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Emerging Market Bank Lending and Credit Risk Control
Evolving Strategies to Mitigate Credit Risk, Optimize Lending Portfolios, and Check Delinquent Loans
1st Edition - August 3, 2015
Author: Leonard Onyiriuba
Language: English
Hardback ISBN:9780128034385
9 7 8 - 0 - 1 2 - 8 0 3 4 3 8 - 5
eBook ISBN:9780128034477
9 7 8 - 0 - 1 2 - 8 0 3 4 4 7 - 7
Using a framework of volatile markets Emerging Market Bank Lending and Credit Risk Control covers the theoretical and practical foundations of contemporary credit risk with impl…Read more
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Using a framework of volatile markets Emerging Market Bank Lending and Credit Risk Control covers the theoretical and practical foundations of contemporary credit risk with implications for bank management. Drawing a direct connection between risk and its effects on credit analysis and decisions, the book discusses how credit risk should be correctly anticipated and its impact mitigated within framework of sound credit culture and process in line with the Basel Accords.
This is the only practical book that specifically guides bankers through the analysis and management of the peculiar credit risks of counterparties in emerging economies. Each chapter features a one-page overview that introduces its subject and its outcomes. Chapters include summaries, review questions, references, and endnotes.
Emphasizes bank credit risk issues peculiar to emerging economies
Explains how to attain asset and portfolio quality through efficient lending and credit risk management in high risk-prone emerging economies
Presents a simple structure, devoid of complex models, for creating, assessing and managing credit and portfolio risks in emerging economies
Provides credit risk impact mitigation strategies in line with the Basel Accords
Upper-division undergraduates, graduate students, and professionals worldwide working in banking, financial intermediation, and regulation, especially in respect to emerging markets
Statement
Dedication
About the Author
Preface
Acknowledgments
Part I. Background, the Setting and Perspective
Overview of the Subject Matter
Chapter 1. Questions in the Making of Emerging Economies and Markets
Learning Focus and Outcomes
Setting the Scene
Risk in Countries Evolving into Emerging Economies
Background—A Historical Perspective
Developed, Developing, and Emerging Economies
Lessons of the Asian Tiger, BRICS, and Tiger Economies
Strictly Defining Emerging Economies
Comparing Emerging Economies with Emerging Markets
Questions for Discussion and Review
Chapter 2. Conceptual Survey of Risk and Its Applications in Banking
Learning Focus and Outcomes
Creation of Risk—A General Overview
Defining Risk and Its Relationship to Uncertainty
Common Banking Risks in Emerging Economies
Bank Credit Risk Management Process—An Overview
Questions for Discussion and Review
Chapter 3. Insights into Bank Credit Risk Issues in Emerging Economies
Learning Focus and Outcomes
Defining Bank Credit Risk Crisis in Emerging Economies
The State of Banks Lending and Credit Risk Crisis in Emerging Economies
Bank Credit Risk Peculiarities of Emerging Markets
Culprits for Bank Credit Risk Crisis in Emerging Markets
Illegal Lending and Credit Fraud
Questions for Discussion and Review
Chapter 4. Putting the Bank Lending Process in Emerging Markets into Perspective
Learning Focus and Outcomes
Characterizing the Credit Process
Attracting Appropriate Credits
Letter of Application for Loan
Acknowledgment of Loan Application
Credit Checks and Inquiries
Credit Analysis
Credit Approval
Questions for Discussion and Review
Chapter 5. Bank Credit versus Equity and Economic Performance of Emerging Markets
Learning Focus and Outcomes
Issues in Raising Financing for a Business Venture
Plan and Private Placement for a Business Venture
Financial Appraisal of the Business Plan
Frustration of a Noble Business Plan
Economic Performance of Emerging Markets
