Module Title: Credit and Lending
Module Director: Mr Keith Checkley
Core Module - Full & Super-Accelerated Routes
This module explores the key areas surrounding Credit and Lending, starting with the relationship between the banker & customer, through business lending procedures and ends with credit risk practices for each type of bank (retail, business and commercial). Students studying the module will develop a detailed and critical knowledge and understanding of credit and lending in the banking industry and will also develop a range of banking skills, techniques and practices at a professional level.
Module Aims & Objectives:
On completing this module, students will be able to:
- Demonstrate an extensive, detailed and critical knowledge of the legal aspects of the banker – customer relationship
- Describe in detail the principles of lending and the main lending and credit products
- Demonstrate detailed knowledge and understanding of the procedures for taking a range of securities for advances
- Exercise a range of business banking lending skills, techniques and practices and interpret and assess business accounts, including identifying, formulating and solving business problems and assessing and managing risk in a business banking context
- Demonstrate detailed knowledge and understanding of diligence and bankruptcy
- Demonstrate an extensive, detailed and critical understanding of how the credit risk functions, and how it plays its part in managing risk for a banking business.
Means of Assessment:
This module is assessed by means of an individual assignment (40%) and examination (60%)
Unit 1 covers:
The banker and customer relationship, including the rights and duties of both parties. Brief descriptions are included of the four main types of Business structure. It also looks at the death of the customer as it affects the banker; and considers trusts and the legal and practical aspects of succession as
well as electronic funds transfer. It covers the basic principles of lending – a key skill for bankers. It also includes sections on why businesses borrow and how to analyse their lending proposals. It emphasises the importance of soundly based lending decisions, so that the bank is repaid as agreed. Banks need the interest from their loans in order to pay interest due to their depositors; and if those loans are not repaid, the bank cannot repay its depositors their money. It explains the features of the main lending products offered by banks, such as overdrafts, term loans, hire purchase, leasing and factoring, and the personal lending products aimed at individuals.
Unit 2 covers:
The attributes of good bank security. This is followed by a description of the advantages and disadvantages of each type of security when measured against the attributes of good security. The law of property is explained, along with details of the securities that companies grant to a bank. It also covers the understanding of financial statements and the requirements for auditing. Analysis of these financial statements and the use of ratio analysis are explained in detail. It defines the key element of financial analysis for bankers; cash flow and explains how to produce and reconcile a cash flow report, along with how to monitor the cash flow. Finally, it looks at lending for property development and building— a specialised area of finance that still requires bankers to apply the same principles of lending learned earlier. This section covers property lending and also the other specialised fields of farming and the finance for foreign trade. It also briefly covers acquisition finance and management buy-outs.
Unit 3 covers:
Credit risk assessment and the credit risk practices for retail banking. It then explains the importance of credit scoring. Credit reference agencies are described and their operations set out. Money laundering is a factor that impinges on many aspects of banking; this problem is described along with the vigilance and actions needed to tackle it. The unit also covers mortgage lending and another retail banking specialism— lending to high net worth customers. Finally, credit risk analysis and credit risk policies complete the section. The unit then moves on to the study of credit risk practices for business and commercial banks and how to complete a market/industry risk assessment. This is followed by a business risk assessment and then a financial risk assessment. After considering documentation and pricing risk, the section concludes with a suggested credit write up, or credit application, which sets out the banker’s rationale for the proposed lending and seeks the bank’s sanction. The final section of the unit explains the types of problems which can arise on borrowing accounts, describes remedial action and then goes on to explain Administration that might happen should the remedial action be unsuccessful. Liquidation and its procedures are also explained. The module ends with case study description on the financial crisis of 2007 – 2009.