According to Canada Deposit Insurance Corp (Canada Deposit Insurance Corporation CDIC) is defined, credit refers to "the safe or unsafe, or promise to provide funds for the debtor, or transfer funds (including internal and external's), the debtor has the obligation in accordance with the requirements, or in accordance with the regulations, or according to the agreement, in the future one time payment of principal, interest, and pay the relevant fees". This definition of credit, is a relatively broad meaning, because it includes borrowing, including commitment and some off balance sheet business. To carry out according to this definition of bank credit, whether it is from the credit rating of customers, or granting permissions structure, or risk control, or determine the price of funds occupied, and the whole process of loan management, bad debt disposal and so on, are complex and the traditional credit business management, requires the formation of structural operation in the framework of the higher, more stringent level. In the structure of business process credit business of modern banking, the following part is indispensable.

A modern bank credit business, credit rating and credit approval

(a) the credit business of modern banking credit evaluation structure

Credit rating and credit rating or credit rating, the basic method is to use probability theory, accuracy to determine the probability of default of a financial asset or an institution, and with special symbols to indicate its reliability.

The modern credit rating is the predecessor of the commercial credit rating, first appeared in the America. In nineteenth Century American banks do not understand the borrower's credit status, therefore need to provide credit to the borrower by means of a mechanism. In this context, Luis Tapan in New York in 1837 to establish the credit rating agencies, the earliest, and in 1849 published a rating theory and -- credit rating guide the earliest methods. At the beginning of twentieth Century, the credit rating has been a new development. It is marked by John in 1902, Moodie began to USA bond rating, the rating for the first time to enter the stock market. Alignment of credit customer credit assessment, which is the primary basis of bank credit business. The object of various credit rating mainly has two methods: one is the subjective rating method, one is the objective analysis method. Objective analysis rely more on evaluating financial data objects, and the subjective rating rules rely more on expert judgment. Credit business of modern bank customer credit rating, can be said to use these two kinds of methods, but basically is based on the objective rating method. To assess the credit status, we will meet the environmental setting, evaluation content and evaluation basis, by whom evaluation problem. This requires the evaluation of a customer's credit status, should not only analyze in-depth system around the business, financial status of the client itself, but also on the customer is in the position in the industry, the industry in the national economy is in the rising stage or decline period to make an objective comparison and measurement. It is from the client itself to the status of the industry, from industry to industry established analytic system structured in the social and economic growth and has a role in the development, optimization that bank credit resource allocation basis.

How to carry out the credit evaluation for different customers, some people emphasize the analysis focused on the "5C", namely the character and reputation (Character), qualification and ability (Capacity), financial strength (Capital or Cash), collateral (Collateral), the operating environment (Conditions). Someone put the analysis of the main points summarized as "5W" or "5P". "5W" refers to the borrower (Who), (Why), use of the loan repayment period (When), to protect the material (What), how the repayment (How); "5P" means the personal factors (Personal), objective factors (Purpose), repayment factor (Payment), guarantee factor (Protection), prospect factor (Perspective). USA Texas A&M university professor Peter S Ross in 1983 proposed the loan 6C principle (see Annex 4.1), and the control (Control) in the prevention of important factors of credit risk.

Credit risk, is in the final analysis because borrowers default or the borrower's credit rating falls risk loss. To nip in the bud, the key lies in the customer's financial condition and solvency has an overall accuracy of understanding and evaluation. This includes customers around the operating performance, asset liquidity, leverage ratios and other major aspects operation success rate, development potential, competitiveness, operating expenses, debt management, other existing institutions credit, financial risk, business risk size to further comprehensive analysis ability, including the capital over the past few years the rate of return, return on assets, liabilities, inventory turnover, current ratio, quick ratio and other indicators of accounting. The will directly affect the management quality evaluation of enterprise development, should focus on the in-depth analysis of the system around the management of integrity, management members of their respective expertise, social relations, make the evaluation basis, relations of management processing credit problems, their own business by outside influence degree etc.. If a mortgage is an important support of banks to establish credit relationship with the borrower's condition, therefore, before the bank in determining to grant credit to the borrower, must provide collateral in the safety control, net present value, NPV, security, performance, and other aspects of the sale of time quality tradeoffs. Pay particular attention to their faces in the treatment of collateral when the realizable value cost risk and collateral when uncertainty. The third party guarantee loans, risk to fully take into account possible borrower and guarantor and breach of contract. Table 4.2 shows different effects of a bank America collateral for bank loans of different degree of safety.

