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INTRODUCTION
Market economy necessarily implies the existence of a banking system to ensure
mobilization of all available funds in the economy and monetary stance temporarily
in pursuit of efficient economic activities.
Lending decisions are now subject to other requirements, as directed, primarily, to
avoid risks. Multiplication of the guarantee conditions by the wealth, by income, by
professional profile and behavior, each located on other scales of values, involves
difficulties in the hierarchy. Adapting computer methods in the banking business
requires solving two separate problems:
building a system for quantifying and ranking of conditions and assumptions of
credit
implement an information system and electronic data processing to ensure
objective ranking of each request.
The results of these actions represent only a base-setting of a decision. In most
cases, creditor makes a decision, especially when the fundamentals are expressed
unequivocally using these methods.
The work of banks, collection of funds placed while experiencing temporary
needs for additional units, they fulfill an important role of bank intermediation. In this
sense, the loan becomes an active tool in stimulating economic development through
encouraging the action of certain phenomena, depending on the objectives to be
achieved.
Credit is vital to economy, thus the granting of this is very important, this
intervening bank financial analyst position to orient resources towards the most
efficient investments.
In employing their resources, banks face a number of risks:
The risk of default;
Lack of liquidity risk;
Changes on the market of interest rate;
Risk capital;
Risk capital repatriation in conditions of external credit (currency risk and
country risk).
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Granting loans, bank assumes more types of risk, which are determined either by
quality of the bank or the overall economic development or the overall structure of
the bank.
Know that the bank's performance has two dimensions: cost and risk, bank seeksto maximize performance by harmonizing the following objectives: to maximize
bank profitability, minimize risk exposure and compliance with quality standards and
prudential behavior.
It is strictly important to analyze and consider all risks, this is a necessary and
important fact for each bank, but in terms of amplitude lending process, knowledge,
avoidance and prevention is of particular relevance at the national level.
This paper is divided into 2 chapters.
In Chapter I, entitled "Bases for making a crediting decision in granting a loan to a
commercial entity " is consist from theory about analyze of the firm and scoring
model, management analyze and financial analyze.
The second chapter "Establishment of crediting decision", examines The risks
analyze of the crediting activity and determination of the crediting decision.
Study on a loan granted is the practical analyze of a firm , of a FILACOL LLC,
a company that activate in retail in non-specialized stores with food predominating
sale, retail trade of alcoholic beverage and tobacco products.
This ends with conclusions which I have expressed after analyze achieved by
study of the literature and existing laws in force in Republic of Moldova.
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Chapter I. BASES FOR MAKING A CREDITING DECISION IN GRANTING
A LOAN TO A COMMERCIAL ENTITY
1.1. MANAGEMENT AND ECONOMIC/FINANCIAL ANALYZE OF THE
FIRM'S ACTIVITY
The purpose of credit analysis is the avoidance of loss of profit or business due
to irrecoverable debts, because that is granting loans to customers who do not
reimburse the debt, or because of denial of credit to potential better customers.
When applying for a business loan, the creditor has an informative discussion
with the potential future debtor and he completes a credit application form (annex 1),
they discus about following items:
Appreciation of a firm. At this stage creditor discuss with the debtor about the
field of its activity, type of the activity, the specific of that process and the situation
and specific of this product or service market. The purpose of the creditor is to
analyze if the potential debtor is a serious one and if this is a convenient business
partner, because this must be a profitable transaction but not an unfavorable one.
The creditor must identify the objects of the company activity, information on
the financial possibilities of the company's credit business prospects. It is necessary
for the creditor to consider the experience and quality of management, staff
qualifications, purpose and term , credits previously contracted, information on real
estate securities and possible guarantees. Debtor must clearly define the sector in
which its activity. The creditor must make a provisional picture of customers, those
who will buy products.
Creditor checks if the loan application meets the bank's financial possibilities.
If the creditor informs the debtor positive, then it must present the request and the
credit application to the bank. Also to this are attached the following documents:
applicant questionnaire
Legal documents
Financial documents
credit insurance documents
other documents required by the bank
For the firm analyze the most effective method is credit scoring (annex 2).
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Credit evaluation depends on negotiation with the applicant about maximum loan
amount that can be given depending on the number of points met by the applicant, the
level of interest, the proposed safeguards and arrangements for them.
To determine the score depending on which credit is granted there are the
following groups of criteria:
material premises of using credit
loan guarantee
objective conditions for the operation depending on which will be able to
recover the loan and the interest payment
Consider that each of these groups are of equal importance and are each assigned
with 100 points. A debtor on exceptional situation that will meet all conditions and
criteria will have maximum score of 300 points. Todays credit professionals must
make accurate, on-the-spot decisions. Departments are consolidating and slimming
down as well as under more scrutiny from auditors. Under these conditions, creditor
perform the detailed and consistent analysis needed to avoid unnecessary credit risk.
Credit scoring can help. Credit scoring, by definition, is a method of evaluating thecredit worthiness of your customers by using a formula or set of rules. Depending on
the make up of your customer base, credit scoring can produce considerable benefits
to some firms and somewhat lesser benefits to others.
The Different Types of Credit Scoring
Credit scoring is based on the assumption that past experience can be used as a
guide in predicting credit worthiness. There are two types of credit scoring models.
Both can be statistically validated.
Judgmental Scoring Model
A judgmental scoring model is based on traditional standards of credit analysis.
Factors such as payment history, bank and trade references, credit agency ratings and
financial statement ratios are scored and weighted to produce an overall credit score.
The determination of which factors to use, and how each will be scored and
weighted, is generally based on the credit executive's past experience with their
company, the products or services they sell, and the industry they are in. Judgmental
models are enhanced by comparing industry financial profiles using peer groups from
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(RMA) Risk Management Associates Statement Studies. Including scoring factors
that reflect the individual characteristics and policies of their own firm further
enhances the judgmental model.
Judgmental scoring is the most straightforward to implement because it uses yourcredit policies and decision process, the number of rules are easily set, and the
grading scale can be simple or complex. Therefore, it is easier to understand and
augment.
Statistical Scoring Model
Statistical models function in much the same way as judgmental models.
