金融英语 chapter 6

金融英语 chapter 6

Part Six

Loans

Fundamental Issues:Ⅰ.Definition and Categories of Loans Ⅱ.Credit Process (P210) Ⅲ.Post-Disbursement Management (P231).1

金融英语 chapter 6

I. Definition and Categories of Loans1. Defination A loan is a sum of money advanced to a borrower, to be paid at a later date, usually with interest. A loan may be payable on demand (a demand loan), in equal monthly installments (an installment loan), or it may be good until further notice or due at maturity (a time loan). As for the mortgage, the bank is given the title 2 to the house until the mortgage is paid off in full.

金融英语 chapter 6

2. Categories of Loans U.S.’s bank loans can be classified by (1) commercial and industrial loans; (2) inter-bank loans; (3) loan participations; (4) real estate loans.3

金融英语 chapter 6

In China, we can divide loans according to different criteria: A. By Maturity short term loan: less than 1 year long term loan: more than 1 year The short term loan is used for working capital and the long term loan is used for fixed capital. B. By Interest Rate floating rate loans (eg. LIBOR). fixed rate loans.4

金融英语 chapter 6

C. By Number of Lenders bilateral loans, syndicated loans. D. By Type of Borrowers corporate and institutional loans (C&I loans), personal loans. E. By Nature of Common Usages working capital loans, fixed asset loans.5

金融英语 chapter 6

F. By Nature of Particular Usages real estate development loans, mortgage loans, agriculture loans, education loans, etc.. G. Other Categories secured loans & unsecured loans, redeemable loans & irredeemable loans, interest free loans & interest bearing loans, commercial loans & government backed loan.6

金融英语 chapter 6

3. Introduction of Major Loan Categories A. Working Capital and Fixed Asset Loans Temporary working capital loan, Short-term working capital loan, Mid-term working capital loan. Revolving liquidity loan, Liquidity loan with installments, Corporate body account overdraft,7

金融英语 chapter 6

Fixed Asset Loans are as follows: Capital Construction Loans, Technical Innovation Loans, Scientific and Technological Develop. Loan, Other Purchases of the Fixed Assets Loans.8

金融英语 chapter 6

B. Syndicated Loan i. Concept of Syndicated Loan negotiating or leading bank; manager / co-manager bank; participants bank; agent bank. ii. Fee and Cost iii. Procedure

金融英语 chapter 6

C. Export Credit Buyer Credit Export Credit Supplier Credit Importer’s bank on-lends the loan to the importer. (解释第204\205的程序图) Importer’s bank provides guarantee to exp’s bank.10

Buyer Credit

金融英语 chapter 6

D. Consumer Loans E. Personal Residential Mortgage Loans The ownership of the property remains at the mortgagee and the possession of property usually at the mortgagor unless and until the occurrence of default or full repayment. Repayment schemes include straight-line repayment schemes, reducing balance repayment schemes, step-up repayment schemes, and fortnightly repayment option.11

金融英语 chapter 6

F. Overseas Fund-Raising and On-lending It refers to the credit service that a bank, with the mandate from its domestic client, raises funds overseas first fro

m foreign export credit agencies, commercial banks, investment banks, or other financial institutions, and then on-lends the funds further to its domestic client to facilitate the importing of capital goods, technologies and relevant services.12

金融英语 chapter 6

G. Introduction of Typical Loans i. Credit Line(including general loan, credit card, etc.)

ii. Overdraft Facility(within a set limit)

iii. Trade Finance(including supplier credit and buyer credit)

Ⅳ.Project Financing(including BOT)13

金融英语 chapter 6

Ⅱ. The Credit ProcessThe credit process consists of Credit Planning and decision making of an individual lending. The somewhat competing goals of loan volume and loan quality must be balanced with the bank’s liquidity requirements, capital constrains, and rate of return objectives.14

金融英语 chapter 6

1. Main Consideration in Credit Planning A. Assets and Liabilities Management

Ⅰ.Capital Adequacy RequirementRiskWeight× Risk-Adjusted Asset = Risk Weight×Asset. ·Tierrisk·Tier-1 capital to risk-adjusted assets is more than 4%; ·Tier-1 and Tier-2 capital to risk·TierTierriskadjusted assets is more than 8%. ·(Outstanding loan)/Deposits is less than 75%. ·(Loan to one person)/Capital is less than 10%.15

金融英语 chapter 6

B. Profitability and Budgeting Control C. Liquidity Ratio D. Government’s Macro-economic Policy 2. Basic Process of an Individual Loan

A. Application Acceptance B. Investigation and Assessment C. Review and Approval D. Loan Disbursement E. Post-disbursement Management

金融英语 chapter 6

Ratio Analysis This section explains the purpose and limitations of ratios, and expands on basic analytical concepts, ratio calculation and interpretations. It provides the analyst with the tools to measure the quality and worth of assets, as well as the extent and nature of liabilities. ●Liquidity Ratios : (1) Working Capital = Current Assets – Current LiabilitiesCurrent Ratio = Current Assets ÷ Current Liabilities

(2) Quick Asset Ratio = Quick Assets ÷ Current LiabilitiesNote: Quick assets refer to the assets being converted more easily than the other current assets.17

金融英语 chapter 6

●Activity Ratios: It measures resource utilization and asset quality (receivables, inventory and payable turnovers, etc). (1) Accounts Receivable Turnover = Net Sales ÷Net Account Receivable.

(2)Average Collection Period = 360 or Days in Period ÷Accounts Receivable Turnover

(3) Working Capital Turnover = Net Sales ÷ Working Capital18

金融英语 chapter 6

●Leverage Ratios: (1) Leverage = Total Liabilities ÷ Net Worth=Senior Liabilities ÷ Capital Funds

(2) Leverage = Total Liabilities ÷ Tangible Net Worth= Senior Liabilities ÷Tangible Capital Funds

Note: The total liabilities/tangible net worth ratio will produce the highest leverage and thus be the most conservative because all liabilities are included.

金融英语 chapter 6

●Profitability Ratios: (1) Net Sales Growth = Net Sales ÷ Net Sales (2) Gross Profit = Net Sales Cost of Goods(3) Net Margin = Net Income ÷ Net Sales (4)Return on Total Assets = Net Income ÷ To

tal (4) Assets

金融英语 chapter 6

3.The Key Factors and Commonly Used Methods of Credit Analysis A. 5 Cs of Credit Character\Capital\Capacity\Condition\Collateral. B. 5 Cs of Bad Credit Complacency\Carelessness\ Bad Communicated\Contingencies\Competition. C. 5 Ps Model people\purpose\payment\protection\perspective. D. Financial Ratio Analysis Liquidity Ratio; Activity Ratio; Leverage Ratio; 21 Profitability Ratio. (Page 225~227).

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