It is only from the independent customer perspective highlights some aspects of the work must be carried out by the major credit rating, or is a longitudinal analysis of credit risk. However, evaluation of the main customers of credit risk is important to make evaluation and prediction of risk in the future, customers may be encountered for this, we must put the customer within, larger system will be comprehensive analysis of all aspects of credit linked to transverse impact of development on customer. Analysis of structured credit through vertical and horizontal integration, so that banks can be more comprehensive, more objective, more forward-looking to determine the customer's credit status, for the benefit of all kinds of risk itself can have a definite object in view to control the loan business face. Credit risk assessment of transverse to the customer, should focus on the industrial environment and customers in two aspects the status of industry expansion. On the industrial environment should focus on the analysis of industry scale, industry concentration, industry maturity and life cycle cost, industry structure, industry profitability, industry dependence, industry alternative products, industry trends, changes in regulations, the change of technological condition, environmental responsibility and other aspects of the problem about customer industry status; to the customer and its main competitors in the market, product innovation capability, operating costs and benefits, their respective advantages and disadvantages and potential development space and other aspects of analysis and comparison, the customer in the industry and customers to delineate the status of the industry level, as is the establishment of credit relationship, the establishment of credit relationship under what conditions client basis. If the bank's own risk to the industry by industry is divided into several credit rating, but also according to the customer the industry status for different grade division. According to the coordinate system, just put the specific customers credit risk classification. If a credit rating is close to the customer, the bank must strictly control and screening; on the contrary, the bank should establish actively contributed to the credit relationship under certain conditions. In response, some banks structural weights were set by the financial and non-financial indicators, establish a vertical evaluation system, make customer credit risk evaluation more comprehensive, more systematic.

In the modern enterprises increasing use and complex external business today, evaluation of the borrower's credit risk, not only detailed system to calculate their various financial data in the table, but also to the analysis of off balance sheet business detailed and thorough. Summary of some large banks in USA Anlong (Enron) the company credit losses, which is a very important reason is that these banks, and not on the Enron company's off balance sheet business activities to give the necessary attention (Enron book assets of $60000000000, but the tangible assets of only $15000000000), ignore the risk of energy forward contract transaction possible; in the service of the structure stress too much more profitable investment banking business, how to control the credit risk of commercial banks but lost due to the strict. Enron was in American five hundred strong companies ranked seventh and was known as the "most innovative" company, in December 2, 2001 suddenly collapse. Summarize the teachings, off balance sheet business is the direct cause an main reason long company collapse. Both financial or non-financial companies, engaged in some sheet financing activities are possible, and off balance sheet financing refers to, in the accounting process of traditional are not usually included in the assets and liabilities of the business activities, but only to mark in assets and liabilities. These off balance sheet financing activities can be regarded as an extension of usual business relations, can also be viewed as usually avoid financial regulatory tools. Off balance sheet financial operations can be performed in two ways: one is can not be counted as current debt treatment, such as asset sale and repurchase, leasing; a class by another entity is subsidiary to the financing, the investment in the company's balance sheet, on the company's investment is to be counted as a single record, rather than the corresponding assets and liabilities, such as all kinds of financial derivatives using.

People used to think that the table of financing, financing is not in balance side is the increase in liabilities. Therefore, enterprises can not only improve the debt ratio, optimize the asset structure, but also to expand the sources of funding, break through the current size limits. For the assets of the enterprise can be cured, make an inventory of assets through the table of financing way. As the fixed assets of enterprises according to the agreed price sold to Finance Companies, and then from the leasing company will rent to use equipment, such equipment, enterprises can display in the rental people, the lessee can use the lease item, and does not display the liabilities, and Finance Leasing Company to share the benefits of tax incentives. An augmentation of capital operation is through the and so on off balance sheet financing way.