However, in choosing the factors to be scored and weighted they rely on statistical
methods rather than the experience and judgment of a credit executive.
Statistical models consider many factors simultaneously, a process that calculates
and analyzes multivariate correlation to identify the relevant tradeoffs among factors,
and assigns statistically derived weights used in the model. The key factors are
generally captured from credit agency reports and the credit files of the client.
Statistical models are often described as a scorecard, a pooled scorecard, and a
custom scorecard. A scorecard uses data from one firm. A pooled scorecard uses data
from many firms. A custom scorecard blends a statistical model with some of thefactors used in a judgmental model.
When a company targets a bank loan request, it proceeds to achieve a detailed
analysis in different fields on that company. To begin the analysis, now is required to
submit a comprehensive economic and financial documentation:
credit application signed by authorized persons of the company
stocks and costs for requesting credit (quantities, values, causes, recovery time)
last balance sheet
trial balance
profit and loss account
list of material goods and values as collateral for credit insurance
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In front of the bank's business should come, primarily, with an economic activity
that does not present major risks in the use of credit. To this end, the internal and
external universe of enterprise is subject to rigorous analysis and interpretation to be
detected the possible effects of political, social, economic, military technology or to
changes in demand, and under the influence of inflation, recession .
All this fields and areas of a company management are analyzed by creditor and
communicated to the final interpretation. The credit committee gives points for all
this financial and economic performance of the firm, for making a crediting decision.
In acceptance of the application for credit, the decisive role is played by economic
and financial performance achieved by the company in the previous period and those
estimated for the commitment period of the loan.
Financial indicators are useful tools for comparing the performance of competing
firms within the same industry. These indicators help credit analysts to assess
creditworthiness of the customer. Essential types of indicators together in the same
financial framework as a company has achieved sales exceeding the cost of that
activity, the efficiency of companies in the management of resources and its
activities, the extent to which the funds used by a company from the creditors and not
from its owners (debt capacity is a key indicator of the commercial company to deal
with difficult situations and to absorb losses), liquidity and other assets available to a
company for meeting its obligations, including payments for interest and claim.
It should be noted that financial indicators are extremely important for effective
analysis of debt. In this context credit officer should not forget that indicators of
financial statements that are taken are safe. Meanwhile, the indicators are very useful
if creditor takes them into account as a whole and not isolated, and use additional
indicators.
Using a single indicator in isolation from the others, it can lead to errors, multiple
indicators help, usually, to identify trends, which are important factors for
determining solvency.
The ratios obtained can show a real financial situation of the company, and the
trend lines of all charts present an important information for the credit officer.
Indicators are analyzed in dynamic, comparing with the past years. This is done for to
interpret correctly information about company.
Taking into account the credit application requires a concrete analysis of
trustworthiness trader based on the indicators of liquidity, solvency, profitability and
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balance. Database necessary for determining those indicators is represented by
information in the enterprise financial situation drawn up to the end of quarter.
Key economic and financial indicators of firm performance play, based on data
from the financial situation and banking budget inspector ,are:
Current liquidity is given by the ratio of current assets that can be converted to
cash availability and current liabilities
Current liquidity = (1.1.1)
Solvency is a component of total liquidity, it has the capacity to transform the
company availability within 90 days of stocks of raw materials and unfinished
production, to handle payments become due in the same period (salary,supplies, financial obligations , credit refund).
Solvency = (1.1.2)
overall rate of return is determined as the ratio between net income and total
expenditure
Overall rate of return = (1.1.3)
Rate of return on equity is the most significant expression of profit, which
measures the results of company management, as a whole
Rate of return on equity=
(1.1.4)
Indebtedness show coverage of debt to equity
Indebtedness = (1.1.5)
Liquidity indicators
Current Rates express the coverage of current liabilities to current assets
Current rates = (1.1.6)
Quick ratio rate express the coverage of current assets to current liabilities
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Quick ratio = (1.1.7)
Reliable stock is expressed as the value of stocks at book value, it should be
sold to cover current liabilities covered by assets.
Reliable stock = (1.1.8)
Profitability indicators
Equity ratio shows the efficiency with which capital is used
Equity ratio = (1.1.9)
Capital ratio shows the efficiency with which capital is used
Capital ratio = (1.1.10)
Return on assets ratio shows the effective use of total assets
ROA = (1.1.11)
Gross Profit Margin express a percent of income from a company sale aftercoverage of expenses
Gross Profit Margin = (1.1.12)
Activity indicators
Asset turnover is a financial ratio that measures the efficiency of a company's
use of its assets in generating sales revenue or sales income to the company
Assets Turnover Ratio = (1.1.13)
Recovery Period shows the average number of days on which collects debts
from turnover at the time.
Recovery Period = (1.1.14)
Debt repayment period express the number of days that are repaid debt to
turnover.
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Debt repayment period = (1.1.15)
There are several reasons that ratios are expressed as percentages. This makes iteasy to compare the company's results at different time periods. It also allows creditor
to compare the company's results with those of its peers or competitors, and to
determine if this company is a competitive one.
1.2. EFFECTIVE ANALYSIS OF THE CREDIT REQUEST
Creditor must obtain a deep information of all firms activity through the analyze
of the company's business plan. In analyzing, ideas must be able to pass them through
a test of determine if they truly are valid opportunities. It is important that ideas must
have a demonstrated need, ready market, and ability to provide a solid return on
investment. Basis are that ideas are feasible in the market, there is a demand.
The most representative stages in the application of credit analysis are:
a) Identify the purpose and level of credit requested
The purpose of the application must clearly specify the form of resource scarcity.Also, loan application must fit in the banking law provisions.After specifying the
purpose of the request and credit accept, decision team move to quantitatively level
analyze of credit request. In this sense, the analyzed firm draws cash flows and
outlets. After the establishment and acceptance of the credit level, the decision team
goes to the negotiation of interest and fees accruing to the bank.
Creditor's concern is environmental analysis that determine if the firm is a
competitive one. Currently operating in a very dynamic competitive environment
and particularly with the unprecedented development of technology, an emerging
environmental legislation, to use specific strategies to conquer the markets, because
there is a fall of buyers fidelity, largely because of accelerated diversification of
products and services offered by manufacturers.
