Unit title: Financial Institutions Lending

Unit code: BAN501

Unit description:
This module provides us with an understanding of the liberalization of
the financial sector and its impact on the profitability of banks and
financial sector institutions. The focus of this course is credit analysis
and lending. Lending is not merely an activity restricted to the assets
side of the balance sheet. The lending process must arise from and fit
well into the overall corporate objective of a lending organization and
must integrate the growing range of activities into the mainstream
lending business. Such activities involve analyzing lending strategies,
credit appraisal, risk analysis and lending decisions, while keeping in
mind the broad framework of corporate banking or financial strategy. It
considers specific aspects such as creditloan analysis, policy aspects,
legal aspects, and special types of credits like consumer loans, real
estate loans, corporate loans, and international loans. It also deals with
issues such as securitization, loan pricing and problem loans. It will
offer students and practitioners a guide from the rudiments of credit
appraisal to advanced levels of decision!making. This will be supported
with e"amples from businesses to facilitate a better understanding of
the behavior and changes in the financial market. This module will
strongly emphasize on commercial bank lending activities, as a major
player in the banking and finance community.
Unit objectives: This unit is designed to enable students to#
Knowledge
1. Explain the role and process of financial intermediation in an
economy.
$. Evaluate the theory of lending and its implications.
%. &nderstand the practical aspects of lending to various individuals,
corporations and organizations.
!ills
'. Infer general principles from practical lending situations,
articulating those principles in abstract terms, and re!applying them
in different conte"ts.
$. (evelop and improve analytical and problem!solving skills in
lending.
%. Identify and illustrate the potential conflict between profit and social
responsibility in lending.
"alues#Attitudes
'. )ppreciate the conte"t and nature of the banker!customer
relationship in lending situations.
$. *"ercise discretion in negotiating and communicating efforts in the
'
lending processes.
%. +ritically evaluate the management of lending practices in the
lending organization.
Unit outco$es: '. &nderstand the nature of financial institution lending activities and
credit risk.
$. )pply the principles of good lending in assessing credit propositions
from financial institution customers
%. +onduct credit analysis for the purpose of financial institution
lending
,. )ssess, modify and justify loan proposals from borrowers
-. .ormulate lending propositions taking into account borrowers/
specific financial needs, legal regulation on bank credit and social
responsibility of the lending institutions
%eadings: %eco$$ended te&ts
'. 0eed, *. 1., +otter, 0. 2. 3 4ill, *. 5. 6$77-8, +ommercial
9anking, '7th *dition, :rentice ;all
$. 4up, 9. *. 3 5olari, <. 1. 6$77-8, +ommercial 9anking# The
=anagement of 0isk, %
rd
*dition, 1iley 3 Sons
%. Sathye, =., 9artle, <., 2incent, =. 3 9offey, 0. 6$77%8, +redit
)nalysis and Lending =anagement, <ohn 1iley 3 Sons )ustralia
,. 1eaver, :.=. 3 5ingsley, +. 6$77'8, 9anking and lending practice,
,th *dition., Law 9ook +o, Sydney, >ew South 1ales
upple$entar' readings
'. 0ouse, +.>. 6$77$8, 9anker/s Lending Techni?ues, $nd *dition,
+I@9
$. 9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
%. .raser, L.=. 3 @rmiston, ). 6$77%8, &nderstanding .inancial
Statements, Bth *dition, :rentice ;all
,. +oyle, 9., 6$7778, +orporate +redit )nalysis, +I9 :ublishing
-. 4reenbaum, Stuart I. 3 Thakor, ). 6'AA-8, +ontemporary financial
intermediation., The (ryden :ress
C. 0ose, :. 6'AAC8, +ommercial 9ank =anagement, %
rd
*dition, Irwin
$
=c4raw!;ill
B. Sinkey, <. .. 6'AAD8, +ommercial 9ank .inancial =anagement, -
th

