities (fund and non- fund based), position of overdue, details of litigation, write-offs, recoveries and rescheduling and restructuring.

8/6/2019 KING BOM

5/20


[Pick the date]

CAMELS Rating:Bank use the CAMELS rating system to rate the corporate business customer, by using this

rating he decided about approval of loan. The rating system provides a general framework for evaluating and integrating significant compliance factors in order to assign a consumer compliance rating to each federally regulated business organization. The purpose of the ratingsystem is to reflect in a comprehensive and uniform fashion the nature and extent of aninstitution's compliance with consumer protection and civil rights statutes and regulations. Inaddition to serving as a useful tool for summarizing the compliance position of individualinstitutions, the rating system will also assist the public and Congress in assessing the aggregatecompliance posture of regulated financial institutions.

It is an evaluation system used to check and assigns numerical grades to a organizations capitaladequacy, asset quality, management quality, earnings performance, liquidity management

practices, and sensitivity to risk of a organization. During an on-site organization exam,supervisors gather private information, with which to evaluate a organization financial conditionand to monitor its compliance with laws and regulatory policies. A key product of such an examis a supervisory rating of the organization overall condition, commonly referred to as aCAMELS rating.

The acronym "CAMEL" refers to the five components of a organization's condition that areassessed: Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixthcomponent, a organization's Sensitivity to market risk was added in 1997; hence the acronymwas changed to CAMELS.

C - Capital AdequacyA - Asset QualityM - Management QualityE - EarningsL - LiquidityS - Sensitivity to Market Risk

Capital Adequacy:

Every organization is expected to have sufficient capital to address its needs in relation to therisk it undertakes in its operations. The ratio of the capital of a organization in relation to its risk

weighted assets must meet the minimum requirements. In capital adequacy we a organizationfocus mainly on these points.

Size of the organization

Quality of capital

Volume of interior quality assets

8/6/2019 KING BOM

6/20


[Pick the date]

R etained earnings

Access to capital markets

Organization's growth experience plans and prospect

Asset Quality:

The term Asset Quality refers to the quality of the assets portfolio of the organization. The primary function of organization is to earn profit. Organization can check the use of assets is inthe benefit of business and the check the return on the assets. A sound assets portfolio means asteady income for the organization, apart from adding to the solvency of the organization, andconsequently its rating.

Volume of classifications Volume of assets

Special mention loans ratio and trends Strong asset-quality and credit-administration practices.

To ensure asset quality, the Organization has to follow a sound procedure regimen that ensurescompliance of all the related norms. Some of the parameters for judging the soundness of a loanaccount are the components of safety, security, liquidity, purpose, profitability, etc.

Management Quality:

By Management is meant the art and science of accomplishing the goals of the institution by

deploying all the necessary resources appropriately. Management includes Planning, Organizing,Staffing, Directing, and Controlling functions. Organization also analysis the management pastdecision and the effect of this decision. Either the effect of this decision is in favor of organization or not.

Planning:

Is concerned with drawing up the drawing for the objectives and goals of the organization, andlay the path to reach them. Planning is an all about activity that touches upon all the activities of the Organization.

Organizing: Is the next step after planning, and is concerned with putting in place the necessaryinfrastructure, including human resources to achieve the organization corporate goals.

8/6/2019 KING BOM

7/20


[Pick the date]

Staffing :

As the term indicates, is concerned with filling up the various positions in the organization withsuitable people.

Controlling:

Is a function of management that involves establishing a performance standard for theemployees and taking suitable steps in regard to the principle of reward and punishment.

y Compliance with laws and regulations

y Tendencies towards self dealing

y Technical competence, leadership of middle and senior management

y Adequacy and compliance with internal policies

y Ability to plan and respond to changing circumstances

y Adequacy of directorsy Existence and adequacy of quality staff and programmes

Earnings:

The earnings of a organization refer to the net profit made by it. Profit is the difference betweenincome and expenditure. The major sources of income for the organization is sale of goods andservices and other income derived from general activities of business.