Enron company from twentieth Century 80's USA Houston natural gas company in a very short period of time developed into a the world's largest energy company, is through the innovation of financial tools "by", make originally not flow or very poor liquidity of assets or energy commodity flow. There are two Enron company financial innovation way: one is for energy products (such as natural gas, electric power, all kinds of oil products) open futures, options and other complex financial derivatives, futures, option market and derivatives of these energy financialization of commodity. These financial contracts not only pricing and trading is extremely complex, and high risk. Enron company to design a set of energy derivative securities pricing and risk management systems rely on.

These pricing, risk control technology and financial resources, making an long monopoly of the energy market, and from a natural gas, petroleum transport company became a the Wall Street firm like Merrill lynch. In 2000, Enron company 95% of revenue comes from energy trading and wholesale business.

The two is a series of immovable property (such as natural gas, oil and so on) package, as the mortgage, through a trust fund or Asset Management Co, foreign bonds or equity, to solidify the asset securitization. In USA, based on fixed assets mortgage securities issue is a very common thing, the key lies in, in the process, Enron company established many related enterprises and subsidiary, which hides the complex contractual relationship, so as to achieve the hidden debt, tax cuts and human operating profit. These perplexing Association enterprise architecture, plus an long income and profits year after year to surge, and the stock price also will continue to increase, from about $15 in 1995 to the end of 2000 is pushed to the $90 vertices.

However, in Enron stock surge cheered when, all kinds of investors increasingly let down, including bank creditors emphasis on the general information, published financial reports, and neglect of its balance sheet business tracking. It has also led to some large banks long company events hit heavier in ann. According to business week estimates in 2001 December, Enron's two largest creditors of Citygroup and JP Morgan Chase exposures amounting to approximately $1600000000. The JP Morgan Chase is the Enron associated with the exposure of up to $2600000000.

In the credit business of modern banking, risk assessment of individual credit status not only to measure customer, but also consider the overall risk of facing customers. A single credit risk is the risk that the single credit business to banks; the overall risk can contain two types of risks, one is associated with a single customer, supplier, partner of other customers default will not only lead to the single customer to repayment, if these related transactions with a bank the borrower, and can't pay to risk bank brought; two is the credit resources are too concentrated in certain industries, an area or asset dependent industry, once the market downturn to the bank assets caused loss risk. The latter can also be referred to as the system risk. Therefore, how to credit risk assessment on a single customer can not be limited to the client itself, must also take credit rating corresponding extended to credit investigation and evaluation necessary for all aspects of related party transactions with the customer level, extending to influence industry because of business cycle and the change of the market may produce the credit for the entire industry to a single customer and risk analysis, risk control of bank credit business will face as a whole. From a broader perspective, customer risk assessment should also consider the effect of the country, area risk customers for customer credit status change, because both the country risk, and market risk, the change may lead to the final customer credit risk.

In the client's financial and non-financial, itself and the environment, the vertical and horizontal analysis, the bank finally to the customer's credit status to credit rating, and to determine whether and to what extend credit, credit conditions. Table 4.6 is the credit rating in general and basic content.

(three) the pricing structure of modern bank credit business

The pricing of credit is an important basic work of modern bank management, it not only affect the development of bank business, and will relate to the bank's management benefit, but also related to the configuration and the monetary credit resources reserves safety payment. So this is a fundamental part of banks must put sufficient professional technology management resources to seriously, properly measured, approved. As a result of the credit business is diverse, and every loan business may have different background conditions, therefore, cannot take the simple arithmetic way to decide the price of credit, balance and must be integrated factors from the angle of structure, in a structured manner based, supplemented by other market conditions to implement the pricing of loans.

