General credit history
As is generally known, the institutions that par excellence are dedicated to granting loans of different natures are banks and financial institutions.
Throughout the entire credit process, the analysis that involves general aspects such as:
- Determination of a target market Evaluation of the credit Evaluation of the conditions in which they are granted Approval of the same Documentation and disbursement Administration of the reference credit
Credit evaluation in financial institutions
All banks in general pursue a single objective, which is to place money, and its utility flows from the differential between the rates of raising and placing the borrowed money.
World history of credit
Throughout the evolution of credit risk and since its inception, the concept of analysis and criteria used have been the following: since the early 1930s, the key analysis tool has been balance. At the beginning of 1952, they changed to the analysis of the income statements, what mattered most were the profits of the company. From 1952 to the present time the criterion used has been the cash flow. A credit is granted if a client generates enough cash to pay it, since the credits are not paid with profit, nor with inventories, and even less with good intentions, they are paid with cash.
Credit risk departments
This department must pursue the following objectives: that the risks of the financial institution remain at reasonable levels that allow it to be profitable; Training of personnel in credit analysis allows for solidity when issuing a criterion.
The main function of the departments and / or areas of credit risk is to determine the risk that the institution will grant to grant a certain credit and for this it is necessary to know through a careful analysis the financial statements of the client, analysis of the various points both qualitative as well as quantitative that together will allow to have a better vision on the client and the capacity to be able to pay said credit.
Objectives and functions of the risk area or department
- Maintain relatively low levels of a credit risk, in addition to allowing a good profitability and permanence of it. It is very important to keep staff constantly trained on the trends of the economies in the country and have constant training on the subject of finance and decisions It is important for the departments to have market studies and sector studies at hand. Create standard credit evaluation systems. Carry out segment studies. sectorial Have bibliographic information available for possible queries,in addition to being up-to-date and up-to-date with press publications regarding the macroeconomic movement and political and monetary trends.
Classification of credits
Credits can be classified according to the following points:
- Credits for large and medium-sized companies (Corporate) Small companies and commerce (SME Credits) People credit (consumer credits)
However, it is necessary to emphasize that the analysis must be carried out according to each case specifically,
Basic principles of credit policy
- The type of client must correspond to the target market defined by the institution since the evaluation and administration is completely different.The target market must at least define a target market of clients to operate, the risk that it is willing to accept, the minimum profitability with which It will work, the control and follow-up that will be taken Except for exceptions, credit should not be granted to non-profit companies, such as cooperatives, clubs, etc.
General Policies
- Portfolio risk Customer risk Position on destination Information requirement
Types of Credits
- Punctual loans to take advantage of favorable conditions such as large discounts, to increase assets, etc. If you are working with lines of credit for working capital, they should be valid for 6 months, or have a periodic review of every 6 months at least. term are more risky since it is difficult to predict what will happen in a credit with a considerable term (10 years for example)
Credit Analysis
General
- All credit must go through a pre-evaluation stage, however simple and fast it may be. All credit, however easy and good and well-guaranteed it may seem, has risk. Credit analysis is not intended to end 100% of the uncertainty of the future, but rather to reduce it. important to have good judgment and common sense
Necessary aspects in the evaluation of a credit
- In the process of evaluating a credit for a company, an in-depth evaluation of both its qualitative and qualitative aspects must be considered. It is necessary to consider the past behavior of the client both as a client of the same institution and of other institutions. The credit decision must be made in based on historical antecedents oIt is necessary to consider in credit analyzes different considerations that can be given in order to anticipate problems.After having carried out a thorough analysis of credit, it is necessary to make a decision, so it is recommended to choose 4 or 5 variables of the many that were given for its elaboration With regard to warranty cases,it must be treated in the best possible way to have the best guarantee and to have a relationship with the loan of 2 to 1 this in order to be able to cover the credit widely
Credit operation
- There must be a request for intentions in which the client's requirements are clearly specified (term, type of amortizations, grace periods, residual values, interest rate, funds, object, and the form of payment). It is necessary to prepare the corresponding contract where the obligations of the borrower and of the financial entity will be clearly established. The payment schedule of the amortizations must be established. It is necessary to be in complete follow-up of the credit since the economy of the clients is quite changing and we must permanently have information that check with the credit
Necessary aspects in the analysis
- SeriousnessSimulation of payment capacityHeritage situationGuarantees
Credit Risk
From the credit point of view
- Risk as viability of credit return Risk as probability of loss Country risk or institutional framework Risk of sector Financial risk of currency value maintenance Vs exchange rate risks (macroeconomic - global) risk of fluctuations in interest rates risk of risk mismatches technology risk efficiency risk (costs) supply risks collection risk management risk or managerial capacity special operational risk risk of granting advances position taking risk of concessions VS.Domain of belongings risk of non-renewal of productive source risk of market irregularities market closings Collection risk Risk of patrimonial situation Risk of seriousness and morality information alteration illegal repeated overdrafts unusual or excessive delays in payment of capital and interest in non-compliance with contracts receipt of favors received
Credit analysis to large and medium-sized companies
General credit history
- Destination of the credit It is necessary under all circumstances to know the destination of the funds granted by the financial institution since this can help the institution to: To check consistency with the institution's credit policies To be able to correctly evaluate the credit To be able to set conditions according to the needs to exercise control over the debtor
Most common causes for a credit application
- Increase in Current Assets Increase in Fixed Assets Expenses Decrease in liabilities
First credit interview
- Amount and purpose of credit Primary sources of payment Secondary sources Suppliers Financial data Insurance Plant and equipment Business history Nature of business Commercial environment Personnel Main heads of business and experience in it Business banking relationship
Availability of information to evaluate a credit
- Information from other clients in the same sector Information from suppliers Information from consumers Information from creditors Data bases from banks, etc.