*dition, :rentice!;all
D. 4ray, 9. 3 +assidy, +. 6'AAB8. +redit risk in banking, 0eserve
9ank of )ustralia# Sydney
A. 2alentine, T. 3 .ord, 4. 6'AAA8, 0eadings in financial management,
)llen 3 &nwin# Sydney
'7. Shanmugan, 9., Turton, +. 3 ;empel, 4. 6'AA$8, 9ank
management, <ohn 1iley 3 Sons
<ournals
'. )sia :acific <ournal of =anagement
$. 9usiness 1eek
%. .ar *astern *conomic 0eview
,. .ortune
-. .orbes
C. ;arvard 9usiness 0eview
B. <ournal of =arketing
D. >ewsweek
A. Sloan =anagement 0eview
'7. Time
''. The *conomist
Unit contents:
()*I+
1, *rinciples o- Lending and Lending Basics
>ature of lending and credit risk
:urposes and principles of credit analysis
Sources of information for credit analysis
:rocess of lending proposals
%eadings:
0eed, *. 1., +otter, 0. 2. 3 4ill, *. 5. 6$77-8, +ommercial 9anking,
'7th *dition, :rentice ;all
%
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
2. Types of Credit Facilities and their Features
+redit lines and customer need
+urrent account overdraft and revolving line of credit
Term facilities, partially and fully disbursed
(ifference between personal and business lending
9usiness structures
Loan negotiation
%eadings:
Sathye, =., 9artle, <., 2incent, =. 3 9offey, 0. 6$77%8, +redit )nalysis
and Lending =anagement, <ohn 1iley 3 Sons
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
0uth, 4. *. 6'AA$8, +ommercial Lending, )merican 9ankers
)ssociation 6pp.$DA!%$A8
., +onsu$er lending
(efinition of consumer
+onsumer credit legislation
Types of consumer loans
%eading:
4up, 9. *. 3 5olari, <. 1. 6$77-8, +ommercial 9anking# The
=anagement of 0isk, %
rd
*dition, 1iley 3 Sons
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
/, %eal estate lending
(efinition of real estate
0eal estate legislation
,
Types of real estate loans
%eading:
4up, 9. *. 3 5olari, <. 1. 6$77-8, +ommercial 9anking# The
=anagement of 0isk, %
rd
*dition, 1iley 3 Sons
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
5, $all business lending
(efinition of small business
Small business legislation
Types of small business loans, e.g. micro!financing
%eading:
4up, 9. *. 3 5olari, <. 1. 6$77-8, +ommercial 9anking# The
=anagement of 0isk, %
rd
*dition, 1iley 3 Sons
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
0, +orporate lending
(efinition of corporate business
+orporate business legislation
Types of corporate loans
o 9ridging loan
o International bank lending
o Loan syndication
o :roject finance
%eading:
4up, 9. *. 3 5olari, <. 1. 6$77-8, +ommercial 9anking# The
=anagement of 0isk, %
rd
*dition, 1iley 3 Sons
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
:ang, <. 6'ADD8, .inancing and :ractice of (omestic and International
Trade, :elanduk :ublications =alaysia.
-
1, Evaluation of Financing Propositions
.easibility of projects and risk analyses
*valuation of types and amount of financing re?uired
)nalysis of off!balance sheet items
)nalysis of non!?uantitative data
+redit scoring techni?ues
2iability of repayment scheme
.unds flow analysis
%eadings:
1eaver, :.=. 3 5ingsley, +. 6$77'8, 9anking and lending practice, ,th
*dition., Law 9ook +o, Sydney, >ew South 1ales
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
Siegal, 4. 3 0amanauskas!=arconi, ;. 6'ADA8, 9ehavioral )ccounting,
South!1estern :ublishing +o. 6pp. %$,!%--8
2, Anal'sis o- Financial In-or$ation -or Lending *ropositions
The role and use of financial information
4oing concern vs. gone concern
)nalysis and interpretation of financial information from
different financial statements
Financial ratios analysis
)ssessment of financial strengths and weakness of borrowers
for the purpose of bank lending.
%eading:
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
.oster, 4. 6'ADC8, .inancial Statement )nalysis, :rentice ;all,
*nglewood +liffs 6pp. -B%!C'78
3, ecurit' and Legal Aspects o- Lending
C
Legal aspects
2aluation of securities
%eadings:
1eaver, :.=. 3 5ingsley, +. 6$77'8, 9anking and lending practice, ,th
*dition., Law 9ook +o, Sydney, >ew South 1ales
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
10, +redit ris! anal'sis and port-olio $anage$ent
+redit risks revisited
Loan portfolio
Industry risk e"plained
%eading:
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
11, 4onitor and +ontrol o- Loan Account
Objectives and procedures of monitor & control of loan account
Loan classification and causes of problem loans.
Indicators of problem loans
:revention and approaches in handling problem loans
%eading:
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
15, +redit %is! 4anage$ent
Loan policies of banks
Traditional methods of managing credit risk of loan
portfolios
+redit risk modelling such as )ltman/s E!score model and
5=2/s model
+redit risk management with the application of securitization
and credit derivatives
B
%eading:
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
1., 4ar!eting o- Loans
=arketing strategy
Sales strategy
:roduct strategy
:ortfolio strategy
%eading:
9ourke, :. 3 Shanmugam, 9. 6'AA78, )n Introduction to 9ank
Lending, )ddison!1esley
D