Needless to say, the overall level of bank credit pricing is determined by the equilibrium of supply and demand of the credit funds, a bank credit pricing if from the overall price level of the credit market, the result is either their own income to reduce or even losses, or lose customers and market. Of course, credit pricing is affected by many factors, to achieve rational pricing for each loan, the most basic is to remove the internal and external factors can affect the loan pricing into a structural price system, make the tradeoffs and decisions from the overall economic benefits. In the specific credit price determination process, the following aspects are the main structural factors must be considered: the cost of funds, including funds average cost and marginal cost of funds; risk of a loan, or is the risk premium, which can be divided into customer risk premium and industry risk premium (table 4.8 that is bad debt ratio American commercial bank loans); loan management costs; the bank's expected profit level. In addition, also need to consider the establishment of competitive strategy, the relationship with customers and credit relationship can be brought to the bank the other non interest income. Figure 4.6 is the factor structure of bank credit price effect.
In different markets, different products and customers, loan pricing methods banks take does not do the same. For example, in corporate loans have cost plus pricing method, the target return pricing method, the basic interest rate pricing method, at present more popular is the customer profitability analysis (cost omer profitability analysis). This method is also called account profit analysis method (account profitability analysis). This method through all the costs and benefits assessment of bank and specific customer transactions, so the customer loan pricing, the bank has reached a predetermined profit target. The focus is on the overall relationship between banks and customers, and not just consider the problem from a single loan. If the calculation, banks should consider the following formula:

Account income account cost + profit target

According to this formula, if the account is greater than the total cost and total revenue account profit and the target, then the customer can bring more than the minimum profit gains for the bank; if the account revenue and account total cost and target profit is equal to the sum of the goals, means the account just to the bank; if the former is smaller. The latter, there are two possibilities: one is the total income is less than the cost of account account, bank losses; two is the total income is greater than the cost account, but the banks from the account of low profit than expected. The three elements are fixed on the type of content, as follows:

(1) the total cost account

The total cost account including all service fee and management fee / cost of capital, and the cost of default. Service and management expenses include the customer's demand, regular account management fees, checking account service fees, loan management costs (such as credit analysis, loan recovery cost and cost of collateral maintenance costs etc.). The cost of capital refers to the provision of loan funds needed for cost, namely the interest cost of funds. Because the risk can not be recovered, the banks should also consider the loss given default (the cost of default). Calculating the cost of default, can average default rate first calculate the loan, then according to the rate and amount of the loan default to determine the cost of default.

For example, a loan risk rating, the average default rate of 0.80%, if the loan amount is 1000000 yuan, the cost of default is 1000000 × 0.80=8000 (yuan). This also means that the risk level of loans, banks are expected every 1000000 yuan loans bad debt write offs for 8000 yuan.

Some banks are not directly calculate the cost of default, but to support according to the requirement of credit risk rating different percentages of funds. For example, the low risk of loan capital ratio of 6%, while high-risk loans required capital ratio of 12%. So, although at the cost of default, for the same capital return rate, the target profit higher risk loans increased. So, should also be a corresponding increase in the income account, to reach the target rate of return, in fact or indirectly calculated the cost of default.

(2) general revenue account

Banks have three kinds of income from the customer's account: customer deposits, investment income, fee income and interest income. Account total income, to consider all of the customer's account of income.

If the customer's deposit investment income

Method for calculating the savings investment income is: first to determine the average customer deposits in the calculation period, minus the amount in collection and statutory reserves of gold, according to the bank deposit rate of return to calculate the customer deposits to the bank bring investment income. Below we have a look how to calculate the table 4.9 in a certain period of time a customer's deposit investment income.

The service fee income

Service fee income refers to the bank to provide financial services fees. Most of the fees from the intermediate business and off balance sheet business, such as consulting fees, credit, negotiation fee, a letter of guarantee fees, loan commitment fees etc..

The loan interest income

Banks in determining loan interest rates low level, the first consideration is the cost of capital. The most commonly used basic interest rate is the interest rate of treasury bill, in addition to interbank interest rates (such as American federal funds rate, the London Interbank Offered Rate, etc.), large negotiable certificates of deposit interest rate, the commercial paper rate, and the bank's own capital weighted cost. Before the mid 70's, many developed countries, commercial banks at preferential interest rate as the base rate, the preferential interest rate is applicable to commercial bank lending to creditworthy borrowers interest rate. Since 80 time, because of the fierce competition among banks, cause interest rates to fluctuate, sometimes part of the loan interest rate will be lower than the prime rate, so the preferential interest rate is the lowest rate debate, some banks have even had to go to court and the borrower. In order to avoid controversy, many banks in the loan agreement have switched to a base rate to replace a preferential interest rate. Banks that are still using the preferential interest rates, actually has the "discount" is defined as the bank's commercial lending rates, or that the preferential interest rates is not the lowest interest rate.