First creditor must appreciate the relationship of the debtor with operators and
suppliers, with which the firm deals in the usual direct relations, if influences are
strong and reciprocal, representing in fact a set of conditions, activities and relations.
Creditor must analyze the following relationships:
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Suppliers are those that provide the resources necessary to conduct normal
business economic activity, but competitors. It is possible that in certain
circumstances, the company becomes vulnerable to the supplier who may not
meet the deadline to supply or change prices, etc., may affect the possibility
borrower to repay the loan or rates. Therefore it is important first to monitor
activity providers and secondly to establish trusting relationships and long
term, achieving a mutual interdependence.
Intermediaries are represented by firms that help the enterprise to promote, sell
and distribute goods to the final consumer in the form: traders (wholesalers),
physical distribution firms (trade, transport, etc..) marketing service agencies
(such as advertising agencies), financial intermediaries, banks, insurance
companies etc.. The relationship is also important because they disruption of atleast one factor may result in unwanted financial imbalance.
Customers are the most important component because they constitute a market
of any production companies represented by: consumers, users, wholesalers,
government-governmental and international agencies, etc.. It is important to
examine the relationship time to identify the seriousness of the producer.
Competitors are economic units in competition with any company, because in
the market economy is essential to obtain advantageous conditions facing theproduction and sale of goods and services, with the goal to achieve outstanding
performances. As competition is a tough fight, in which always beat the best,
and that, though, outweigh economic interests - is conducted not only by
economic means, but also extra economic, the lender is absolutely necessary
to assess the debtor's ability to compete .
b)Identification of other sources of repayment
If low-risk loans, banks require a single source of payment for the other types of
high-risk loans, banks require a second source of repayment. The first source is
represented by liquidity resulting from the normal economic cycle of the firm.
Collateral source represented by deposit made by the firm, must be clearly and
accurately identified by inspectors and team decision.
c)Identification of guaranties
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An important moment in the process of adopting the crediting decision is given
for identifying and checking carefully of guaranties, that the company shows.Bank
will require guaranties, which may be offered from both debtors and third persons
and legal entities. Minimum value of guarantees that will be accepted by the bank in
all cases will be at least equal to the largest debt of the debtor made from loan plus
interest. The warranty is "safety net" of creditor if the debtor can not pay their debt in
full and on time. All data elements must be listed as a guarantee or that they are
actively controlled by the receiver loan or guarantees from third parties.
There are two main types of guarantee:
law is legal in favor of creditors of an asset or more of the debtor in possession
or control; a task can be specified, for example, a mortgage on a building or a
seizure on a machine; or can be generated, for example, a variable charge on
current assets of the debtor.
guarantee from a third party ( "guarantor") in favor of the debtor, that the legal
obligation of the guarantor to pay the creditor's debt if the debtor does not pay
the debt
The types of mortgages :
The pledge is constituted of a movable or immovable, or the universality of
movable or immovable, owned by the firm
The pledge of movable property takes place with or without deprivation of
them.
For the creditor is strictly important to identify the possibility of a compensation
insurance. Creditor is entitled to be satisfied in priority compensation insurance
account for ruin, loss or damage to property pledged, whether in whose favor was
ensured that good, but if this ruin, loss or damage not due to fault or if the creditor
pledge agreement does not otherwise this.
Creditor should analyze the existing mortgages because there is the most essential
way of recovering the value of the loan , in case if debtor would not be able to return
the loan. The mortgages are the insurance that the bank would not lose its money. So
this analyze is done because the creditor could not lose the value of the loan because
in case of insolvency or wrong going of he bossiness activity , he can recover the
credit.
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Creditor rights in case of loss or damage to the property pledged:
In case of loss or damage to the property pledged, the creditor may, among
other rights provided by law, to demand compensatory damages up to
competition its claim of lien in the same way, even if his claim is due.
If, following damage, the property pledged can not be directly used as
intended, the creditor is entitled to ask for replacement or supplement the
property pledged or paid by the debtor established in the contract's value.
If the debtor refuses to substitute collateral or do not substitute for a reasonable
period granted, the lender is required to enroll in the register or information
about loss of collateral, there are taken stipulations from the contract.
The debtor is required to report assessment of mortgage that will be provided.
Value of collateral is required to be greater than the amount of the requested loan. In
case of nonpayment of debt, the bank may sell collateral. The value of collateral must
be greater that the loan, because it should cover the costs for the transaction of
mortgage sailing and to cover the value of the loan.
Also it's quite important for the debtor to produce documents proving that goods
made as collateral, are not required elsewhere.
Also quite important is to analyze the potential client's reputation.Reputation is
actually a very simple concept which we know intuitively. It is the perception of
others on the firm. Reputation management is the process of tracking an entity's
actions and other entities' opinions about those actions; reporting on those actions and
opinions; and reacting to that report creating a feedback loop.
A reputation system computes and publishes reputation scores for a set of
objects ,within a domain, based on a collection of opinions that other entities hold
about the debtor. The opinions are typically passed as ratings to a reputation center
which uses a specific reputation algorithm to dynamically compute the reputation
scores based on the received ratings.
Creditor use reputation scores for decision making, in granting a credit. A firm
with a high reputation score will normally easily granted with a loan than a company
with a low reputation score. It is therefore in the interest of debtors to have a high
reputation score.
A low score represents a collaborative sanctioning of a firm than the creditor
perceives as having or providing low quality. Similarly, a high score represents a
collaborative praising of a firm that the creditor perceives as having or providing highquality.
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The creditor is required to identify the debtor's credit history. This is quite
important and essential to its evaluation as having the analytical landscape, the lender
can assess the seriousness of the debtor. This information, will position the debtor in
the category of bad payers or of welcome clients. Obviously if there is a positive
history, the debtor will benefit easier the value of the credit. Since the debtor are
confident and seriousness in entrepreneurial activity, it can also become a loyal
customer of the bank, and after to benefit from the facilities shepherd, to get a loan
with a low interest, or an extended grace period, or where a smaller volume of
guarantees required.