The expenditure of the organization may relate, among other things, to salaries, wages,administrative overheads, rents, rates, taxes, etc. The net surplus that remains after taking care of all the expenses is the net profit.

R eturn of assets

Adequacy of provisions for losses

Quality of earnings

Dividend payout ratio in relation to the adequacy of organization capital

Liquidity:

Liquidity is simply the simplicity with which an asset of the organization is converted in cash, intimes of need, or its fair value. It is that quality of an asset that enables a Organization to respondto any financial situation requiring urgent infusion of money or money's worth. This quality of the asset ensures that a Organization can cover his loan amount easily.

8/6/2019 KING BOM

8/20


[Pick the date]

Availability of assets readily convertible to cash without undue loss

Adequacy of liquidity sources compared to present and future needs

Access to money markets

Ability to make safe and sell certain pools of assets

Level of diversification of funding sources ( on and off balance sheet )

Trends and stability of deposits

Management competence to identify, measure, monitor and control liquidity position

Sensitivity to Market Risk:

Market forces are a major reason for shifts in the fortunes of businesses. If the these marketforces are in favor of organization then they can give the loan to organization. Market forcesgenerally relate to the changes in Interest R ates, Currency R ates, Commodity R ates, and Stock Prices. Further these changes are inter-related in a complex way, and disturbances in one area areusually accompanied with the same in other areas.

Ability of management to identify, measure, monitor and control interest rate risk as well as price and foreign exchange risk where applicable and material to an institution

Sensitivity of the financial institution's net earnings or the economic value of its capital tochanges in interest rates under various scenarios and stress environments

Actual or management to identify, measure, monitor and control interest rate risk as well as price and foreign exchange risk where applicable and material to an institution

Explanation of CAMELS composites ratingComposite 1 rating Organizations are sound in every respectComposite 2 rating Organizations are fundamentally sound and stable and are in substantial

compliance with laws and regulations.Composite 3 rating Organizations exhibit some degree of supervisory concern in one or more

of the component areas and require more than normal supervision, whichmay include enforcement actions.

Composite 4 rating Organizations generally exhibit unsafe and unsound practices or

conditions and pose a risk to the deposit insurance fund.Composite 5 rating Organizations exhibit extremely unsafe and unsound practices or

conditions and pose a significant risk to the deposit insurance fund.Organization failure is highly probable.

8/6/2019 KING BOM

9/20


[Pick the date]

Credit Analysis of the Loan Application:The division of the bank responsible for analyzing recommendations on the fate of most loanapplication is the credit department. They mainly focus on Is the borrower creditworthy? theyanswer this question by using the 5C analysis.

The 5 Cs of credit or "5C's of banking" are a common reference to the major elements of a bankers analysis when considering a request for a loan. Namely, these are Cash Flow,Collateral, Capital, Character and Conditions. This study will provide an in-depth picture of eachof the 5 Cs of credit or banking to help you understand what your banker needs to understand

about your business in order to approve your loan.

Capacity:

This is an evaluation of ability to repay the loan. The financial Institution wants to know howyou will repay the funds before it will approve your Loan. Capacity is evaluated by severalcomponents. The loan officer must be sure that the customer requesting the credit has theauthority to request a loan and the legal standing to sign a binding loan agreement. This customer characteristic is known as the capacity to borrow money. Fro example, in most country a minor cannot legally be held responsible for agreement. Capacity is evaluated by several components,including the following:

Payment history

Loan officer the past loan payment record of the borrower .In the past, it was more difficult for commercial institutions to determine whether a small company had a good payment history. Wecan check this through credit rating by PC R A (Pakistan credit rating authority).

Contingent sources:

For repayment is additional sources of income that can be used to repay a loan. These couldinclude personal assets, savings or checking accounts, and other resources that might be used.

Authorizations:

In type of the business (company & Partnership) then give the authority to get the loans so bank carefully reviews that.

8/6/2019 KING BOM

10/20


[Pick the date]

Companies:

In the resolutions are passing by the board of directors to give the authority to get the loans. So bank get the resolutions copy that is pass in meetings.