(3) the target profit

Target profit refers to the minimum expected return bank capital from each loan should be obtained. In other words, target profit is actually capital expected return. Target profit is determined by the bank established equity capital's target rate of return the loan amount and loan funds ratio, the calculation formula is as follows:

Target profit = capital target rate of return * loan amount


That is, considering the influence of all kinds of external factors, the price of credit is a credit pricing formula to determine the specific to a different character, Bibi, different amount of the loan, still need different levels of credit field staff and credit management personnel agreed loan price, top until the bank credit management. This is the structural determination on the other hand, the price of credit. At the same time, the price of credit is not immutable and frozen, also need according to the market conditions, business strategy review regularly and adjustment.

(four) the file structure of the credit business of modern banking

Credit files is to maintain the basis of debit and credit, responsibility, obligation right, its complete or not is not only related to the conditions under which the loan bank will lend to others, but more importantly it will relate to the borrower can repay principal and interest according to the agreed. The board of directors America Goldman Sachs company general manager E.Gerald Corrigan suggested in a speech: if the credit culture involves determining the social communication lending relationship behavior way, then one of the four pillars supporting the process should be the complete loan documents, lenders have a responsibility to the borrower to explain clearly the relevant credit arrangements for the financial and legal conditions in particular, can lead to possible default. The two sides should agree on a warning sign lending in the document. The contract characteristics of loan files should reflect the national law, commercial law and other relevant laws and regulations.

According to Peter S Ross's induction, the typical loan document includes:

Note (note) -- when banks lending to its customers, loans are often accompanied by a written contract, the contract is composed of several different parts. First there is the borrower signed bills, stating the amount of loans. The surface also noted with interest and repayment terms (including each instalment due date).

Loan commitment protocol (loan commitment agreement) -- in addition, large commercial loans and mortgages are often accompanied by the commitment, the bank promised within the prescribed time limit, the maximum amount, provided to borrowers to obtain money, Fei Zuowei promised return (often expressed as a percentage, such as the maximum amount of available loans 0.5%). This kind of practice is in short-term business credit line payment is very common in the.

Collateral (collateral) -- bank loans can be secured or unsecured. In some property mortgage borrowers (a house or car) as loan collateral, if the borrower Wu Li to repay bank loans, the bank can sell the collateral. Secured loan agreement includes a description of any part of the assets as collateral, to protect the interests of banks and explaining how banks, when made collateral to recover the funds. For example: a person is applying for auto loans often must sign a chattel mortgage agreement, this means that before the bank loans are repaid, the borrower must temporarily to bank auto ownership.

Clause (covenants) -- most loan agreement have restrictive clauses, it usually has two types:

The positive terms (affirmative covenants) may require the borrower to take certain actions, for example, financial report to the bank to provide regular, maintain the loan or any collateral insurance, maintain specific liquidity and equity level.

The negative clause (negative covenants) limits the borrower bank without permission are not allowed to make certain behavior, for example, borrowing new debt, buy additional fixed assets, merger, sale of assets or the participation of shareholders too much bonus.

The borrower or guarantee (warranties) -- in the majority of the loan agreement, the borrower in particular warranty or guarantee is provided on the application of the information is true and correct. Borrowers may also be required to mortgage their personal assets -- land, house, car and so on, to support business loans or third party signed loan. No matter whether the posting of collateral, the loan agreement must be clear who or which agency responsible for the loan and repayment obligations.

Default conditions (events of default) -- the last, most of the loans are included a list of default conditions part, detailed description of what the borrower or not as indicated significant violations of the loan agreement, and which banks can take legal authorization behavior to ensure the recovery of funds. Default conditions also noted in the loan procedure in collection costs, legal fees, court costs borne by either the.