Borrower credit records, along time as monitored by the bank, used to predict its
future actions when not monitored. Those who borrow repeatedly do so because they
take into account the fact that information on their present actions will have futureeffects.
Thus, the reputation effect eliminates the need to monitor where the value of
future profits lost because of new information related to the failure of contractual debt
is high.
Borrowers with high credit ratings, have a low cost of capital, and need to
maintain this level, so that they can not afford not to meet its obligations. As a result,
these borrowers rated not need to be monitored.
But if borrowers with low ratings, they have little to lose so if they appear
negative information about its related failure, and if caught with irregular periods are
monitored. Thus, their monitoring is without any benefit, is less useful and not worth
the cost just for this type of debtors weak stock. Instead of monitoring used to find
those who engage in activities in their own interest.
The model has the following implications:
request for monitoring is higher during periods of high interest rates or low
future profitability, because then rated borrowers need to be monitored.
Therefore, in this period, bank loans are more numerous than direct, to the low
interest rate periods.
need to monitor rated borrowers during periods of high interest rates or low
future profitability, has the effect of increasing the average quality of new
loans
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the original debtor's reputation will be gained by paying the bank loans that it
monitors, but a good history of these loans will enable monitoring of the
debtor to make direct loans from the market, without monitoring.
monitoring will encourage debtors not scored poorly. Thus, many new borrowers will be denied the credit. Instead it will act as a monitoring
mechanism to sort them.
Any delay in payment can permanently destroy the reputation of debtor. Why
banks need credit bureaus? Credit - this is good. And the available credit with low
interest - even better. However, lending "a man in the street", the bank is not insured
against defaults. Against possible losses banks are insured by high interest rates.
The success of information impact on the debtor is:
Availability of information about the debtor: terms of both existing and
potential partners, the availability of credit and other obligations owed to banks
and financial institutions, planned to obtain loans, as well as the number of
persons to whom the debtor values its reputation as a respectable partner and
that may have it financial or moral suasion. Careful collect the necessary
information to help identify weaknesses of the debtor and to develop thecorrect tactics of presenting information.
The correct form of information messages (a form of communication and the
nature of submission). As with appeals to state bodies, the use of information
impact on the debtor must strictly follow the letter of the law and of particular
importance given the form and nature of information impact. Information
effects on the debtor can be used both independently and in combination with
other technologies penalty.
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Chapter II. ESTABLISHMENT OF CREDITING DECISION
2.1. ADOPTION OF THE CREDITING DECISION BASED ON RESULTS OF
FINANCIAL ANALYZE OF LEGAL ENTITY
After what all this stages are made, the creditor make a final act of a decision
making process: adoption of a decision. The bank will prepare a credit analyze for to
dimension correctly the necessity of credit financing, taking into the considerationsthe acceptable risk conditions for the bank and for maximizing the bank's profit,
following the taking of a correct crediting decision. There are the following stages:
Correlation with the availability of resources
For any bank there is a restriction on granting loans because of the limit of its
resources and those purchased from domestic and foreign markets. An efficient
management of resources requires a realistic forecast of credit, coupled with concern
of the widening of the range of resources in an optimal cost given by the interest ratespaid by bank on deposits, by the interest credits purchased from BNM and minimum
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reserves that must be deposited at BNM. In the process of lending, banks follow
certain regulations and legal compliance.
Adoption and communication of a crediting decision
Having the full analyze of the economic entity and the application for the loan, the
bank loan committee considers that the analyzed firm is allowed to crediting. After
adoption, the decision is communicated to the credit's applicant. The applicant
together with the bank unit that actually give credit, make a credit contract.
Let me explore the following example.
Legal person Filat Nicolae, makes a request to the bank for a mortgage loan in the
amount of 500000.00 MDL, within 84 calendar months, to purchase a building in
Chisinau. Full name of company SC FILACOL LLC.
For this purpose the bank requests from the potential client the following
documents:
the request for credit
company registration certificate
insurance contract and police for the proposes assets as pledge
labor contract
certificate on registered revenues extract from the register of immovable property
documents showing the possibility of reimbursement payments by the primary
source
documents showing the possibility of reimbursement payments by the
secondary source
balance sheet for last year
business Plan
During the formal review process the creditor's aims are to analyze all required
documents , presented by the potential client, their content and their signature by
legally authorized persons. Then the lender analyze the application form ( annex1)
and economic and technical arguments form (annex 3).
Responsible employee discuss with the applicant about its arguments about the
necessity of requested loan and determining the degree of readiness and safety of the
client plan. Based on data submitted by the borrower, bank employees must answerthe questions listed in the questionnaire design used in the loan negotiation stage.
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The main objective of the risk analysis is that bank can be exposed after granting
of credit is the knowledge of evolutionary potential of past periods and forecasting
performance for provisioning client's viability. There the creditor use a scoring
model. Tabel (2.1.1)
Working with mortgage applicant
Tabel (2.1.2)
Rationally 160 -300 points
Rationally with the condition of contributing with 40
%
100-159 points
Irrational less then 99 pointsSource:Regulation on the banks lending activity operating in Republic of Moldova
The scoring score is of 216 points so the work with this potential client is a
rational one.
The calculation of economic indicators.
Key economic and financial indicators:
Current liquidity = = = 1,19 ( 10 points)
Solvency = = = 4,9 ( 20 points)
Overall rate of return = = = 14.65 % (20 points)
Rate of return on equity= * 100%= * 100%= 4.67 % (20 points)
Indebtedness = = = 0,25 (20 points)
After summing up the score given to each indicator it is obtained 85 points. To
this points the creditor adds 15 points from subjective factors and as conclusion this
firm obtain 100 points, holds the A category and this is categorized by a good
financial situation and the firm will be able to pay all payments and interest rates.
Liquidity indicators
Current rates1 = = = 1,19
Current rates0 = = = 1,07
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Quick ratio1 = = = 0,329
Quick ratio0 = = = 0,209
Reliable stock1 = = = 0,78
Reliable stock0 = = = 0,97
After calculations, results show that the current liquidity ratio is above 1 in
both periods, which means that the trader has a good activity as liquid assets exceed
liabilities.
