FINA 2343 Lending and Credit in Private and Corporate Banking (1) Professor Anna Wong Ms. Amy Chun HKU Business School University of Hong Kong Semester 1, 2023-2024 Mondays, 9:30 a.m. – 12:20 p.m. (LE3) Tuesday, 1:30 p.m. – 4:20 p.m. (LE7) Tutor – Ms Grace Tsang (gtsangwk@hku.hk) Summary The course covers the key elements of lending and provision of credit facility in banks, including corporate clients and private banking clients. Lending and credit is a key component of a banking relationship and an important source of revenues for banks. Lending and credit products involve risks to the banks and to the clients. The business of lending and the provision of other credit facilities is intrinsically linked to the management of risk on the bank’s side. The use of borrowings and entering into leveraged products/transactions is equally a process of risk awareness and risk management for the clients. For corporate banking credit analysis, the course starts with the revision of basic accounting concepts, and reading and understanding of a company’s annual report and its financial statement. This includes spreading of the financial statement, understanding of financial ratios and the use of financial ratios in credit analysis. Identification of business risks and financial risks and evaluate a lending situation will be reviewed. For private banking credit analysis, the course starts at an understanding of the benefits and risk of lending, and then discuss about collateralized facilities with an understanding of different types of collaterals and different types of lending situations. The students are expected to make credit recommendation on respective corporate and private banking clients. First class, mid-term examination, last class and final examination First class: 4th/ 5th September, 2023 Mid-term examination: 4th November, 2023 Last class: 27th/ 28th November, 2023 Final in-hall examination: TBC 1 1. Course Overview Aims and Objectives Corporate Banking - The course aims to provide students with a tool to perform a credit risk analysis on a company including financial statement analysis, application of financial ratios and understanding of business risks. Students are expected to draw a conclusion of the creditworthiness of a prospective borrower and make a credit recommendation/decision based on the analysis. Private Banking – the course aims to provide students with a tool to analyse the different types of collaterals and monitoring of marked-to-market value of the underlying collaterals. Identification of the risks and benefits of leveraging to both the bank and the client. Teaching/Learning Methodology/Methods The course adopts a practical approach and teaches the students the real life experience of a credit analyst/relationship manager in a Corporate Bank or a Private Bank in dealing with risk analysis and financial analysis. The annual report of a listed company “Luen Thai Holdings Limited” will be adopted as a real life example of how credit analysis is being performed in a bank. While there is course materials or reference materials as listed in (2) below, it is insufficient to meet the course objectives from purely reading the textbook and the materials. Class attendance is essential in order to fully understand the concepts and the application of such concepts. The course organised in a lecture format, but students are expected to do instant application of concepts and make contributions to questions and answers. Spreadsheets (on financial statement information) will be built during classroom time, and each class will build on the spreadsheet developed in the prior class. Students are expected to participate actively in classroom exercise and/or classroom discussions. Preparation for the class is expected. Students MUST bring with them a laptop with Excel spreadsheet function and a mobile device for in-class quiz. Lecture slides or notes will be uploaded to Moodle prior to lecture time. Students are expected to quickly review the teaching slides and other required pre-readings in order to prepare for the class. Take-home Assignment & Preparation Take-home assignment and next class reading/preparation materials will be provided at end of the class. Other than assigned reading materials, the take-home assignment is in itself a preparation for the next class. Students are expected to submit the take-home assignments on time, the deadline is 2 p.m. of the Thursday following the class. The take-home assignment will be either reviewed at tutorial session or at the start of the next class. The assignment must be submitted via Moodle. No late submission will be accepted. 