The Lee Kong Chian School of Business
Academic Year 2013/14
Term 2
FNCE229 BANK FINANCING & CREDIT MANAGEMENT
Instructor Name
Title
Tel
Email
Office
: Siew Tong FOCK
: Visiting Professor of Finance (Practice)
:
:
:
COURSE DESCRIPTION
This course is structured to provide participants with a conceptual foundation of bank financing and to apply
the principles and techniques specifically to corporate lending decisions in financial institutions. The loan
portfolio is generally the major asset category on a commercial bank’s balance sheet. The establishment and
management of this asset require the understanding and application of appropriate techniques to achieve good
loan quality, control, monitoring and management of credit risk factors to achieve loan repayment. Given the
severe negative impact of the most recent global financial crisis, a good understanding of the nature, scope and
impact of credit risk in the financial industry and economy at large is of paramount importance. The course
aims to prepare you with a foundation in making good lending decisions if you are interested in pursuing a
career in the banking industry and specifically in the corporate banking business.
LEARNING OBJECTIVES
By the end of the course, students will be able to:
 Apply the theories and techniques of corporate lending to lending practices in banks
 Explain the different dynamic market forces that impact the corporate lending business
 Apply the different financial analytical processes involved in the practice of lending
 Discuss how the different lending rationales can be applied in the consideration of any lending proposal
 Identify the psyche of bank lenders and what they look for from potential borrowers in the
recommendation of loans
 Identify the nuances and practicalities as well as apply the techniques of problem loan workouts
PRE-REQUISITE/ CO-REQUISITE/ MUTUALLY EXCLUSIVE COURSE(S)
Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for
this particular course. Do note that if this course has a co-requisite, it means that the course has to be taken
together with another course. Dropping one course during BOSS bidding would result in both courses being
dropped at the same time.
Participants are expected to have already acquired basic knowledge of accounting and understanding of financial
analysis.
ASSESSMENT METHODS
Class discussion and participation in case discussions in class:
Quizzes in class throughout the term:
Group Project Assignment/Presentation (Weeks 11 & 12):
Final quiz (Week 14):
Total:
20% (throughout the term)
20%
30%
30%
100%
1
Academic Integrity
All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts
of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic
work of other students) are serious offences.
All work (whether oral or written) submitted for purposes of assessment must be the student’s own work.
Penalties for violation of the policy range from zero marks for the component assessment to expulsion,
depending on the nature of the offence.
When in doubt, students should consult the course instructor. Details on the SMU Code of Academic
Integrity may be accessed at http://www.smuscd.org/resources.html.
INSTRUCTIONAL METHODS AND EXPECTATIONS
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Interactive class seminars
Readings of current financial news
Case studies
Group project presentation
Quizzes
Final Quiz
Class participation: Participants will be graded on quality of participation in class and engagement in the course.
Participants are strongly encouraged to read ahead of the session and to read widely on current financial news
as the course encompasses wide coverage of bank financing. Participants are expected to comment and share
their thoughts on current financial news that impacts the business of bank lending at the beginning of each class
session. Participants are expected to prepare and participate actively in class case discussions.
Project: Group Assignment/Presentation aims to provide participants with the opportunity to learn by doing
(internalization of concepts) in groups of up to five. The assignment involves a thorough study and analysis of a
lending case or actual financial event. The deliverable will be the PowerPoint slides. Presentations will be
strictly limited to 20 minutes (excluding 5 minutes of Q&A). The group size will be taken into account when
grading (group sizes should be between two and five).
Regular quizzes given throughout the course serve to allow participants to measure what they have learned,
internalized and applied the concepts taught in class. Participants will be assessed ability to synthesize, depth of
analysis and application of concepts.
Final quiz: The format will be written analysis and conclusions related to a loan proposal. It will be an open
book quiz.
RECOMMENDED TEXT AND READINGS
Title: Credit Analysis – A Complete Guide (RHH)
Author: Roger H. Hale
Publisher: John Wiley & Sons, Inc
ISBN: 0-471-88725-0
2
WEEKLY LESSON PLANS
Week #
(Week
Commencing)
Topic / Assignments
Readings
Importance of lending to banks and introduction of
financial concepts and techniques
Introductions and course administration
1&2