Regarding the real rate of liquidity and reliable stock it is found that it have
subunit value, which shows that the debtor is in a poor situation for the immobilized
part of funds from short-term loans and other debts (figure 2.1.1).
Current rate Quick ratio Reliable stock
Sourse: Dedu V.Gestiune Bancara.
Fig. 2.1.1. Graphic representation of liquidity indicators
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Graphic representation shows that the current liquidity ratio has a subunit value
in both periods, reflecting a good situation.
Quick ratio of liquidity has subunit value, which is considered to be a risky
situation, because the unit has restrained some of the earlier loans and did not get the
desired effect.
Reliable stock has experienced a decrease in current period to 78% when
compared to the previous period was 97%, which shows that the proportion decreased
in value stocks need to be sold to cover current liabilities.
Profitability indicators
Equity ratio1 = = = 0,0467
Equity ratio0 = = = 0,0018
Capital ratio1 = = = 0,051
Capital ratio0 = = = 0,0019
ROA1 = = = 0,037
ROA0 = = = 0,0015
Gross Profit Margin1 = = = 0,192
Gross Profit Margin0 = = = 0,013
The calculations show an improvement in current activity against the previous
period, especially as shown by indicator gross margin rate , which rose from 1.3% to
19.2%, so by 17.9% (figure 2.1.2).
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Equity ratio Capital ratio ROA Gross Profit Margin
Sourse: Dedu V.Gestiune Bancara.
Fig. 2.1.2. Graphic representation of profitability indicators
From graphic representation it is shown that equity capital rate and capital ratio
recorded a significant growth in the current period, compared to the previous period,
reflecting an increase in the efficiency with which capital is used.
Most significant indicator is gross profit marginthat has a significant increase
from 1.3% in the previous period to 19.2% in the current period.
It is estimated that the company has been active a acceptable profitability,
because it is higher then net profit that can be achieved by capitalization of capital on
the financial market.
Activity indicators
Assets Turnover Ratio1 = = = 0,24 rotations/year
Assets Turnover Ratio 0= = = 0,11 rotations/year
It is observed an increase in of this indicator in current period comparing with
the previous period by the increase of turnover.
Recovery Period1 = * 365= * 365 = 60 days
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Recovery Period0 = * 365= * 365 = 100 days
It is observed an improvement in debt recovery period, allowing the effective
exercise of a debtor economic activity.
Debt repayment period1 = * 365 = * 365 = 313 days
Debt repayment period0 = * 365 = * 365 = 643 days
It is considered a reduction in debt repayment period following from the
increase in turnover on account of raising the volume of outlets.
Another representative stage in the application of credit analysis is to identify
the purpose and level of credit requested.Filat Nicolae, makes a request to the bank for a mortgage loan in the amount of
500000.00 MDL, within 84 calendar months, to purchase a building in Chisinau. Full
name of company SC FILACOL LLC.
Company develops entrepreneurial activities that provides manufacturing
production, and services and the execution took place independently on their own
initiative, on the company name, on its own risk and under the patrimonial
responsibility, by its organs in order to ensure a permanent source of income. To
accomplish tasks aces company develops these types of activity: retail trade in non-specialized stores with food predominating sale, retail trade of alcoholic beverage and
tobacco products.
Identification of other sources of repayment
Financial situation
Mr. Filat Nicholas is committed as director of SC Filacol. Net income for
the past 12 months of Mr Filat was 97,671 lei, the average monthly income is 8139
lei. Ms. Valentina Filat, the wife, is employed according to Deputy Director in theEnterprise "FILACOL" the average monthly salary of 7558 lei net.Net monthly
average of Filat income is 15,697 lei.
The primary source of repayment
The primary source of repayment of loan and related interest are paid be Mr
Filat and his wife Valentina Filat mentioned above.
Conclusion:
Taking into consideration the 16% annual interest rate on the loan, the loan
term of 84 months and request for payment amount will be equal to 9931 MDL, this
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mean that monthly average of Filat family will be enough to pay off the loan and
calculated payments .
Identification of guaranties
As a guarantee of reimbursement within the requested loan and related interest
payment, Mr. Filat Nicolaie proposes to pledge the property, located at the address of
Moldova, or.Cimislia, str.Suveranitatii specified in the table below.
SUBJECTS OF GUARANTIES Tabel 2.1.2.
Subject of guaranties The guarantie's value (MDL)
Commercial room with total area of 84.5
m2 located in the or.Cimislia,str.Suveranitati and identified by the
cadastrel number 281936583
510000.00
Land on an area of 0.0189 ha land,
cadastrel number 6563763, or.Cimislia,
str.Suveranitatii. Lien extends to fruit,
income, accessories and upgrades
pledged asset.
3000.00
Total 513000.00
Sourse: . Internal regulation of commercial bank Banca de Economii
Real value of the guarantee is 513,000.00 MDL, covering the total amount of
credit in the amount of 500,000.00 lei and related interest for 2 months, which will be
assumed by individual Mr. Filat Nicolaie.
Conclusion :
Taking into consideration the above mentioned security proposed, we consider
it possible to grant credit, as credit to purchase property on the secondary market,amounting to 500,000.00 lei, within 84 months.
Minutes of a Credit committee meeting on a credit granting
MrFilat Nicolaie addressed on April 13, 2010 with a request for a mortgage
loan in the amount of500000 MDL, in term of 84 calendar months, to purchase a
building in Chisinau.
Mr Filat Nicoaie birthday 26.05.1962, identified by ID Series A nr.23525363,
is domiciled at: or.Cimislia, str.Donici nr.235. Mr. Filat has a secondary education,
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confirmed by KT nr.25629809 series diploma, issued by the Cooperative College in
Chisinau, planning department.
As the primary source of repayment of the loan and related interest will serve
Mr. and Mrs. Filat revenus from wages.
Mr Filat is employed starting with 01.01.2004 as director in the SRL Filacol.
The Mr.Filat's net income average for the past 12 months is amounted to 96671
MDL and monthly net income average is 8139 MDL. The Mrs. Filat Valentina's
monthly net income average constituted 7558 MDL. Such monthly net income
average of Filat family is 15697 MDL.