Partnership:

In partnership the partnership deed is made between the partners in which give the authority toany one partner to maintain bank account so bank see the agreement and check the authority whoget the loans.

Cash Flow

This key feature of any loan application, does the borrower have ability to generate enough cash,in from of cash flow, to repay the loan. Banker needs to be certain that your business generatesenough cash flow to repay the loan that you are requesting. In order to determine this banker will

be looking at your companys historical and projected cash flow and compare that to thecompanys projected debt service requirements. Generally a customer has following sources torepay the loan and bank also focused on these;

Cash flows generated from sales or income, The sale or liquidation of assets, or Funds raised by issuing debt or equity securities

There are a variety of credit analysis metrics used by bankers to evaluate this, but a commonlyused methodology is the Debt Service Coverage R atio generally defined as follows:

Debt Service Coverage R atio = EBITDA income taxes unfinanced capital expenditures

divided by Projected principal and interest payments over the next 12 months

Typically the bank will look at the companys historical ability to service the debt. This meansthe banker will compare the companys past 3 years free cash flow to projected debt service, aswell as the past twelve months to the extent your company is well into its fiscal year. While

projected cash flow is important as well, the banker will generally want to see that thecompanys historical cash flow is sufficient to support the requested debt. Usually projected cashflow figures are higher than historical figures due to expected growth at the company; however

banker will view the projected cash flows with disbelief as they will generally entail some levelof execution risk. To the extent that the historical cash flow is insufficient and the banker mustrely on your projections.

Character:

This is a highly subjective evaluation of a business owner's personal history. The lender willform a subjective opinion as to whether or not you are sufficiently trustworthy to repay the loanor generate a return on funds invested in your company. Your educational background andexperience in business and in your industry will be reviewed. The quality of your references andthe background and experience levels of your employees also will be taken into consideration by

8/6/2019 KING BOM

11/20


[Pick the date]

lender for giving credit/loanThe fact-based assessment involves a review of credit reports on the company, and in the case of smaller companies, the personal credit report of the owner as well. The bank will alsocommunicate with your current and former bankers to determine how you have handled your

banking arrangements in the past. The bank may also communicate with your customers and

vendors to assess how you have dealt with these business partners in the past. In character wecheck these things: Customers personal record Experiences of other lenders with this customer Purpose of loan Credit rating

Collateral:

Does the borrower possess adequate net worth or own enough quality assets to provide adequatesupport for the loan? The loan officer is particularly sensitive to such features as the age,condition, and degree of specialization of the borrower's assets. In most cases, the bank wants theloan amount to be exceeded by the amount of the companys collateral. The reason the bank isinterested in collateral is as a secondary source of repayment of the loan. If the company isunable to generate sufficient cash flow to repay the loan at some point in the future, the bank wants to be comfortable that it will be able to recover its loan by liquidating the collateral andusing the proceeds to pay off the loan.First, the banker is interested in only certain asset classes as collateral specificallyaccounts receivable, inventory, equipment and real estate since in a liquidation scenario, theseasset classes can be collected or sold to generate funds to repay the loan. Other asset classes suchas goodwill, prepaid amounts, investments, etc. will not be considered by the banker as collateralsince in a liquidation scenario, they would not fetch any meaningful amounts.

Secondly, the bank will discount or margin the value of the collateral based on historicalliquidation values. For example, banks will generally apply margin rates of 80% againstaccounts receivable, 50% against inventory, 80% against equipment and 75% against real estate.In the case of equipment and real estate collateral the bank will need to have a third partyappraisal completed on these assets. The bank will margin the appraised value of these assetclasses to determine the amount of the loan, as opposed to using the companys carrying value of these assets on its balance sheet.

