Credit and Lending Decisions (AFCP856)

This unit will be known as Lending and Borrowing Decisions (AFCP856) from 2018.

This unit examines the way that banks and financial institutions make credit and lending decisions. By understanding the investment goals of a debt stakeholder, we explore the extent to which debt can meet the capital needs of a borrower. We examine how the nature of the borrower (consumer, business or large/listed corporation) influences the approach of lenders and the decision making process. Consumer credit decisioning models are contrasted with the more tailored approach required by much larger individual exposures. Credit scoring and other analytical techniques are explained. The process of formulating a financing or credit proposal is analysed, linking the needs of the borrower and the protections required by the lender. This process includes structuring the credit facilities and documentation using concepts introduced in Financial Risk Management (ECFS868) (viz, probability of default, loss given default and exposure at default). Unsecured, secured and subordinated arrangements as well as “post-decision” matters such as loan monitoring and management of problem loans are also considered as part of the overall lending structure. Finally, the significance of “credit culture”, governance and regulation is highlighted in the context of a large financial institution.

Learning Outcomes:

  1. Understand how the nature of the loan and the class of borrower will influence the style of credit decisioning on the quantitative (credit scoring) - qualitative (expert judgment) continuum.
  2. Appreciate the range of methods and products available for debt financing and how to apply them appropriately; including the significance of unsecured, secured and subordinated features.
  3. Recognise the importance of aligning the needs of a borrower and the risks a lender is prepared to accept and be able to outline the structural and documentary mechanisms for achieving this (including the functions performed by representations & warranties, financial covenants, undertaking, events of default and review).
  4. Describe the process through which a potential credit facility for a business/corporation is defined, evaluated, structured, decisioned and monitored.
  5. Understand (in principle) the issues related to management or problem loans.
  6. Appreciate the importance of culture, effective governance and regulation to credit processes in a large financial institution.

Topics:

  1. The Debt Stakeholder as an Investor
  2. The Borrower and the Loan
  3. The Process to the Credit Decision
  4. Structuring the Loan/Credit Facility
  5. Managing Loans and Credit Facilities
  6. Credit Risk in Financial Institutions

Prerequisite Units:

Lecturers:

Unit Guides:

  • Credit and Lending Decisions - Sydney and Melbourne. The link will provide a list of guides for this unit. If the desired term/location is not listed, please view the latest one available.

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