Credit, Fin & loans Content: Credit fundamentals Project - - PDF document

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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

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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

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Collection policy 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

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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
• f 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

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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

• pening capital balance). How much capital will he owe
• n his bond on 1 April 2007, and what will the value of

his investment be?

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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

• f 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

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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!!