Conditions:

The loan officer and credit analyst must be aware of recent trends in the borrower's line of work or industry and how changing economic conditions might affect the loan. To assess industry andeconomic conditions, most banks maintain files of information-newspaper clippings, magazinearticles, and research reports-on the industries represented by their major borrowing customers.Conditions refer to overall evaluation on the proposed business or project. Analysis includes

business objectives and purpose of the loan. Banker need to analyze that the loan can help the business to grow and not a burden to the borrower. Other conditions that banker should consider are marketing, technical aspects of the project, economic and overall business conditions such aslaws and regulations. This information you get from customers when they apply for a loan. The

8/6/2019 KING BOM

12/20


[Pick the date]

banker will need your help to identify and understand these key risks, so be prepared to articulatewhat you see as the primary threats to your business, and how and why you are comfortable withthe presence of these risks, and what you are doing to protect the company. The banker will needto understand the drivers of your business, which is equally as important to the banker asunderstanding the companys financial profile.

Capital:

When it comes to capital, the bank is essentially looking for the owner of the company to havesufficient equity in the company. Capital is important to the bank for two reasons. First, havingsufficient equity in the company provides a reduce to withstand a bug in the companys ability togenerate cash flow. For example, if the company were to become unprofitable for any reason, itwould begin to burn through cash to fund operations. The bank is never interested in lendingmoney to fund a companys losses, so they want to be sure that there is enough equity in thecompany to weather a storm and to rehabilitate itself. Without sufficient capital, the company

could run out of cash and be forced to file for bankruptcy protection.Secondly, when it comes to capital, the bank is looking for the owner to have sufficient skin inthe game. The bank wants the owner to be sufficiently invested in the company such that if things were to go wrong, the owner would be motivated to stick by the company and work withthe bank during a turnaround. If the owner were to simply hand over the keys to the business, itwould clearly leave the bank fewer (and less viable) options on how to obtain repayment of theloan.

There is no precise measure or amount of enough capital, but rather it is specific to thesituation and the owners financial profile. Commonly, the bank will look at the ownersinvestment in the company relative to their total net worth, and they will compare the amount of the loan to the amount of equity in the company the companys Debt to Equity R atio. This is ameasure of the companys total liabilities to shareholders equity.

To summarize, the 5 Cs of credit forms the basis of your bankers analysis as they areconsidering your request for a loan. The banker needs to be sure that (1) your company generatesenough Cash Flow to service the requested debt, (2) there is sufficient Collateral to cover theamount of the loan as a secondary source of repayment should the company fail, (3) there isenough Capital in the company to weather a storm and to ensure the owners commitment to thecompany, (4) the Conditions surrounding your business do not pose any significant unmitigatedrisks, and (5) the owners and management of the company are of sound Character , people thatcan be trusted to honor their commitments in good times and bad.

Structuring and Documenting Loans:

Drafting a loan agreement that meets the borrower's need for funds with a comfortablerepayment schedule. Anticipating and accommodating of a customer who may request more or less funds than requested, over a longer or shorter period. Imposing certain restrictions

8/6/2019 KING BOM

13/20


[Pick the date]

(covenants) on the borrower's activities to protect the banks when these activities could threatenthe recovery of bank funds. Specifying the process of recovering the bank's funds - when andwhere the bank can take action to get its funds returned.A properly structured loan agreement must also protect the bank and those it represents-

principally its depositors and stockholders by imposing certain restriction on the borrowers

activities when these activities threaten the recovery of loan.

Sources of Information about Loan Customer: The bank relies principally on outside information to assess the character, financial position, andcollateral of a loan customer. This analysis begins with a review of information supplied by

borrower in the loan application. The bank may contact other lenders to determine their experience with this customer. Bank collects this information from following sources:

Consumer Information:

Local or regional credits bureaus Customer financial statements Experience of other lenders

Business Information:

Business news papers

Government Information:

Moodys Government manual Government budget report Credit rating agencies

General Economic Information:

Local newspapers Local chamber of commerce

Analyzing Business Loan App lication:

In making business loan application, the banks margin for error is relatively narrow. Many business loans are of such large denomination that the bank itself may be at risk if the loan goes