Questions for Review and Discussion
Part II. Bank Credit Markets, Taxonomies and Risk Control
Sources of Lending Transactions and Credit Risk
Chapter 6. Market Analysis for Credit Risk Control in Emerging Economies
Learning Focus and Outcomes
Market Segmentation and Analysis
Retail Banking Sector
Consumer and Private Banking Sectors
Commercial Banking and Middle-tier Markets
Corporate Banking Sector and Customers
Government and the Public Sector
Questions for Discussion and Review
Chapter 7. SME Credit Risk, Analysis, and Control in Emerging Economies
Learning Focus and Outcomes
Defining Small and Medium-Sized Enterprises
Motivations of SME Entrepreneurs
Significance of SMEs for Emerging Market Economies
SME Attributes, Business Practices, and Credit Risks
SME External Financing Needs
Appraising an SME Project for Bank Lending
Abridged Feasibility Study of SME Business Venture
Constructing and Analyzing Financials for an SME Feasibility Study
Securing SME Credit Facilities
Questions for Discussion and Review
Chapter 8. Sectoral and Industry Credit Risk and Control in Emerging Economies
Learning Focus and Outcomes
Trading and Commercial Services
Agricultural Production and Risk Control
Manufacturing Industry Credit Risk and Control
Energy (Oil and Gas) Sector Credit Risk and Control
Telecommunications Sector Credit Risk and Control
Social Projects Credit Risk and Control
Questions for Discussion and Review
Short-term Lending and Recurrent Credits
Chapter 9. Advance, Overdraft, and Current Line Risks and Control
Learning Focus and Outcomes
Contrasts and Similarities
Direct Advance
Overdraft Facility
Business (Asset Conversion) Risk
Questions for Discussion and Review
Chapter 10. Margin Lending, Credit Risk, and Stock Markets in Emerging Economies
Learning Focus and Outcomes
The Stock Market: Going from Boom to Bust
Regulatory Intervention to Stem the Tide of a Hammer Blow
Defining Margin Lending
Benefits of a Margin Loan to the Borrower
Margin Lending Risks, Analysis, and Control
Questions for Discussion and Review
Chapter 11. Asset-Based Transactions, Lending and Credit Risk Control
Learning Focus and Outcomes
Overview of Asset-based Lending
Receivables Discounting Facility
Inventory Refinancing Facility
Purchase Order Finance
Risks of Purchase Order Finance
Questions for Discussion and Review
Chapter 12. International Trade Financing, Payments and Credit Risk Control
Learning Focus and Outcomes
Overview of Trade Finance
Nondocumentary Payment
Documentary (Letter of Credit) Payment
Risks of Lending and Mitigation
Questions for Discussion and Review
Medium and Long-term Lending
Chapter 13. Term Loan Structuring and Risk Control in Emerging Economies
Learning Focus and Outcomes
Lending versus Deposit Structure
Causes of Long-term Borrowing
Risk Analysis and Mitigation
Questions for Discussion and Review
Chapter 14. Mortgage Risks, Control, and Property Market in Emerging Economies
Learning Focus and Outcomes
Openings and Boom to Bust in Mortgage Lending
Assessing Borrowing Causes
Characterizing Mortgages
Risk Analysis and Mitigation
Other Credit Issues
Questions for Discussion and Review
Chapter 15. Lease Financing Risk and Control in Emerging Markets
Learning Focus and Outcomes
Meaning of Leasing and a Lease
Forms and Features of Leases
Finance Lease
Operating Lease
Other Lease Derivatives
Elements of a Lease Transaction
Risk Analysis and Mitigation
Optimizing Lease Portfolio
Questions for Discussion and Review
Hybrid and Irregular Credit Facilities
Chapter 16. Off-balance Sheet Bank Lending, Exposure and Risk Control
Learning Focus and Outcomes
Off-balance Sheet Credits and Risk Exposure
Bank Guarantee
Banker's Acceptance
Commercial Paper
Contract Finance, Risks, and Analysis
Questions for Discussion and Review
Chapter 17. Consumer and Credit Card Lending in Emerging Economies
Learning Focus and Outcomes
Overview of Consumer Loans
Credit Card Risks, Analysis and Control
Defining Credit Card Risk
Incidence of Default
Default Dynamics
Mitigating Credit Card Risk