Calculation based on the scoring model the applicant's score is 216 points,
accumulated from the maximum possible 300 points, so thus granting of a the
mortgage is considered possible.
As a secondary source of repayment of the loan will serve up the property
(commercial building), ownerFilat Nicolaie, located at the address: or. Cimislia, str.
Suvenaritatii 11, according to the extract from the register of immovable property
nr.82375084358 of 05/01/2010.
Based on the above information and the set of documents submitted,
It was decided:
Granted Mr Filat Nicolaie a mortgage loan in the amount of 500000 MDL,
within 84 calendar months, with annual interest rate of 16%.
2.2. IMPROVING THE PROCESS OF TAKING THE LENDING DECISION
In fact, most banks reserve the right not to disclose client's refusal reason. Bank
is not obligated to grant credit, the decision to award comes as a result of analyzing a
series of complex factors and is at least strange to expect the Bank to respond
positively to all requests absolute credit. Although the status of "good customer"
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varies from bank to bank, take a refusal received from a bank and does not refuse all
others.
The truth is that all credit requests are satisfied only one third, which the local
banking system is a high index. Are denied both individuals and legal entities.Reasons would be endless. Below I present proposals that deserves to be made by
bank for to avoid credit risks.
Detailed analysis of the revenue problem.
1) Insufficient. Given that revenues are insufficient for the desired credit
contraction, the Bank may accept income spouse, partner, parent or other
person. Person will be liable to the credit quality of the loan contract and
must meet the same eligibility criteria.
2) Unconfirmed. Banks should not assume the risk of accepting
unconfirmed income as the primary source of repayment. Period wage
envelope increasingly gives way to official salaries.
3) False. One of the hardest cases to be diagnosed. Are frequent cases when
the employee request the employer to issue a false certificate, which
confirms that given employee receives a specific salary, in fact higher
than real or employee has received a considerable amount of money overa certain period. At first glance these seem true and accurate certified,
and can not arouse suspicion if not to limit the amounts fantastic.
Rigorous analysis of indebtedness (debt limit threshold).
Indebtedness is estimated by the following principles: Credit monthly payments
relative to net income of the applicant (PTI) - this ratio should not exceed 35-
40%;Credit monthly payments plus monthly payment obligation (OTI) (such as rent,
child support pensions, pay for other existing loans, etc..) Reported net income of theapplicant - this ratio should not exceed 45 - 50%.Depending on the size of these
indicators, the bank must detect the potential client has financial limits. In other
words, banks should not grant credit if you: salary is 1,500 lei customer and
repayment schedules monthly payment to be paid is 800 or 1000 lei.
Founding a unique system of history of outstanding credit.
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Banks need to do this. Although credit bureaus still not working in full force,
banks must go on record its "outstanding loans. Banks must to not grant credits if its
clients have any existing outstanding loans.
Accepted age of the potential client.
Per generally, banks must give credit to the age of 21 years. Those who do not
meet this age requirement, while engaged in field work, are financially independent
of parents, nothing to do but wait for the fulfillment of 21 years or give up credit.
Also another part of the problem is client's age limit retirement threshold. A woman
or a man 56 years to 61 years are most likely to succeed not borrow since they are at
retirement age limit: 57 and 62 years respectively. And banks need to attract a great
attention to this detail.
Attention to job placement .
When commercial banks launched various loan products, they determine the
estimated range of potential customers. Estimates based on data, it elaborates certain
eligibility criteria, which required banks must consider them when it comes to
granting credit. One of the prerequisites for most banks is the arrangement of a
permanent place of work in the last 6 (six) months. Not collected 4 months or 5
months and a half. Strictly 6 months.
The necessity of large enoughcollateral requirements.
Requirements in excess of pledge or simply offering to serve as a good credit
guarantee, which applies when the product cases require mortgage crediting
sometimes puts the client in bewilderment. Value of collateral may be insufficient. It
is one of the most common problems. Home mortgage offers its clients, and at a time
are satisfied that the value is not good enough. Banks must take into consideration the
value of collateral, which is approx. 70-80% of the market value of the goods offered
(for immovable property).
Detailed research of credit destination.
Bank should give loans only for lawful purposes, do not contravene the laws of
the country. This is one of the basic principles, although more often are encountered
unnominated for lending products. "Unnominated" must not be" for anything,
including weapons, drugs and trafficking in women. "Any" means any ordinary
necessity, so buying that does not infringe the moral and legal rules.
Avoiding false documents.
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There are frequent cases when clients deny or conceal about the existence of other
loans or credit cards. Bank should refuse or ask for customer set of documents if it
finds that the package of documents submitted is incomplete or some of the
provisions are outdated or have lost their validity.
Small credit sum - unprofitable for the bank.
Even if customers are positive acts are fine, stable source of income, it would be
good to not grant loans, arguing that the requested loan amount is too small and the
bank is not profitable to grant them such loans.
Exercise capacity.
Person's exercise capacity is the ability to exercise and to assume obligations,
committed legal acts. How does the bank determine the client's ability to exercise? At
the initial stage: After the way he speaks and formulate thoughts, how they react and
respond to questions. During the development of credit - depending on how that has
fulfilled its obligations to pay and how it behaves.
Criminal record.
Like exercise capacity, criminal record can have serious effects, the bank should
refuse to give these customers.
Conclusions
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In the process of credit analysis, loan officers follow the general principles of
lending activity, that all the conditions specific to each category of loans requested,
and a common procedure underlying fundament lending decision.
In the economic analysis - financial activity and the trustworthiness of theirclients, officers follow existing loan repayment capacity of borrowers for the entire
period of loan classification and the total volume of loans and interest in the
possibility of their redemption. process analysis capacity for repayment of borrowed
economic agents, loan officers use besides portfolio of contracts and orders available
to the customer and cash - flow - your forecast, calculation formula, which
extrapolates future in average daily revenues achieved last quarter and its volume
determined using credits for which the borrower will have the financial capacity
needed for reimbursement.