(five) the combination structure of modern bank credit business

Emphasizes the combination structure in credit business of modern banking, which is not only restrain the need to bank management risk, but also needs to keep and improve its efficiency, and adapt to the change of social needs, financial demand to business development. The modern sense of bank credit portfolios, including different loan types, and includes the number of combinations of various loan; loan period includes not only the combination of time and space, including the combination of loan distribution on the. All this combined structure properly, will be directly related to the survival and development of a bank.

According to the loan used to divide the types of loans, the bank loans are loans to enterprises, also known as the commercial and industrial loans (commercial and industrial loan) (consumer loan), consumer loans, real estate loans (realestate loan), agricultural loans, loans from financial institutions (agricultural loan) (financial institution loan), leasing, accounts receivable and inventory financing (lease, accounts receivables financing, inventory financing), miscellaneous loan (miscellaneous loan) etc.. As the name implies, commercial and industrial loans are loans made to maintain the use of business operation; consumer loan is a bank on the basis of personal assets, income, credit, to the person rather than to the industrial and commercial enterprises issued by the consumer loans; real estate loans is the development, construction, the use of the loans to the real estate agricultural loan is granted; on the farm and ranch business loans; loans of financial institutions is refers to the financial institutions, including banks, insurance companies, financial companies, leasing loan; loan is to customers during the term of the lease to obtain special loans for the right to use certain equipment conditions, accounts receivable and inventory loans in order to accounts receivable and inventory for mortgage loans; miscellaneous loans include all no classification of loans, such as for domestic or foreign government loans.

In the industrial and commercial loans, loans for different uses, amount, repayment period, such loans are available for further subdivision. As from the loan terms, commercial and industrial loans can be divided into short-term, medium-term and long-term loans. In addition, some commercial and industrial loans is recycled ration loans for use within a certain period of time, can be said to be a short-term loan is composed of several discontinuous medium term loan. Is the different credit instruments that feature of schedule 4.11. In order to accounts receivable and inventory pledge loan, the borrower mortgage assets ownership transferred to the bank, the bank actually took charge customers the risk of accounts receivable, the more common for factoring business (factoring). So, this kind of loan is also can be divided into banks should bear the recovery customers should be two categories of loans receivable responsibility and not assume this responsibility. The letter of credit should also is a kind of commercial and industrial loans. Broadly speaking, the common form of the modern commercial bank loans have the following types:

The short-term business loans:

Self liquidating loan stock

Working capital loans

Temporary construction financing

Securities dealer financing

Retailer financing

Asset-backed loans (accounts receivable, inventory financing and factoring)

Long term business loans:

Support equipment inventory turnover and building buy loans

Revolving line of credit

Project loan

Support the acquisition of other business loans

Consumer loans including installment loans, one-time repayment of loans and use the loan cycle etc.. Amortization of loans for the borrower must according to beforehand and the bank agreed repayment schedule period by period repayment of principal and interest, and in the agreed period full repayment of principal and interest. Residential mortgage loans is the loan. Amortization of loan can be divided into direct and indirect loans loans two. Direct loans are loans to the final paragraph, such as car buyers; indirect loans is to issue loans to provide goods and services to the end consumers suppliers, such as car retailers, retailers to sell the goods payment form. The one-time loans refer to specific events in the previous issue, and to meet the borrower temporary fund demand of loans. If the borrower plans to sell the original purchase of buildings, new buildings, in the old building is not before the sale, the borrower can apply for loans from banks, the old buildings sold after the repayment of bank loans. Because this type of loan object future cash income have reliable guarantee, loan principal and interest to be a one-time repayment of funds, meet the demand of temporary short time need loans, which is also known as the "bridge loan" (bridge loans). Principle of revolving line of credit loans and loans to enterprises in recycling is the same. To allow customers in the credit before maturity at a predetermined limit borrowing, repayment of all or part of the loan and loan when necessary.

Real estate loans can be divided into real estate development loans and housing mortgage loans two categories. The former refers to the business of real estate development and land developers to provide loans, construction and land loans are. Construction loans is to provide loans to builders, for building materials, labour costs and other items of expenditure. Such loans are usually short-term loans, developers in the completion of the project sold or leased buildings, you can repay the loan. Land development loans for infrastructure development land, such as roads, utilities, belongs to the medium term loan. If necessary, can extend the repayment period. Residential mortgage loans mainly to individual borrowers for the purchase of housing loans, loan period can be as long as 30 years. The collateral for the loan to the borrower for the purchase of housing, if the borrower defaults, the bank has the right to auction the housing mortgage.