Control of Credit Risk
Institutionalizing the Credit Card Process
Global Challenges for Banks in Emerging Economies
Lessons for Banks in Emerging Economies
Implications for Banks in Emerging Economies
Questions for Discussion and Review
Chapter 18. Micro Sector Credit Risk Control in Emerging Economies
Learning Focus and Outcomes
Scope of, and Need for, Microfinance Credits
Cultural Background
Risk Identification and Analysis
Mitigation of Risks of Microfinance Lending
Other Risk Control Measures
Questions for Discussion and Review
Chapter 19. Loan Syndication Risk and Control in Emerging Economies
Learning Focus and Outcomes
Causes of Syndication Lending
Meaning and Benefits of Syndication
Parties and Roles in Syndication
Categories of Syndication Deals
Legal and Other Documentation
Commitment, Fees, and Servicing
Risk Analysis and Mitigation
Questions for Discussion and Review
Part III. Credit Risk Dynamics, Analysis, and Management
Approach to Credit Risk Management
Chapter 20. Evolving Control of Bank Lending and Credit Risk in Emerging Markets
Learning Focus and Outcomes
Overview
Naive Lending Era
Awakening Stage
Regulatory Intervention
Financial Meltdown and Bailout
Reawakening Stage
Questions for Discussion and Review
Chapter 21. Emerging Markets and Debate on Framework for Credit Risk Control
Learning Focus and Outcomes
Credit Risk Framework Debate
Qualitative Principles versus Mathematical Models
Revisiting the Qualitative Approach
Questions for Discussion and Review
Chapter 22. Fine-tuning Principles of Bank Lending for Emerging Markets
Learning Focus and Outcomes
Tinkering with Qualitative Principles
Bulwark Against Credit Risk
Criteria of Contemporary Bank Lending
Cardinal Principles of Bank Lending
The Fine-tuning Required
Questions for Discussion and Review
Analytical Framework for Credit Risk Control
Chapter 23. Cash Flow Analysis and Lending to Corporate Borrowers
Learning Focus and Outcomes
Concept and Value of Cash Flow
Identifying Cash Flow Sources
Obtaining Cash Flow Information
Unique Attributes of Cash Flow
Elements of Cash Flow Analysis
Cash Flow Analysis Formulae
Cash Flow Debt Service Ratios
Illustrations and Analysis of Nigerian Breweries PLC
Questions for Discussion and Review
Chapter 24. Analyzing and Interpreting Financial Statement for Corporate Lending
Learning Focus and Outcomes
Assessing Business, Financial, and Performance Risks
Spread Sheet
Liquidity of the Borrower
Borrower's Leverage
Assets Utilization
Operating Efficiency
Cash Flow Position
Questions for Discussion and Review
Chapter 25. Bank Credit Structuring, Analysis and Approval in Emerging Markets
Learning Focus and Outcomes
Marketing and Relationship Issues
Factors Affecting Loan Structure
Elements of Loan Structure
Questions for Discussion and Review
Chapter 26. Emerging Market Issues in Structuring Bank Credit Facilities
Learning Focus and Outcomes
Bank's Commitment to Lend
Conditions Precedent
Representations and Warranties
Covenants of the Borrower
Events of Default
Qualities of Good and Well-structured Credit
Questions for Discussion and Review
Chapter 27. Credit Analysis Memorandum Fitted for Banks in Emerging Markets
Learning Focus and Outcomes
Aptitude of the Analyst
Meaning and Importance of a CAM
Elements of a CAM
Introduction: The Starting Point
Summary of Loan Terms
Borrower's Background
Ownership, Business, and Management
Proposed Credit
Transaction Dynamics
Market and Industry Analysis
Financial Analysis
Risk Analysis and Mitigation
Collateral Evaluation
Lending Rationale
Profitability Analysis
Ways-Out Analysis
Other Considerations
Recommendation
Questions for Discussion and Review
Loan Documentation, Review and Compliance
Chapter 28. Authorization and Responsibility for Bank Credit in Emerging Markets
Learning Focus and Outcomes
Credit Strategy Committee
Credit Approval Form
Credit Approval Issues and Options
Questions for Discussion and Review
Chapter 29. Security and Documentation of Credits in Emerging Economies
