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Financial Training Training

Financial Training

Credit Risk Fundamentals

3 day

The 3 day workshop is intended to be interactive – involving exercises and short presentations from the participants. The programme will revolve around a number of core case studies – examples of corporates that have applied for funding from a Lending institution, which have proven successful or otherwise.

Course Objectives

By the end of the programme participants should be able to:

  • Define credit risk and explain how it arises
  • Describe the credit process
  • Prepare an application to credit or underwriting for a client
  • Use the mnemonic CAMPARI and ICE in order to evaluate a client’s suitability for credit
  • Compete a full financial analysis, including evaluation of the balance sheet and profit and loss account
  • Construct a cash flow statement
  • Analyse cash flow statement and assess the client’s capacity to repay debt
  • Calculate and interpret financial ratios
  • Conduct a simple break-even analysis for a client’s business
  • Describe the techniques by which credit risk can be mitigated – specifically the use of collateral and covenants

Course Agenda

Day One

  • Course Introduction and Objectives
  • Delegate and Trainer introductions
  • Types of clients, the information they are able to provide and we are able to obtain
  • An introduction to credit risk – what is it; how does it arise; how can it (in brief) be mitigated?
  • An introduction to the mnemonic: CAMPARI and ICE - what it stands for and how it can be effectively used
  • Financial vs non-financial information – which information is critical?
  • Non-financial analysis - using the mnemonic PESTEL
  • Evaluating the performance of the client against the backdrop of the overall business sector
  • What is the business’s USP?
  • Why do they succeed what makes a competitive advantage?
  • Downturns in business cycles – the current market experience?
  • Evaluating management – using the ‘4 Ss’ of management

Day Two

  • A critical review of the profit and loss account
  • A review of a client profit and loss account
  • How the balance sheet and profit and loss account correlate
  • How to spot potential financial statement ‘window dressing’ or manipulation
  • Why cash flow is critical to businesses
  • Exercise: constructing a cash flow statement from first principles: The three cash flows
  • Understanding the different measures of cash flow – EBITDA, CFF, CFADS
  • How to assess debt capacity and a client’s ability to repay debt using the cash flow statement
  • Stress testing: why we use stress tests and how to stress test our customer’s cash flow
  • The use of Stressed Interest Rates for debt service cover ratios
  • Management information – reviewing other types of financial information our clients provide e.g. VAT returns, monthly and quarterly accounts, aged debtor and creditor analysis and cash flow projections, P&L budgets
  • Tools for financial risk analysis – financial ratios
  • Ratio analysis: looking at the core areas of ratio analysis: profitability; solvency; liquidity; leverage and cash flow. What are they and how they can be useful for forecasting trends and assessing debt repayment

Day Three

  • Structuring the credit – a review of delegates credit product offering
  • Understanding why one type of product might be suitable/unsuitable for your client’s needs and why
  • Mitigating credit risk – a closer look at collateral and covenants
  • Collateral: why do banks take collateral? In what circumstances should collateral be taken and what makes ‘good’ collateral evaluation and how it can be monitored Mortgage debentures what are they and why does the bank take them? What are the legal aspects?
  • Covenants: what are they and how they work? Financial and non-financial covenants
  • Covenants calculation and remedial action
  • Breaches of covenant
  • Writing a good credit proposal - the ‘do’s and don’ts’
  • Putting it all together: participants will assess a proposition and present their final recommendations to the group
  • Course review and conclusion

Business Needs

Underwriting skills, credit skills, corporate analysis skills, financial statement analysis, understanding corporate analysis, lending skills

Knowledge Level

First level, foundation level
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  • In-house Training

Run this course in house and tailored to your requirements.

Call +44 (0) 500 734 734 or enquire online.

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