Step-by-step procedures for granting and / or granting a credit
Customer information request:
- Companies or legal entities Application for the operation Business profile highlighting the activity of the company, its strategic management plan and / or curriculum vitae Valuations of the assets to be granted as collateral, whether they are furniture or real estate Financial statements of the company (recommended from the last two steps) Projected cash flow with the assumptions considered in said projection (recommended for the credit period) Forms of: basic information, financial statements, confidential information before DATACIC and SIBEF Identity cards Legal documentation of the company (constitution, powers, RUC, Registration of business, Municipal Register, proof of payment of IUE, Board minutes, statutes, board election minutes, etc.)
Credit circuit
- Presentation of application and credit portfolio Evaluation of the credit by the official Preparation of the report of recommendation and / or conformity Presentation of the credit committee and the credit risk department Approval by Banco BISA SANotification to the client Forecast of funds whatever their destination Preparation of credit contract based on the originally negotiated conditions Signature of the contract by the applicants and the representatives of the institution Presentation of an insurance policy for the property granted in mortgage with the due subrogation of rights in favor of the bank Elaboration of a file or credit folder with the client's full name Elaboration of the roadmap for corresponding disbursement either by check or credit to the client's account Elaboration of the payment plan with their respective due dates Administration by the account officer
Credit analysis (quantitative and qualitative analysis)
- Important Considerations
- The macroeconomic variables that affect a country must be considered, such as import or export incentive policies, tax policies, cost of money, capital movement of capitalist entities, monetary policy, international prices, international conflicts, inflation, economic growth, Mediterranean a country, poverty and underdevelopment, dependence on other countries, social development of a country, union strikes or social problems, etc. Other variables of great importance are the analysis of the business sector, variables such as vulnerability of the sector, development, SWOT, dependence on other sectors, stagnation for different reasons, little government incentive, little investor interest, strong initial investment, etc.Preferably, the balances of the last three steps should be analyzed Balance with an age of no more than 6 months Audit qualification, it must be borne in mind that not all auditors qualify Comments must be substantive and not formal, they must allow us to identify the causes and give answers on the item Balance sheet comments should answer why? The consolidated balance sheets should be analyzed in the case of Economic Groups, taking care to consolidate each of the accountsThey should allow us to identify the causes and give answers about the item. The balance sheet comments should answer the reasons why: The consolidated balance sheets should be analyzed in case of Economic Groups, taking care to consolidate each one of the accounts.They should allow us to identify the causes and give answers about the item. The balance sheet comments should answer the reasons why: The consolidated balance sheets should be analyzed in case of Economic Groups, taking care to consolidate each one of the accounts..
| Strategic Matrix - Competitive | |||||
| Inside | |||||
| Strength | Weaknesses | ||||
| Opportunity | Using strengths to seize opportunities | Overcoming weaknesses obtaining advantages of opportunities | |||
| Threat | Using fortresses to quell threats | Minimize weaknesses and nullify threats | |||
Debugging and analysis of balance sheet accounts
Before analyzing a balance it is necessary to take into account the following aspects:
- Data purification (eg uncollectible accounts receivable must be eliminated against equity, the same if there is an overvalued asset, current accounts partners must be eliminated against equity, etc.) Sector to which the company belongs Description and detail of each of the items Balance sheetAccounting methodValuationAdministration policy Trends evolution, etc. (The greater the amount, the greater the importance of the analysis). Preferably request a balance sheet audited by a reliable auditor. Make sure that the balance sheet being analyzed has the signature of the person responsible for the balance sheet.
