N Bank Cert Mod 3 – Credit, Finance and Loans THE ACADEMY OF FINANCIAL MARKETS WELCOME TO THIS SESSION! THOUGHT FOR THE SESSION Trust in the Lord with all your heart and lean not on your own understanding… Credit, Fin & loans Content: � Credit fundamentals � Project finance: � � Working and financing � Risk, return and IRR Corporate and structured finance � Property and asset finance � Securitisation � 1
Credit, Fin & loans Credit definition � Credit Policy � Standards (5 C’s of credit analyses) � 1. Character 2. Capital 3. Collateral 4. Conditions 5. Capacity (Affordability assessments) Credit, Fin & loans Collection policy 3. Some important issues: � Wording of interest � Application in surety situations � Interest and capital � Compounded vs. simple interest Credit, Fin & loans Credit Procedures � Example 1 � Sequestration, liquidation and implications � Project finance: � Defined � Areas of project finance � Recourses � Structure and working � Phases of project � 2
Credit, Fin & loans Financing the project: Equity vs. debt � Sources and type � Funding of project phases � Example 3 � Risk & return in finance: � Finance vs. business risk � Market (systematic) vs. company � specific (unsystematic) risk Credit, Fin & loans Internal rate of return in the measurement � of a project � Concept and example � Concept of NPV Credit, Fin & loans Export and import finance: � Working and principles � Foreign exchange principles and media � information � Example 5 LC’s and credit risk � Risk evaluation � 3
Credit, Fin & loans Corporate and Structured finance defined � Defined � � Example 6 Reasons for structured finance � Instruments used � Risk profiles � Borrowing powers of entities � Credit in structured finance � Credit, Fin & loans Structured finance: � Finance and dividends / Pref shares � Finance based on balance sheet strength � and composition Investments linked with loans (Geared � investments) Credit, Fin & loans Structured finance: � Investments linked with loans (Geared � investments) - Example: Mr. Risky borrows R 1m on his access bond at a rate of 10,5% NACM on 1 Jan 2007. He invests this in equities. The loan is paid off over 20 years, monthly in arrears by using his dividends and selling enough of the investment. The capital value of the equities grows by 15% per year (1,17% per month). He also gets 3% dividends per year (0,25% per month based on the opening capital balance). How much capital will he owe on his bond on 1 April 2007, and what will the value of his investment be? 4
Credit, Fin & loans Example 7 � Structured Finance: � Shareholders loans and the use thereof: � � Loans at favorable rates to shareholders � Loans by shareholder to a company and the use thereof Credit, Fin & loans Shareholders loans – Example � John and Ben wants to purchase a building company. To purchase the company, they form a CC. The net assets of the company (excluding the loan from the shareholder), is R 300 000. The shareholders loan is R200000. They purchase the company for R400 000 by lending it to the CC. The R400000 is allocated as R 300 000 for the assets and R 100 000 for the loan. Discuss the cash-flow and tax implications of the repayment of the shareholders loan and distributions to John and Ben. Credit, Fin & loans Property finance: � Mortgage loans � Operating vs Financial leases � Basic valuation: � � ROI concept � Net rental income = return � Investment = Purchase price or value � Rate = capitalisation rate or required return � Example 8 and example of NPV 5
Credit, Fin & loans Vehicle finance: � � Finance and monthly payment calc’s � Residual � Example 9 Securitisation finance � Working and structure � Parties and steps � Assignment � Credit, Fin & loans THANK YOU!! 6
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