Context of what it means to be a bank lender compared
to a pawnbroker and money lender

Context of bank financing in universal banking and
commercial banking practice

Bank financing and the BIG picture of major global
market forces and their impact on the bank lending
activities

Impact of global financial crisis on bank lending

Attributes of a good corporate lender

Answers to fundamental issues and questions in bank
financing
RHH Chapters 1, 2, &
12

Overview of importance of bank financing to banks and
to the economy
Seminar Outline Notes

Understanding key financial and credit concepts, and
principles of lending;-
()
a) Use of financial statement logic
b) financial analysis
c) sources and uses of cash
d) credit analysis

Introduction to basic lending rationales :i)
Asset conversion lending
ii)
Cash flow lending
iii) Asset protection lending
Mini Case Study Discussion in Week 2 on Travel Unlimited
Case (Mini case to be given out in Week 1)
Short term lending to businesses and application of
asset conversion lending and asset protection lending
rationales
3
()
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Reasons for banks to extend short term loans
Users of banks’ short term loans
Usage of banks’ short term loans and its relationship to
nature of operations of borrowers
Understanding borrower’s asset conversion cycle of
business
How the steps in the asset conversion cycle of business
RHH Chapters 4 & 6
Seminar Outline Notes
3
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is financed by short term loans
Risk analysis of borrower’s ability to complete its asset
conversion cycle
Important principles of short term lending
Unsecured versus secured short term lending :
rationales and considerations
Differentiation of business risk and financial risk to the
bank lender
Quiz on use of financial statement logic and mini case
assigned in class
Long term lending to businesses and application of
cash flow lending rationale
4
()
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Nature and purpose of term loans
Purpose of term loans
Structure of term loan agreements
Sources of repayment for term loans
Factors considered by banks in term lending
Cash flow projections
RHH Chapters 3 & 9
Seminar Outline Notes
Basic Financial & Credit Analysis
5
()
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Techniques of good credit assessment
Financial analysis of accounting statements,
interpretation of accounts, financial ratio analysis,
profitability analysis and cash flow analysis
Evaluating qualitative factors in lending situations
Full blown case teaching and discussion on Butler
Lumber Case in Week 5 to apply the financial and
credit analytical process in loan consideration by
bank lenders
6
()
Credit Control & Loan Management
 Bank’s credit policy
 Bank’s credit administration requirements
 Credit rating of loan portfolio
 Credit loan review and recommendation
 Loan review recommendations and presentations
RHH Chapters 5 and
Note on Introduction
to Financial Ratios and
Financial Statement
Analysis
Butler Lumber
Case Preparation
RHH Chapter 11
Seminar Outline Notes
Problem Loans and Loan Workouts
7
()
8
()
 Causes and signs of problem loans
 Analysis of problem loans
 Problem loan administration
 Loan workout strategies
Class quiz on loan workout case to be assigned in
class
Seminar Outline Notes
Term Break
Meetings with All Groups on the Group Projects
4
Ethical and Professional Standards of Bank Lenders
9
()
10
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Fundamental understanding of business ethical issues
Relationships with and responsibilities to the banking
profession/employer
 Relationships with and responsibilities to clients and
prospects
Screening of movie : The Inside Job
Discussion and comments on major themes related to ethics
and banking in the movie
Case study for class discussion in week 10 to be given out in
class
Seminar Outline Notes
Class discussion on assigned case study
Assigned case study
()
Group project presentations (30% of the total grade)
11
()
The deadline for submission of the SOFT COPY of
slides used in the presentations in Weeks 11 & 12 to
be emailed to instructor on Sunday of Week 10 latest
at 2359 hrs. To be equitable, no changes to the slides
will be entertained thereafter
12
()
Group project presentations
13
()
Recap of major themes covered in the course
14
F Final quiz (30% of total grade) -2hours (during
scheduled class session)
()
5