Report us to the said above, we can appreciate the fact that detailed knowledge
of techniques for analyzing the request for credit and making a decision on solvency,
we will always warn that the process is not complete until we will not form an
opinion and about the applicant.
In this context we can talk about the factors that would summarize the overall
picture of a potential borrower.
Character, reputation, and if the debtor can meet the requirements of integrity
and abilities.
Quality of management and if it is able to direct activities to allow the
company to repay the loan
Purpose and use of credit
Cash flow- indicates that the operation will generate sufficient cash for the
company to repay the loan in full and on time
Guarantees- The situation may be worsen: if such happens and cash flow does
not allow reimbursement of the loan, the guarantee must be sufficient, be
received without any problems and on time.
Development of the credit program is made depending of the company's financial
balance( liquidity, solvency, the debts level), managerial capacity, the company's
profitability, ensure the production selling and profitable recovery.
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The risk management of crediting banking activity implies identification and
analyze of risks and factors influence, and also statistical study of risks that affect
banking crediting activity. The statistical study offers a full and rigorous image of
probability that one of the stipulated risks may occur, and the crediting activity of the
bank may become risky.
The most important bank operation is crediting. Among bank's investments
credits hold the most important place. The welfare of the bank depends on the way
the bank manage its funds.
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Bibliography:
1.Financial Institutions Law nr. 550-XIII from 21.07.1995
2. Law on pledge nr. 838 XIII from 23.05.1996;
3.Law on Entrepreneurship and enterprise nr. 845 XII from 03.01.1992;
4.Instruction of National Bank of Moldova on loans nr. 8/1001 from 02.02.1996
5.Regulation on the banks lending activity operating in Republic of Moldova
6.Internal regulation of commercial bank Banca de Economii
7.Civil Code and Civil Procedure Code of Republic of Moldova
8.Penal Code of Republic of Moldova
9.Caragangiu An., Iliade Gh.Moneda si Credit. Chisinau: ASEM, 2004.-249 p.
10.Manolescu Gh. Moneda si Credit. Bucuresti: Fundatia Rominia de Mine,
2004.-169 p.
11.Basco C., Dardac N. Moneda,credit,banci.Bucuresti: Editura didactica si
Pedagogica,2003.-374 p.
12. Basco C., Dardac N.Operatiuni Bancare. Bucuresti: Editura didactica si
Pedagogica,1996.-328 p.
13.Dedu V.Gestiune Bancara. Bucuresti: Editura didactica si
Pedagogica,1999.-352 p.
14.Berea A. Strategie bancara. Bucuresti: Editura Expert,2001.-319 p.
15.Manolescu Gh., Diaconescu A. Bucuresti: Rominia de mine,2001.-358 p.
16.http :// www .bem .md /ro /physicalpersons /Credite /
17.http :// www .biblioteca .ase .ro /
18.http://www.bnm.md/md/law_fin_institutes?redirect=1
19.http://www.creditriskmgt.com/onlinemanuals.html
20.http://www.rockdalecounty.org/docs/SWManual.pdf
http://www.bem.md/ro/physicalpersons/Credite/http://www.biblioteca.ase.ro/http://www.bnm.md/md/law_fin_institutes?redirect=1http://www.creditriskmgt.com/onlinemanuals.htmlhttp://www.rockdalecounty.org/docs/SWManual.pdfhttp://www.bem.md/ro/physicalpersons/Credite/http://www.biblioteca.ase.ro/http://www.bnm.md/md/law_fin_institutes?redirect=1http://www.creditriskmgt.com/onlinemanuals.htmlhttp://www.rockdalecounty.org/docs/SWManual.pdf8/8/2019 Proict nou nout
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ANNEX 1
APLICATION FORM FOR A CRETID REQUEST
General Information:
Full name of the company _________________________________________________;Legal Address _________________________________________________________________;Effective Address _________________________________________________________________;
Phone, fax____________________________________________________________________;Economic activities ___________________________________________________.Legal Department:
Registration number _____________________________________________________________;
Registration date______________________________________________________________;Size of statutory capital _____________________________________________________;State share or withholding ___________________________________________________.Existing Accounts:
MDL Current Account Number. ______________________in bank _______________________USD Current Account Number _____________________in bank _______________________
EURO Current Account Number _______ _____________________in bank _______________________
Credit application:By this, I request a loan from the Banca de Economii:Amount requested _________________________________________________________________;
Requested term _______________________________________________________________;Mode of requested credit granting_________________________________________;
Purpose use _________________________________________________________________;Grace period for paying the interest _________________________________;
Grace period for payment of credit _______________________________.Proposed Guarantees:
The primary source of repayment __________________________________________________________________________________________________________________________________;
Secondary source of repayment _____________________________________________________ ____________________________________________________________________________ .
________________________ _________________
date Signature of applicant
Deposited to the bank on________________
Signature of applicant ________________
Signature of the bankresponsible person ______________
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2.3 Own contribution to purchase real estate
a)30-40% 20
b)40-50% 50
c)>50% 70
2.4 Monthly mortgage rate
a)30-40%from family's net income 70b)40-50% from family's net income 60
c)50-60% from family's net income 50
d)>60% from family's net income 10
2.5 Existence of other financial liabilities
a)the due date previously requested loan maturity 0
b)the due date after requested loan maturity 10
c)there are no other liabilities 15
2.6 Credit history
a)previously received loans repaid in full and on time 15
b)has not received loans from the bank 5Total score of the applicant 300 point maximum
Source: Regulation on the banks lending activity operating in Republic of Moldova
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ANNEX 3
Economic and technical arguments form
General Information:
Full name of the company_________________________________________________Legal address_________________________________________________________________Effective Address_________________________________________________________________
Phone, fax_____________________________________________________________________Economic activities___________________________________________________
Short description of current activity_____________________________________________Existing Accounts:
MDLCurrent Account Number. ______________________in bank _______________________USD Current Account Number_____________________in bank _______________________
EURO Current Account Number_______ _____________________in bank _______________________Legal Department:
Creation Date________________________________________________________________ ;Registration number_____________________________________________________________;
Registratin date______________________________________________________________;
Size of statutory capital_____________________________________________________;State share or withholding ___________________________________________________.