8/6/2019 KING BOM

14/20


[Pick the date]

bad. Moreover. Competition for the best business customers reduces the spread between the banks yield on such loans and its cost of funds, labor, taxes, and overhead, which the bank must pay in order to make these loans. For most business credits, the bank must commit roughly $100in loans and its cost of funds for each $1 earned after all costs, including taxes. This is a modestreward-to-risk ratio, which means that banks need to take special care, particularly with business

loans that often carry large denomination and , therefore, large risk exposure. With such a smallreward-to-risk ratio, it doesnt take many business loan defaults to seriously erode bank profits.Typically, this requires finding two or three sources of funds the business borrower could drawupon to support the loan. The most common sources of repayment for business loans are thefollowing:

The business borrowers profits or cash flow. Business assets pledged as collateral behind the loan. A strong balance sheet with ample amounts of marketable assets and net worth. Guarantees given by the business, such as drawing on the owners personal property to

backstop a business loan.

Notice that each of these potential sources of repayment for a loan involves an analysis of customer financial statements now and look at them as a loan involves an analysis of customer financial statements.

Analysis of a business borrowers financial statements:Analysis of the financial statements of a business borrower, typically, begins when the banks

credit analysis department prepares an analysis over time of how the key figures on the borrowers financial statement have changed (usually during the last three, four, f five years). Note that these financial statements include both dollar figures and percentage of total assets(inthe case of the balance sheet of the last four years and income statement). These percentagefigures often called common-size-ratios, show even more clearly than the dollar figures on eachfinancial statement the most important financial trends experienced by this or any other businessloan customer.

Financial ration analysis of a customers financial statements:Information from balance sheets and income statements is typically supplemented by financial

ratio analysis,. By carful selection of items from a borrowers balance sheets and incomestatement, the loan officer can shed light on such critical areas in business lending as

1. A borrowing customers ability to control expenses;2. A borrowers operating efficiency in using resources to generate sales and cash flow3. The marketability of the borrowers product line

4.

The coverage that earnings provide over a business firms financing cost5. The borrowers liquidity position, indicating the availability of ready cash6. The borrowers track record of profitability or net income7. The amount of financial leverage(or debt relative to equity capital) a business borrower

has taken on8. Whether a borrower faces significant contingent liabilities that may give rise to

substantial claims in the future.

8/6/2019 KING BOM

15/20


[Pick the date]

I. The Business Customer s Control over Expenses:

The barometer of quality of a business firm management is show care fully it monitors and

controls in its expenses and how well its earning the primary sources of cash to repay the bank loan in most cases are likely to be protected and grow selected financing ratios usually computed

by credit analysis to monitor a firm expense control program include the following.

Wages and salaries/ net sales Costs of goods sold/ net sales Overhead expense / net sales Deprivation expenses/ net sales Selling administration and other Interest expense on borrowed

Funds/ net sales Expenses net sales

II. O perating efficiency: measure of a business firms performanceeffectiveness:

It is also useful to look at a business customer operating efficiency are assets beings utilized togenerate sales and cash flow for the firm and how efficiently are sales converted into cash?Important financial ratios here are:

Annual cost of goods sold/ average net sales/ net fixed assetsInventory (or inventory turnover ratio)

Net sales/ a/c and notes receivable.

R ange collection period period=A/ R receivable/annual credit sales/360

III. M arket ability of the customer product or service:

In order to generate adequate cash flow to repay a loan the business customer must be able tomarket goods, services, or skills successfully. A bank can often assess public acceptance of whatthe business customer has to sell by analyzing such factors as the growth rate of sale revenue,changes in the business customer s share of the available market and gross profit margin GPMdefine as.

GPM=

8/6/2019 KING BOM

16/20


[Pick the date]

A closely related and somewhat more refined ration is the net profit margin NPM

NPM=

The gross profit margin (GPM) measures both market conditions that are demand for the

business customers product or services and how competitive a marketplace the customer faces. A "Marketability Evaluation" basically considers whether the product is "Marketable" within thecurrent and future market, i.e. is the product competitive with other products currently on themarket.