Learning Focus and Outcomes
Basis and Benefits of Security
Classifications of Security
Types of Security
Other Forms of Security
Problems of Security
Questions for Discussion and Review
Chapter 30. Administering Credit and Portfolio Risk in Emerging Markets
Learning Focus and Outcomes
Overview of Credit Admin
Need for Credit Administration
Bulwark Against Inefficient Lending
Rendition of Credit Returns
Credit and Market Reports
Administrative Framework
Contemporary Challenges
Making Credit Admin Work
Questions for Discussion and Review
Managing Non-Performing Credit Facilities
Chapter 31. Incidence and Crisis of Delinquent Loans in Emerging Markets
Learning Focus and Outcomes
Meaning of “Bad Debt” in Banking
Summary of General Observations
Critical Causes of Loan Default
Questions for Discussion and Review
Chapter 32. Demystifying Loan Default Warning Signs in Emerging Markets
Learning Focus and Outcomes
Unusual Customer Actions
Changing Loan Attributes
Third-Party Inquiries
Other Views on Loan Default
Implications for Bank Management
Effect on Market Competition
Banking Relationship Concerns
Questions for Discussion and Review
Chapter 33. Loan Workout and Remedial Actions for Banks in Emerging Markets
Learning Focus and Outcomes
Watch List Committee
Loan Remediation Actions
Primary Actions
Secondary Actions
Questions for Discussion and Review
Chapter 34. Proofed Strategies for Recovery of Bad Loans of Banks in Emerging Markets
Learning Focus and Outcomes
Stakes in Loan Recovery
Approaches, Options, and Strategies
Questions for Discussion and Review
Chapter 35. Obstacles to Recovery of Bad Loans in Emerging Economies
Learning Focus and Outcomes
Statement of the Problem
Large-Loan Exposures
Unsecured Lending
Compromising Loan Officers
Influential Borrowers
Flawed Legal System
Collusion with Bank Employees
Questions for Discussion and Review
Part IV. Asset Portfolio Quality, Risk and Control
Basel Accords and Credit Portfolio Issues in Emerging Economies
Chapter 36. Applications of Basel Accords in Emerging Economies
Learning Focus and Outcomes
Toward Basel I and Basel II Accords
Making of Basel Accords
The Basel Committee
Basel I Accord
Basel II Accord
Questions for Discussion and Review
Chapter 37. Bank Credit and Capital Regulation and Supervision in Emerging Economies
Learning Focus and Outcomes
Defining Issues in Banking Regulation in Emerging Economies
Autonomy for Banking Regulatory Authorities
Albatross for Banking Supervision
Revisiting the question of insider abuse
Basel Accords approach—Capital charges for credit risk
Basel Capital Accord
Regulation of bank capital in emerging economies
Regulating Bank Liquidity Risk in Emerging Economies
Regulatory Response to Failing Banks in Emerging Economies
Questions for Discussion and Review
Chapter 38. Bank Credit Portfolio Structure, Quality, and Returns in Emerging Economies
Learning Focus and Outcomes
Elements and Composition of Assets Portfolio
Credit Concentration and Risk
Portfolio Distribution and Maturity Profiles
Questions for Discussion and Review
Index
No. of pages: 738
Language: English
Edition: 1
Published: August 3, 2015
Imprint: Academic Press
Hardback ISBN: 9780128034385
eBook ISBN: 9780128034477
LO
Leonard Onyiriuba
Leonard Onyiriuba is a leading banker and author on banking. He started a career in banking in 1991 after a stint as a lecturer in the university. As a banker, he was at various times group head (commercial banking), regional director (Lagos), and divisional director (corporate banking). He currently runs a financial consultancy in Lagos, Nigeria - with a commitment to helping clients succeed. His books include “Analyzing and Managing Risks in Bank Lending” (2004), “Drive and Tasks in Bank Marketing” (2008), “Dictionary and Language of Banking” (2010), “Credit Risk: Taming a Hotbed of Reckless Banking” (2013), and “Banking Processing Risks and Control” (2014).
Affiliations and expertise
NFS Data Bureau Limited, Lagos, Nigeria
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