TOOL C1
The purpose of this tool is to help you prepare for client visits and credit proposals by
(i) identifying and prioritising all risk factors influencing a client’s cash flow
(ii) assessing whether those factors are risks or natural mitigants
(iii) Identifying any business opportunities for the bank
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Business Risks (4C’s & 3M’s)
| Factor | Risk? | Natural Mitigant? | Business Opportunity? | |
|---|---|---|---|---|
| Risks arising from the day-to-day operation of the client, including sovereign / country risks, the macro-economic environment, industry dynamics, the client’s position in its sector of industry, and the client’s management. |
Financial Risks
| Factor | Risk? | Natural Mitigant? | Business Opportunity? | |
|---|---|---|---|---|
| Revenues and Profitability i.e. a client’s ability to generate profits, which ultimately drive cash flow. Asset Management i.e. a client’s ability to ensure assets are being used efficiently to optimise profits (and ultimately cash flow) Leverage and Debt Capacity i.e. the client’s usage of – and reliance on – external funding, and its capacity to raise and support debt on a sustainable basis. Debt Service and Liquidity i.e. the quality of a client’s operating cash flows; the ability of the client to meet all business-related and financial charges from ongoing cash flows; and the ability to tap alternate sources of internal and external sources of funds to meet all current / contingent obligations when they become due. |
| Factor | Risk? | Natural Mitigant? | Business Opportunity? | |
|---|---|---|---|---|
| The risks that the bank/investor does not have direct access to the client’s cash flows, contracts, and/or assets, as a result of the group structure, intra-group arrangements, seniority of the debt claim, collateral held by other creditors, etc. |