IV. Coverage ration: measuring the adequacy of earnings:

A ratio used to determine how easily a company can pay interest on outstanding debt. Theinterest coverage ratio is calculated by dividing a company's earnings before interest and taxes(EBIT) of one period by the company's interest expenses of the same period. Coverage refers to

the protection afforded creditors of a firm including its bank based on the amount of the firmsearning. The best known coverage rations include the following

Interest coverage ratio=

Coverage of all fixed payments =

Coverage of all fixed payment=

Note that the second of these coverage ratios adjusts for the fact that repayment of the principalof loan are not tax deductible while interest and lease payments are generally tax deductibleexpenses in the united state.

V. Liquidity indicators for business customers:

The borrowers liquidity position reflects his or her ability to raise cash in timely fashion at

reasonable cost, including the ability to meet loan payments when they come due popular measure of liquidity include the following.

Current ratio =

Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business.

8/6/2019 KING BOM

17/20

8/6/2019 KING BOM

18/20


[Pick the date]

position or investment beyond what would be possible through a direct investment of its ownfunds. There are three types of leveragebalance sheet, economic, and embeddedand nosingle measurecan capture all three dimensions simultaneously Key financial ratios used to analyze any

borrowing business credit standing and use of financial leverage are as follows.

Leverage ratio=

Capitalization ratio =

Debt to sale ratio =

VIII. Contingent liabilities:A contingent liability is a potential liabilityit depends on a future event occurring or notoccurring.Types of contingent liabilities.Usually not shown on customer balance sheets ate other potential claims against the borrower that the loan officer must be aware of such as:

1. Guarantees and warranties behind the business firms product2. Litigation of pending lawsuits against the firm3. Unfunded pension liabilities the firm will likely owes its employees in the future4. Taxes owed but unpaid5. Limiting regulations

These contingent liabilities can turn into actual claims against the firms assets at and news paper future date reducing the funds available to repay a loan. The loan offices best move In thiscircumstance is first to ask the customer about pending or potential claims against the firms andthen to follow up with his own investigation checking court house record public notices andnews paper. In this instance it is far better to be safe and well informed than to repose in blissfulignorance.

8/6/2019 KING BOM

19/20


[Pick the date]

Analysis:

At the end we analysis that; bank want to lend his money to customer because it is his mainsources of income. Banks also face many challenges during this procedure, to secure his

principal amount. Bank control risk in the lending function by setting up written policies and procedures for processing each loan request. The loan policy indicates the lines of authority anddecision making within the loan department and the documentation each loan application.Bank considered many factors in deciding whether or not to grant a loan to a borrower.Generally, however, the evaluation of a loan application will focus on six key factors: (1)Character, which goes to the honesty and sincerity of borrower and whether the loan is for agood purpose; (2) Capacity, whether the borrower has the standing necessary to sign a valid loancontract; (3) Collateral, in this bank check the asset of customer that he can pledged against loan;(4) Conditions, and (5) Control, which refers to whether or not the borrower application meets

bank loan quality standards. Bank also use CAMEL analysis to rate the customers Capitaladequacy, Asset quality, Management Quality, Earnings record, Liquidity record and Sensitivityto market risk.In making business loan application, the banks margin for error is relatively narrow. Many

business loans are of such large denomination that the bank itself may be at risk if the loan goes bad. To avoid this risk bank do the detailed analysis of customer financial books. Commonly, bank use these ratios and analysis to check financial statement, Customers ability to controlexpenses, Operating efficiency in using resources to generate sales and cash flow, Marketabilityof the borrowers product line, Coverage ratio, Liquidity ratio, Profitability indicators andLeverage ratio.Finally, a sound bank lending program must make provision for the periodic review of all loanuntil retired. When this loan review process turns up problem loans, they turned over to Workoutspecialist, who investigate the causes of the problem and work with the borrower to fine thesolution that maximizes the bank chances to recover its funds.

8/6/2019 KING BOM

20/20


[Pick the date]

R eferences:

www.google.com

www.googlescholar.com www.sbp.org.pk www.wikicfo.com www.loanuniverse.com

KING BOM

Documents

Transcript of KING BOM