MAF305 Topic 8 CreditAnalysis Loan Portfolio 2015 FV (1).ppt

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Provisions of Loan Losses in Australia * Common Reasons for Loan Losses Collateral overvalued Personal relationship of loan officer with borrower (non-objective) – adverse selection Increasing loan without increasing collateral Not analysing borrower cash flow and repayment capacity Failure to regularly review loan status Funds not applied as represented – moral hazard Funds used outside of bank’s market area * How to Control Loan Losses ‘Autopsy’ loan losses regularly Loan review over 90 days in default – consider non-performing loan Look at loan policies, loan officers and loan review function Securing Collateral Real property - Mortgage must be recorded with Titles Office Personal property In lender’s possession - Borrower completes pledge agreement In customer’s possession - Register charge or equitable mortgage * Remedies for Default If loan is unsecured: Legal action for damages Application for liquidation or bankruptcy If loan is secured: Enter into possession if a mortgage Undertake a foreclosure by obtaining full title and selling off borrower’s assets Move to receivership by court appointed receiver File a creditor’s petition under Bankruptcy Act if for an individual Apply for liquidator to wind up company * Multiple Choice Question 5 ‘Migration analysis’ in the context of loan management refers to: A. a list of loans that need special attention B. data to keep track of customers who change their address C. a method for longitudinal tracking over time of the outcomes of loans in a given class D. an approach to linking the loan portfolio to net earning liquid assets Ans C * Multiple Choice Question 6 Assume that the maximum loss as a percentage of capital is 12% of an FI’s capital to a particular sector. The FI’s concentration limit on this sector 38%. What is the sector’s loss rate (round to two decimals)? A. 4.56% B. 23.00% C. 31.58% D. 3.16%. Ans C 0.38 = 0.12*1/x 0.38x