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Subject: UBFB2023 CREDIT AND LENDING ANALYSIS
Lending occurs whenever a financial institution gives something to a borrower on credit. Financial institution will not openly disclose their credit criteria and two banks have different credit assessment. Discuss the credit assessment in the context of "Arts" and "Science"
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- Which if the following is not true of the 5Cs in evaluating credit quality A Character refers to the integrity and honesty of the borrower and applies to both individuals and companies C Collateral refers to assets that are pledged to lender D Capacity refer to external factors including the state of economy that can impact the borrower’s source of income.Which if the following is not true of the 5Cs in evaluating credit quality A Character refers to the integrity and honesty of the borrower and applies to both individuals and companies B Capital refers to the savings or wealth of the borrower as an additional source of income to repay the loan C Collateral refers to assets that are pledged to lender D Capacity refer to external factors including the state of economy that can impact the borrower’s source of income.Demonstrate how the credit risk management issue(s) in the Washington Mutual case can be resolved through the application of the credit metrics and credit risk management model
- QUESTION 1 Which if the following is not true of the 5Cs in evaluating credit quality Character refers to the integrity and honesty of the borrower and applies to both individuals and companies Capital refers to the savings or wealth of the borrower as an additional source of income to repay the loan Collateral refers to assets that are pledged to lender Capacity refer to external factors including the state of economy that can impact the borrower’s source of income. QUESTION 2 Which of the following is not true? Firm A Firm B Industry Benchmark 2018 2019 2020 2018 2019 2020 2018 2019 2020 ROA 9.14% 9.50% 9.90% 8.11% 8.16% 8.19% 8.11% 8.14% 8.15% ROE 22.45% 22.95% 23.45% 19.65% 19.88% 20.12% 19.95% 20.55% 21.00% TIE 1.75 1.65 1.55 2.75 2.90 3.05 2.25 2.30 2.50 CR 3.25 3.66 3.75 2.55 2.65 2.75 2.40 1.45 2.50 EPS…What are the advantages and disadvantages of implementing credit scoring within a financial institution?THESE QUESTIONS REQUIRE YOU TO STATE WHICH OF THESE ITEMS BELONG TO ADVANTAGE OR DISADVANTAGE. (ANSWER A – ADVANTAGE / B – DISADVANTAGE) *Demonstrate how the credit risk management issue(s) in the Washington Mutual case can be resolved through the application of the term structure of credit risk approach management model
- Customer loans are classified on a Depository Institution (DI)'s balance sheet as Select one: A. liabilities, because the customer may default on the loan. B. assets, because the DI earns servicing fees on the loan. C. assets, because the DI's major asset is its client base. D. assets, because DIs originate and monitor loan portfolios. E. liabilities, because the DI must transfer funds to the borrower at the initiation of the loan.Which of the following roles is considered a main objective of credit rating agencies? a. Granting loans to borrowers b. Lessen information asymmetry. c. Underwriting securities d. Receiving investments from capitalists. e. Taking deposits from saversWhich type of information asymmetry explains why bad credit risks are more likely to seek bank loans? A. Moral hazard B. Adverse selection C. Principal-agent problem
- 16) Which of the following is not a benefit of loan monitoring? Encourages dynamic, rather than time-based reviews Reduces the need for effective loan documentation and covenant compliance O Helps lenders identify whether there has been any credit risk migration Helps lenders from potentially being misled by distorted or even misleading information Single choice 17) What is the best way to approach a Board evaluation? The CEO organises meetings with the senior management team to ask them what they think of the Board O The Chairman sends out an evaluation questionnaire to Board Members and results are collated and anonymised and presented at Board The Investor Relations Team rings up a sample of shareholders to ask them what they think of the Board O The Chairman sends out an evaluation questionnaire to Board Members and results are collated. Members get to see what their peers wrote about them and the Chairman sacks any underperforming Members Single choice 18) Which of the following…A bank is considering implementing a business rules management system for assessing the riskand creditworthiness of individuals as part of the loan approval process.• List and explain 3 benefits of such a system?• List 2 potential legal or ethical issues that might arise in the use of such a systemCredit Analysis and Lending Management Question: While no-one expects a lending officer to be a legal expert and some basicknowledge of legal aspects of lending would be desirable. Given thecomplexities of legal requirement, draft a component of a checklist for lending officers can use to ensure they have satisfied fundamental legal requirement of lending.