2 Course Outcomes At the end of the course, students should be able to: - Recapture the financial information in the financial statement into a “spreadsheet” format for further financial analysis (“spreading”) - Build a cashflow statement from the balance sheet and profit and loss statement - Understand the different financial ratios and the application of financial ratios in financial analysis and risk analysis - Understanding of lending principles and lending rationales - Identify the key risks in the company’s operations – business risks and financial risks - Identify key mitigating factors - Ability to perform a meaningful financial analysis / risks analysis - Ability to make a credit recommendation / credit decision - Understanding the purpose and concept of collateralised lending - Understanding the risks elements of different kinds of collateral - Understanding how margin are calculated and monitored 2. Course Materials Text materials Luen Thai Holdings Limited (311) 2021 Annual Report Luen Thai Holdings Limited (311) 2022 Annual Report https://www2.luenthai.com/investor-relations/#financial-reports https://www1.hkexnews.hk/listedco/listconews/sehk/2023/0425/2023042500767.pdf Reference Materials Commercial Lending – Principles and Practice, Adrian Cudby, Chartered Banker, KoganPage 3. Assessment The course assessment will be based on combination of in-class attendance, take-home assignment, mid-term examination and final examination. Weighting is as per table. attend class sat Assessment method Brief description Weight In class attendance Take home assignments and tutorial participation Mid-term examinations* In class attendance Quantitative analysis and applications, short questions/answers Case study, quantitative analysis and short essay answers Case study, quantitative analysis and short essay answers 10% 15% Final examination* *You must attend both examinations for an 3overall assessment 35% 40% 4. Other Information Attendance Regular class attendance is expected. Given this course is using a practical industry approach, purely textbook and self-study are generally insufficient to meet the assessment demand of the course. Video recording of lectures To facilitate your revision, all classes will be video-taped and posted on Moodle. You are strongly encourage to visit the recording for revisions and preparation of the mid-term and the final examination. Tutorials Tutorial sessions will be arranged to enhance your understanding of the course and to review assignments. You are encouraged to prepare for the tutorials and share your views. Details to be communicated by the tutor. 5. Office Hours By appointment via email at awong81@hku.hk, and amychun@hku.hk 4 6. Course Syllabus Seminar No. 1 4th/ 5th Sept 2023 Readings: Course introduction and overview Review of accounting concepts of assets and liabilities Spreading and understanding of a financial statement Course outline Luen Thai Holdings Limited 2022 Annual Report (p. 71-76) Seminar No. 2 Spreading and understanding of notes to a financial statement th th 11 / 12 Sept 2023 (cont’d) Readings: Commercial Lending, Chapter 2 Luen Thai Holdings Limited 2022 Annual Report (p. 71-76) Seminar No. 3 Full spreading and understanding of notes to a financial statement 18th/ 19th Sept 2023 Readings: Commercial Lending, Chapter 2 Luen Thai Holdings Limited 2022 Annual Report (p. 71-76) Seminar No. 4 Financial ratio analysis th th 25 / 26 Sept 2023 Readings: Commercial Lending, Chapter 2 Luen Thai Holdings Limited 2022 Annual Report (p. 71-76) Luen Thai Holdings Limited 2022 Annual Report (p. 109-155) 2nd/ 3rd Oct 2023 Seminar No. 5 9th/ 10th Oct 2023 Readings: Public Holiday Business risks and financial risks Luen Thai Holdings Limited 2021 Annual Report (whole annual report) Luen Thai Holdings Limited 2022 Annual Report (whole annual report) 5 16th/ 17th Oct 2023 23rd/ 24th Oct 2023 Reading Week Public Holiday Seminar No. 6 Lending principles & Liquidation analysis th st 30 / 31 Oct 2023 Readings: Luen Thai Holdings Limited 2021 Annual Report (whole annual report) Luen Thai Holdings Limited 2022 Annual Report (whole annual report) 4th Nov (Saturday) Seminar No. 7 6th/ 7th Nov 2023 Readings: Mid-term examination Cashflow Statement Luen Thai Holdings Limited 2021 Annual Report (whole annual report) Luen Thai Holdings Limited 2022 Annual Report (whole annual report) Seminar No. 8 13th/ 14th Nov 2023 Cashflow Statement (cont’d) Introduction of Private Banking. What is lending and leverage in Collateral analysis and risk monitoring. Seminar No. 9 Private Banking. What is lending and leverage in Collateral analysis 20th/ 21st Nov 2023 and risk monitoring. What are the benefits and risks to the investor and to the bank? Seminar No. 10 27th/ 28th Nov 2023 Collateral analysis and risks monitoring (cont’d) Overall Revision and Preparation for the Final Examination TBC Final Examination 6