Analysis of trade accounts receivable
- Forms of documentation of accounts receivable or debtors for sale, what proportion and what is the support of each of them in case of not being able to collect them.Use of Factoring in the collection or to have immediate liquidity One of them Past behavior of these accounts Percentage of uncollectibility in recent months Comparison of the client portfolio with other companies in the same sector Verify the accounting. They may not include VATAccounts receivable administration policy (Benefits of maintaining accounts receivable, interest vs their administration costsIt should be taken into account that the volume of accounts receivable depends on the percentage of credit sales, sales volume and average sales term.Credit policies:It refers to the way to select your clients, evaluation criteria. Credit conditions: percentage of credit sales, term, forms of interest rate readjustments, forms or types of documentation, types of discounts for prompt payment, guarantees in case of asking. Collection policies: prejudicial type, which they give to clients with a delay of 30 days or more, what type of actions are taken, form of collection, via fax, letters, etc., judicial collection, types of procedures, embargoes, etc. Evolution and trend of accounts receivable.What treatment is given to clients with a delay of 30 days or more, what type of actions are taken, how to collect, via fax, letters, etc., judicial collection, types of procedures, embargoes, etc. Evolution and trend of accounts receivable.What treatment is given to clients with a delay of 30 days or more, what type of actions are taken, how to collect, via fax, letters, etc., judicial collection, types of procedures, embargoes, etc. Evolution and trend of accounts receivable.
Inventory analysis
- Analysis of the items that make up the inventory is necessary. Raw material products in process, finished products, supplies, spare parts, raw materials in transit. Each of them must be analyzed In the case of raw material, this is imported or national, if there is local supply problems, if the supply time is imported.Obsolescence of inventories, both due to new technology and wear and tear Incontinence: A visual inspection of said merchandise must be carried out. The way of accounting for inventories must be known. Correct valuation and the currency used for its accounting. low prices and better quality;how many months of sales do they maintain in raw materials, products in process and finished products; what is the inventory rotation fixed or determined; stocking at times of the year. Areas involved in the administration either the Gte. of Production Gte. de Marketing, Gte. Sales or Finance, etc. Know how to control inventories manually or computerized. Technology used Nature and liquidity of inventories Product characteristics and nature Market characteristics Distribution channels Analyze trends and trendsSales or Finance, etc. Know how to control inventories manually or computerized. Technology used Nature and liquidity of inventories Product characteristics and nature Market characteristics Distribution channels Analyze trends and trendsSales or Finance, etc. Know how to control inventories manually or computerized. Technology used Nature and liquidity of inventories Product characteristics and nature Market characteristics Distribution channels Analyze trends and trends
Fixed asset analysis
Description of the fixed assets one by one to have knowledge of the type of fixed assets that the company has and if it corresponds to its activity or item. The analysis of this account is linked:
- Existence of property Form of accounting for fixed assets Valuation, revaluation, depreciation, physical and moral wear and tear Management policy of fixed assets Technology and modernization Age of each of the assets Periodic maintenance carried out on each of them Policies used for the proper management of the asset of the company Which proportion of the productive and unproductive assets that do not generate resources to the company It is necessary to separate the assets belonging to the partners of the company and the company this in order to have a more objective analysis Its evolution and trend in management
Bank obligations
- Analysis of the composition of bank obligations, long and short term. Considering the correct concentration of obligations in both current and non-current liabilities Analysis of the guarantees that support these credits and what the proportion of guarantees offered versus credits requested Analysis of the forms of amortization since this will depend on how the client can meet since not all activities have the same operating cycle (agricultural, trade, construction, services, etc.) Management of obligations (manual, computerized, if there are reports) Interest rates and terms at which each loan is agreed Specific objects of each of the bank liabilities requested and what the effect it has had on the company Analysis of the impact on the balance of the obligation requested from the bank.This is important because it will determine the indebtedness of the company and what its structure of bank liabilities Who are the financing entities; private institutions?, incentive?, development?, etc.
Commercial obligations
- What is the policy of granting credit from suppliers to the company Payment methods, interest rates, commissions, discounts (what the payment method; letters, guarantees, Financial Indicators Liquidity ratio Acid test Rotation of accounts receivable Rotation of inventories Operational cycle Rotation of Accounts payable Leverage: Total debt / Sales Total Return on assets Return on equity Sales / Total assets Sales / Fixed assets Gross profit / sales Operating profit / sales Net profit / sales
Financial Reason Limitations
- Static and historical non-productive They require complementary information for better interpretation Quality and opportunity Manipulated accounting Changing accounting methods Unrecognized liabilities
Qualitative Aspects Of Analysis
- Business analysisCompany historyOwnersAdministrationBusiness qualityOrganizationOrganigram Management systems (administration techniques) Information systemsCommunication channels (vertical / horizontal) Objectives and goalsPolicy and procedures to meet goalsHuman resourcesSupplyProductionSectoral analysisprojections
