Advanced Credit Risk

Course Content:

Session 1: Introduction to Analysis

• Course Objectives
• Managing credit analysis
• Setting the objectives and goals of the credit analyst team
• Detailed approach to credit analysis, including individual, sector and portfolio risk
• Predicting, managing and trading through Credit Cycles
• Understanding and employing data derived from probability of default, loss given default and expected loss data
• Setting the parameters for system analysis

Case study/example relevant to above

Session 2: Defining credit risk

• The Basel Accords
• What is credit risk?
• The different types of credit risk
  • Sovereign
  • Corporate
  • Retail
  • Systemic
  • Counterparty
• Concentration risk
• Expected and unexpected losses

Case study/example relevant to above

Session 3: Advanced Review of Financial products

• Loans and overdrafts
• Government and corporate bonds
• Equity and mezzanine debt
• Credit derivatives
• Counterparty exposure from traded products
• Trade finance
• Mortgages
• Credit cards

Case study/example relevant to above

Session 4: Advanced Review of Mitigating and Managing Credit Risk

• The credit time line
• Bad debt, doubtful debt and default
• Credit assessments and scoring
  • Corporate credit scoring
  • Retail credit scoring
• Diversification and portfolio management
• Securitization
• Collateral
• Credit derivatives
• Netting
• Cash flow monitoring
• Recovery management

Case study/example relevant to above

Session 5: Financial ~Reporting

• Detailed and in depth look at company accounts focusing on
• Setting guidelines for key areas to focus on
• IAS and its implications for credit risk analysis
• Profit and loss accounts
• Gearing
• Liquidity
• Debt servicing
• The structure of balance sheets and peer group analysis
• Managing, assessing and using cash flow statements as a useful analysis tool
• Interpreting the Directors report
• Understanding and interpreting the notes to the accounts

Case study/example relevant to above

Session 6: Financial Risk & Cash Flow Analysis

• Using ratios as a working tool
• Quick or rough and ready analysis
• Setting guidelines for key ratios
• Understanding cash flow and what it reveals
• Calculating free cash flow and its relevance
• Economic returns, Economic capital and building real shareholder value
• In depth liquidity analysis using ratios and forecasts
• The importance of positive working capital and the trading cycle
• Stress testing profitability, gearing and cash flow leading to breakeven assumptions
• Using selected financial ratios and recommending suitable lists to avoid overkill

Case study/example relevant to above

Session 7: Valuation

• Techniques of company valuation
• Valuations using various traditional methods
• Valuation as a tool for credit analysis and its relevance
• Understanding and managing concepts and problem issues
• Appreciating the real cost of capital
• Understanding and interpreting free cash flows
• Introduction to discounted flows, NPV and DCF

Case study/example relevant to above

Session 8: Control of Assets

• Pre loan
• Drawdown
• Post lending
• Reporting
• Reacting
• Managing
• Intervention
• Foreclosure
• Proposals

Case study/example relevant to above

Session 9: Credit Committees and Other Risk Controls

• Credit committee
• Lending limits and delegations
• Sanctioning
• Sector and other controls
• Liquidity controls
• Supervision
• Statutory reporting

Case study/example relevant to above

Session 10: Pricing & Required Return

• Risk/reward
• Secured/unsecured
• Return on capital
• Liquidity
• Short & medium term
• Head office expectations

Case study/example relevant to above

Session 11: Sources of funding

• Current accounts
• Deposit and term accounts
• Money markets
• Inter bank markets
• Commercial paper
• Liquidity crisis issues

Case study/example relevant to above

Session 12: Distribution Channels & Technology

• Branch network
• Other organisations
• Internet
• Importance
• Cost
• Client requirements
• Management requirements
• Regulatory Requirements
• Civil Service model
• Shareholder expectations

Case study/example relevant to above

Session 13: Monitoring and Assessing

• How to establish and manage Exposures
• Portfolio management, reviews and analysis
• Internal inspections and reviews –managing the process
• Setting the parameters for analysis using tiers
• Understanding and appreciating the different types of security
• Calculating Exposures statically and dynamically
• Warning signs and how to manage them

