TOOL H1
This tool will help you to analyse the key risks in a structured manner.
• Group / family relationship
• Draw an organisation chart
• Compare financial strength of the legal counter party/-ies and credit case
What are we asking the decision marker to approve?
Credit Need:
• Description and purpose
• Requested credit amount
• Proposed facility and repayment sourceCredit Need:
• Description and purpose
• Requested credit amount
• Proposed facility and repayment source
Review:
• Has the risk profile changed?
• Have all issues raised on last approval been covered?
• Does the depth of analysis match the change in risk profile?
Credit Risk Grid
| Factor | Risk? | Natural Mitigant? | Business Opportunity? | |
|---|---|---|---|---|
| BUSINESS RISK (4C’s & 3M’s) 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 | Opportunity | Opportunity | ||
| FINANCIAL RISKS 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 optimize 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. | ||||
| GROUP STRUCTURE RISK 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. |
Credit Base Risk Conclusion
• Internal dynamic monitoring required for key risks?
• Level of reliance on natural mitigants?
• Probability of further successful business development?
• In line with our strategy for client relationship and risk reward?
• Consistency of analysis and advice?