Company Founders:
Name Registration number or
ID number
Corporate or home
address
Percentage
share(%)
Owner of whose
enterprise is also
Affiliated companies:
Name Basic activity
- Company Founder:
- Ments Companies
- Associates Companies
Director:
Participation share in company capital _______________________________________;Date and place of birth ___________________________________________________________;ID number_______________________________________________________;
Residence ____________________________________________________________________ ;Actual place of residence ___________________________________________________________ ;Studies_________________________________________Chief Accountant:
Participation share in company capital _______________________________________;
Date and place of birth ___________________________________________________________;ID number _______________________________________________________;
Residence ____________________________________________________________________ ;Actual place of residence ___________________________________________________________ ;
Studies __________________________________________
Other directors:
Name Position ID number Date and
place of
birth
General
Internship
Work
General
Internship Work
in the company
Studies
Enterprise staff:
Position Number of staff Wage (MDL)
Production potential:
Adres Ownership or lease Year of production or putting
into execution
- Production Rooms
- Storage rooms
- Vehicles
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- Machinery
Fixed Assets:
Fixed
Assets
Initial
cost
Residual
cost
Physical
wear
Obsoles
cence
Date of
production or
putting into
execution
Potential Enterprise utilization
potential
Insurance policies:
Insurance must contain forms that are currently valid, including the transportation, fixed assets
Insurance Form Insurance policynumber
Name of issuer Issue date Validity Insurance cost
Credit request:
Requested loan size
Requested loan term
Mode of requested credit grantingRequested interest rate
Number of repayments per year
The number of grace periods
Reimbursement calculated rate
Grace period on interest rates
Project Timetable:
Project launch date ________________________________________________________ ;
Project finish date ________________________________________________________ ;
The primary source of payment:
Revenue Source Sum Term Destination
The secondary source of payment:
The guarantie
name
Quantity Measurement
Unit
Price per unit The total
amount ot theapplicant prices
Debtor pledger
Production schedule:
Name
Production/goods/services
Volume Share(%)
- Product range
- Assortment planning
Suppliers:Suppliers name Country Percentage of total
volume
Subject
providing
Number, time
and date ofcontract
performance
Period of
collaboration
- current
- potential
Clients:
Clients Name Country Percentage of totalvolume
Subjectproviding
Number, time anddate of contractperformance
Period ofcollaboration
- current
- potential
Competitors:
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Companyname
anditslocation
ProductName
Productpriorities
Product
shortcomings
Wholesaleprice
andretail
Methodsofproduct
releaseandad
Production
Methods
Marketshare
Salesvolume
Expected Quarterly Reports:
1. Calculation of working capital requirements:
Position name I Quarter II Quarter III Quarter IV Quarter Total annual
1.Current assetsExpenditure on goods and materials
Debtor receivables
Reserves of money
2.CURRENT LIABILETIES
Debtor liabileties
3.NEEDS IN CURRENT ASSETS
2. Revenue and expenditure forecasting:Indicators 1
Month
2
Month
3
Month
4
Month
5
Month
6
Month
7
Month
8
Month
9
Month
10
Month
11
Month
12
Month
1 year
total
Revenue from sales
Production
expenditures
Gross profit
Expentirues on
interest
Income tax
Net profit
Loan repaid
Available profit
Cumulative profits
3. Cash Flow Forecast:
Indicators 1
Month
2
Month
3
Month
4
Month
5
Month
6
Month
7
Month
8
Month
9
Month
10
Month
11
Month
12
Month
1
yeartot
al
Initial financial resources
Loans
Sales (income)
TOTAL INPUT
Investments
Current expendituresExpenditures on interst
Income tax
Interest rate
TOTAL OUTPUT
Surplus / deficit
4. Forecasted balance sheet:
Indicators 1Mon
th
2Mon
th
3Mon
th
4Mon
th
5Mon
th
6Mon
th
7Mon
th
8Mon
th
9Mon
th
10Mon
th
11Mon
th
12Mon
th
1year
total
TOTAL ASSETS
Long term assets
Fixed Assets
Reserves andExpenses
Currents Assets
Financial resourse
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Stocks
eceivabels
Ather currents assets
TOTALLIABILETIES
Owner equity
Statutory Fund
Reserve and funds
Undistributed profit
Long term debts
Short term debts
Curent liabileties
___________________________ _________________________
Date ofsubmitted argumentation Signature of applicant
CALCULATED CREDIT SCORING Tabel2.1.1.
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Assessment of applicants' eligibility factors in
mortgage lending
Values Estimated
Score
1 General infirmation 50 points
maximum
1.1 Agea)21-26 years old 3
b)27-45 years old 4 4
c)45-54 years old 1
1.2 Familiar situation
a)married, both working 8 8b)unmarried, divorced 6c)married, only one family member works 4
1.3 Number of people in maintenance
a)no more than 2 people 8 8b)no more than 3 people 6
c)4 and more peolpe 3
1.4 Residence status
a)private property 7 7
b)rent property 1
c)first degree relatives' property 4
1.5 Education and professional training
a)no studies 0
b)secondary education 2c)specialized secondary education 3d)incomplete higher 4 4
e)higher 8
1.6 Work
a)own business 6b)employee 8c)division chief 10 10d)student 1
e)unemployed 01.7 Duration of work at present
a)>5 years 5 5
b)1-5 years 4
c)
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a)coincidence of declared income with documents 40 40b) income gap between the declared and confirmeddocumentary
20
2.2 Existence of other tangible assets
a)yes 40 40b)no 10
2.3 Own contribution to purchase real estate
a)30-40% 20 20
b)40-50% 50
c)>50% 70
2.4 Monthly mortgage rate
a)30-40%from family's net income 70
b)40-50% from family's net income 60
c)50-60% from family's net income 50 50d)>60% from family's net income 10
2.5 Existence of other financial liabilities
a)the due date previously requested loan maturity 0b)the due date after requested loan maturity 10c)there are no other liabilities 15 15
2.6 Credit history
a) previously received loans repaid in full and on time 15b)has not received loans from the bank 5 5
Total score of the applicant 300 pointsmaximum
216 points