Banking Supervision

School

Bank Indonesia @ 2006

 Credit Application

Data Collection
Collateral/Guarantee

Credit Analysis

Evaluating Credit Proposal

Complement Data Collection

Credit & Collateral Agreement

Lending Administration

Facilities Opening

Loan Disbursement
The objectives are :

 Know your customer and his business

 Lens on the basis of Financial Performance rather
than collateral
 Pick up early warning signals
 Be aware of risk concentrations
 “Depersonalize” credit decisions
 Develop a professional credit culture in which
both Bank and Borrowers expect debts to be
repaid
Restrukturisasi ANALISA ASPEK
KREDIT /

Kredit KEL.USAHA
( PRINSIP 5+ ) Kredit Baru

KELAYAKAN
KREDIT
PRINSIP2 PENILAIAN
KREDIT/
PEMBERIAN KEL.TEKNIS.
KREDIT (PRINSIP 5C+dll)

Tambahan Kredit
1. Purpose
2. The Five C’s of Credit
• Qualitative Analysis
• Quantitative Analysis
3. Ways Out
4. Structure
5. Conclusion
a. Why does the obligor need the proposed credit
facilities?
b. Purpose of the loan must be clearly defined.

c. Purpose of the loan determines the type of credit line

or loan to be extended.
General categories of loan purpose:

a. Working Capital Financing

b. Capital equipment acquisition

c. Project Finance

d. New Venture
e. Others: take-out of existing debt
1). Inventory Financing

2). Receivable Financing

3). Other Current Assets Financing

a) Inventory consists of:
* Raw materials
* Goods in process
* Finish goods

b) Inventory purchased locally

c) Imported inventory
a) Receivable consists of:
* Trade receivables
* Due from subsidiaries/affiliates
* Others

b) Long term receivables

c) Local & foreign currency denominated

a) Operating
* Factory supplies like oil & lubricants
* Advances to suppliers

b) Non - Operating
* Advances to stockholders
* Due from subsidiaries/affiliates
1. Capital Equipment Acquisition

2. Project Finance

3. New Venture

4. Others – take-out of existing debt/refinancing

 Character

Collateral Capacity
5C
Condition Capital
This criterion is exactly what the name implies. It
involves a review of honesty, integrity, trustworthiness and
management skills.
 Who are we lending money to ?
 What is their past credit history ?
 Do they have expertise in this company/industry ?
 Marketing, Operations, Finance ?
 Human Resources ?
 Can we trust them ?
 Do they have the ability to repay and to manage their
credit ?
The company’s ability to repay their loan or credit.

 Use your Projected Statements to help evaluate the

company.
 Look at Past and Projected Financial Ratios to see
the current situation.
 The capital structure of company is important to a lender
because it helps determine the level of risk associated
with borrower’s loan request.

 An analysis of capitalization includes a review of equity,

total debt, the value of assets and permanent working
capital.
Looking at the industry as a whole and then looking how the
company fits in the industry.
 Political
 Economic
 Social
 Technological
 Competition
 To ensure that the creditor gets his/her money back if
the debtor cannot pay the loan.

 How does it work ? Secure enough assets to cover the

entire amount of the loan.
a. Primary objective of analysis:

1) Identify pre-dominant risks

2) How can these be controlled/mitigated?

b. Achievement of these objectives require
analysis of:
1) Management
2) Product/service
3) Production Process
4) Customers
5) Industry
6) Macro-economic environment
a) Why analyze management?
b) Historical record of business failures indicate
more than 85% is traceable to management
incompetence.
c) Cash pays off loans, but is management who
decides where cash will be applied to.
a) Areas for analysis (not all inclusive):

1) Track record/experience
2) Experience in crisis management
3) Independence (management vs. owner)
4) Reputation/integrity
5) Management style
6) Contact persons/decision-influencers/ gate-
keepers
a) Areas for analysis (not all inclusive):

7) Decision making process:Slow? Past?

Autocratic? Consensus?
8) Connections/contacts
9) Labor relations
10) Quality of middle management (succession
issue/depth)
11) Management policies, practices, controls
12) Health, age, durability
a) Types/mix of products

b) Product cycle
c) Product characteristic
a) Raw materials sourcing

b) Process
c) Plant facilities
Who are their customers?
* Domestic vs. export
* Retail vs. wholesaler
* Consumer vs. corporate end users
* Distribution channels
a). Industry position
* Priority vs. non priority

b). Competition
* How many firms?
* Demand
* Market share
* Barriers to entry
* Price vs. cartel
c). Industry characteristics
* Cyclical? Boom/Burst?
* Position in industry cycle: Sunrise? Mature? Sunset?
* Obsolescence: R & D
* Import dependency?
a) Area of concern:
* Inflation
* Exchange rates
* Money supply
* Taxes
* Government spending
* Price control
b) Wage adjustments
c) Unemployment
d) GNP growth
e) FX availability
f) FX controls
g) Government regulations
a. Financial analysis of historical performance
addressing:

1) Profitability
2) Cash Generation
3) Liquidity & Solvency
4) Capital Structure
5) Other Financial Indicators
b. Analysis of financial projections
1) Cash cycle = days inventory + days receivables

2) Days Payable dilemma

3) Loan Tenor = cash conversion cycle

As a general rule, there should be identified two
unrelated ways out in a loan transaction:
* First way out is internal cash generation
* Second ways out is collateral/security
a. Amount

b. Type

c. Tenor/Repayment

d. Availability
e. Pricing
f. Conditions
g. Security
1) Assess customers’ need

2) Determine how much loan exposure to grant

3) Local currency

4) Foreign currency
5) Combination of the above
1) Overdrafts/Short-term loans

2) Term Loans

3) Letters of Credit

4) Trust Receipt Financing

5) Bankers’ Acceptances
6) Pre-export Credit/Packing Credit
1) What pay off a loan?
First way out is internally generated cash
(applicable for short-term and long-term loans).

2) Establish the cash conversion cycle

3) Cash cycle dictates the tenor of the short term

loan & how much of the loan will be repaid.

4) Financial projections required to assess term

loan repayment schedule.
1) Available but cancelable without notice

2) Committed facility
1) Fixed interest rate either discounted or based on
diminishing balance

2) Floating rate – spread over agreed reference rate

(Libor, Sibor, Jibor, etc.)

3) Pricing reflects risks and reward

Some examples:
1) Submission of promissory note
2) Insurance policy
3) Shareholder agreement
1) Submission of promissory note
* Real estate mortgage
* Deed of Assignment over shares

2) Percentage of collateral coverage

Credit Analysis ends with a summary of the
reasons why the proposed loan transaction
should be approved:

* Assessment of the obligors’ character & management

effectiveness
* Capacity to pay as evidenced by debt service coverage
analysis
* Capital structure of the business
* Collateral/security