Case study/example relevant to above

Session 14: Forecasting and Modelling

• Detailed modelling considerations
• The management and supervision of forecasting
• Implementing stress tests and managing the outcomes

Case study/example relevant to above

Session 15: Structuring

• Understanding and assessing debt instruments and their relevant merits
• Supervising and managing documentation issues, covenants and reporting requirements
• Aggregated structures
• Debt structures, subordination & insolvency regimes
• The assessment of collateral and calculating a range of recovery prospects
• Managing structures and debt capacity to achieve optimum results for all parties

Case study/example relevant to above

Session 16: Rating Agencies

• A detailed look at the underlying rationale
• Recommending systems
• Understanding the relationship between rating agencies and regulatory issues
• A detailed look at Basel II and its implications for capital allocation and shareholder value

Case study/example relevant to above

Session 17: Measurement of Credit Risk

• Designing and implementing credit risk measurement systems
• A detailed understanding of Credit Scoring systems
• Designing and implementing a credit quality monitoring process
• Understanding debt instruments both on and off balance sheet

Case study/example relevant to above

Session 18: Non-Financial Analysis

• Taking a macro and micro view of sector, industry & economic factors
• Using Porter’s model as a management tool
• Understanding and managing the key market forces in your marketplace
• Designing and managing corporate strategies
• The significance and effectiveness of corporate structure
• The helicopter view

Case study/example relevant to above

Session 19: Financial Distress

• What to look for and how to establish systems that flag up automatically
• Designing a referral process
• Allocating responsibilities for action
• Dealing with difficult or intransigent clients
• Implementing recovery systems
• Analysing recovery systems and outcomes
• Learning lessons and building past experience into current thinking

Case study/example relevant to above

Session 20: Calculating credit risk capital under Basel

• Risk-weights and risk-weighted assets
• Credit risk and Basel I
• Ratings and rating agencies
• Basel II and rating agencies
• The approaches for measuring credit risk capital
• Obtaining approval for using a measurement approach
• Data requirements and issues

Case study/example relevant to above

Session 21: The Standardised Approach

• The nature of the Standardised Approach
• The Standardised Approach’s asset classes and risk-weights
• Off-balance sheet items
• Difference between Basle I and Basel II

Case study/example relevant to above

Session 22: The Internal Ratings-Based approaches

• The nature of the IRB Approaches
• The IRB approaches and asset classes
• The IRB parameters
• Foundation based IRB Approach
• The Advanced IRB approach
• Backtesting
• The usage test

Case study/example relevant to above

Session 23: Securitization and credit derivatives

• The nature of securitization
• True sale
• The role of banks
• Securitization under Basel II
• The Standardised Approach
• The Rating-Based Approach
• The Supervisory Formula
• Internal Assessment Approach

Case Study: The treatment of credit derivatives

Session 24: Collateral

• Haircuts
• Collateral under Basel II
• The effect of collateral on credit risk capital
• The Simple Approach
• The Comprehensive Approach
• The Advanced Comprehensive Approach

Case Study

Session 25: Project Finance

• Characteristics
• Viability
• Financial analysis
• Project Evaluation
• Structures
• Programmes
• Monitoring
• Pricing
• Controlling

Case study/example relevant to above

Session 26: Public Private Partnerships

• Characteristics
• Purpose & Objectives
• Financial analysis
• Project Evaluation
• Structures and policy considerations
• Monitoring
• Pricing &Controlling

Case study/example relevant to above

Session 27: Leveraged Debt

• Characteristics
• Level 1, 2 & 3
• Mezzanine finance
• Management Buy Outs
• Cash flow lending
• The role of the incumbent management team
• Track record of Leveraged deals
• Loss mitigation
• Control
• Pricing

Case study/example relevant to above

Session 28: Construction/Development

• Characteristics
• Structure
• Lending appraisal
• The importance of independent professionals
• Control, release and monitoring
• Calculating exposures and security
• What to do when it goes off plan – all of them usually do
• Pricing
• Controlling repayments to leave least saleable assets with client, not the bank

Case study/example relevant to above