Hello, I understand that you have a busy schedule, and I hope not to disturb you too
much while you're working. Currently, I am actively preparing for the interview about
central banking (CB). Could you provide me with some guidance on the following:
What aspects of the interest rate does CB focus on? I'd like to understand how CB
considers this in conjunction with other factors.
Interest rate is the core matter we concern about in corporate banking as it directly
impacts our business in several aspects.
Cost of funding of a bank – the government rate (FED, LPR) or hibor will be an
indicator for the cost of liquidity. For instance, in hong kong, the cost of HKD will be
at least to be a hibor, which is the rate for lending between banks within the Hong
Kong market.
Increasing interest expense for corporate – given that the offshore interest rate is
hiking, most of the offshore corporates are encountering high interest expense,
hence, they would like to repay the loan as to reduce their interest expense incurred
by bank borrowing. If you are a banker and your clients are reducing the loan balance
in your portfolio, it would a difficult time for your KPI.
Impact on our global FX market – As discussed, the FED rate offers higher return for
the investors, who are holding USD, when compared to the institutions, who have
substantial investment in RMB. Investors will sell RMB to buy USD for investment in
USD. Hence, RMB will depreciate in the Hong Kong.
I
What key information do I need to know about bonds and loans? I've outlined some
points, but I'm unsure if there's more I need to comprehend. For example, about
loans:
Different types of loans
Mainly:
Syndication loan, Club loan - financing offered by a group of lenders
Bilateral loan - between a borrower and a single lender
On term loan or revolving loan
A loan can be comprised of Term loan or revolving loan on syndicated or bilateral
basis. It depends on the loan size and need. For instance, if the borrower needs
funding from banks for its residential development project, they will arrange a
HKD6Bn 5 yrs club development club loan, formed by several banks. One of the
banks will acts as the agent bank to arrange the club loan. And this development loan
will comprised of 2 tranche. The Tr A will finance a portion of the land acquisition
cost, while Tr B will finance construction cost.
Or it could be a HKD4Bn syndication loan (with HKD1Bn Term Laon and HKD3Bn
revolving loan). The term loan portion is used to only allow 1 time drawdown from
the first drawdown date to the maturity. The RCF portion will allow multiple
drawdown and repayment. You can imagine it is a credit card.
How to calculate loans
Not sure about this question.
Risks associated with loans
I assume this is the question regarding what kind of risk we need to assess when
preparing a credit proposal to seek approval for a loan. Mainly will be the credit risk
of the borrower or its guarantor as well as the facility structure risk. Also, there are
some industry risk, market risk (FX risk, interest risk), business risk (say COVID19 and
city lockdown will restrict the business operation, policy risk in China (say the give
stop some business activities, say stop gaming for child > impact the gaming
corporate, or no more offline tutorial class > negative impact to education company)
Who can offer loans
The financial institution with lending license. It used to banks.
Factors influencing loans
The loans shall follow what have been agreed in the documentation (facility
agreement). It is a hundred page of documentation to define a loan and its operation.
Like including the maturity, margin of the loan, reference loan, repayment and
prepayment clause, drawdown condition, mandatory repayment, event of default.
However, I think it is too advance for a junior as you need several years of experience
in banking to understand most of the clause in a facility agreement, which used to be
prepared by external lawyer on behalf of lenders after they receive the term sheet
from us.
The 3 C's for loans (please provide details)
I copy this from website as it did not read these before.

Character - A lender may use one's credit history to determine whether or not a
person is trustworthy and reliable enough to repay a loan. Considerations may
include prior credit use, timely payment of bills, and the length of time a person
has lived at their current home.
This is talking about the credit history of the borrower whether the borrower has
good record in repaying the loan on time……Frankly speaking, track record…..

Capital - To get a loan, a person needs to show that they've got the money to
repay it if they don't have any revenue coming in at the moment. It is important to
note assets that can be used as collateral for a loan or other financing are
referred to as capital. An individual or business can own capital. This is to mean
both capital and collateral qualify to be categorized as the three C's of credit.

Capacity: This refers to someone's ability to pay back the debt. For a lender, it's
important to know if a person has been consistently employed in a job that
provides adequate revenue to sustain their credit utilization. An individual's
company's capacity to repay loans is the most crucial of the five factors. One
should ensure that their business strategy shows how they intend to repay any
debts.
These 2 factors are more technical to assess the borrower’s capability to serve the
interest payment on schedule and repayment ability. We have to assess whether the
borrower is able to generate enough cashflow to cover the interest expense by
interest coverage rate and DSCR.
Lending ratios > not frequently stated
Loan-to-value ratio > used to be used when we have collateral such as property asset,
for instance, we only finance 50% of the value of the hotel asset. we gotta keep it in a
low level acceptable to lenders and borrower (they want higher) because when the
borrower default, bank will takeover the assets and liquidate the assets for loan
repayment
Liquidity ratios > assess turnaround time of borrower’s AR and AP
Debt-to-cash flow ratio > not frequently used