In the lease, accounts receivable and inventory type of loan, lease loans have two kinds of situations. One is the direct lease, provided by a bank of 100% to buy equipment funds, determined by the customer manufacturer and device type, and then by the bank to buy equipment and then leased to customers. The two is by the bank to set up an ownership trust fund, the fund is responsible for the purchase of equipment and lease to the enterprise, Bank of the fund the purchase of equipment Part provide funds, so it is also called the leveraged lease. As for the accounts receivable and inventory loans, respectively, the former only collateral, collateral for accounts receivable, the latter for the borrowing enterprise inventory of finished or semi-finished products.

Of course, for a bank, is not to be naturally, without a plan to the issuance of various categories of loans. Whether it is for the purpose of controlling risks or, or out of the consideration of self or, or the various loan earnings (schedule 4.12 or the America different loan income level), or to the bank for every loan revenue forecast and matching assets for other kinds of income or all requirements, a bank must consciously, purposefully, according to the proportion, structure of their credit resources allocation and management. In the release of the loan, not only to consider structure area, and there are different types of loans to consider; consider the term structure should not only have a variety of loans, and loans and even the concentration of a loan; it is necessary to consider the credit risk of loans, but also to consider the different risk level customers can bring the risk expected return.

Summary of modern banks in the credit business experience and lessons, is caused by a single customer credit risk rating no loss, but also more solid overall credit resources structure and improper allocation of loss, especially credit resources are too concentrated in one area, one industry to the bank losses. Such as 1980-1993 years, America about 1500 commercial banks, of which a considerable proportion in Texas prefecture. So, mainly because the Bank of Dezhou's assets is too focused on the immovable property as collateral for loans on the energy industry. Once the fall in oil prices, property values will follow down, bank loans will encounter is a double shock, banking crisis will not exceeding one's expectations of what happened. 1991~1993 years, Sweden has 3 banks to problems. Investigate its reason, is mainly in the real estate and construction loans had huge losses.

(six) the transaction structure of modern bank credit business

If the bank loans are no longer simply focus on the credit funds short process in an instant directly to the customer, but began to pay attention to in what form of credit funds will be controlled to ultimate borrowers, and through certain technology makes some of the potential credit risk is suppressed to a certain extent, but also involved in this process was far beyond the two aspects of the bank and the borrower, in fact is the credit business structure when encountered. If a bank can take the credit transaction structure properly, one can make the risk was not determined to be controlled in a certain range, on one hand, the bank earnings can be guaranteed.

Completed in the transaction structure of certain in the allocation of credit, credit is no longer on the bank, the short line to realize the flow between two points, but to set the transaction structure for running the carrier and the flow guiding, after some sectors subdivision of loans, even into investment products for sale, reduce the bank credit risk. As in recent years American syndicated loan business in the transaction structure made great adjustment, the large loans distributed to several banks to spread the risks from the bank, into the high risk of large loan into a number of smaller, more the amount of loans, then subdivided pin to non bank institutional investors, such as mutual foundation, make mutual funds beyond the bank, becoming the largest syndicated loan buyers. Although this approach will enable the general fund investors virtually become bear the ultimate risk of bank loans of banks, but on the originally inherent risks are transferred. If a bank loan bad debt losses occur, will no longer be borne by the bank. Relatively speaking, this approach is with little cost (the individual small investors loss), the stability of the banking system in a. Therefore, in the late twentieth Century, early twenty-first Century American recession situation, credit quality American banking is still at the beginning of the 90's recession is preferred (1991 non-performing loans business loans of up 16%).

However, not all of the bank loan will be like American syndicated loan that is divided for sale. For those directly between banks and borrowers credit transactions, more and more banks have been through the use of credit derivatives (Credit Derivatives), around the different types, different risk loans credit risk balance trade mode structure different, in order to achieve the purpose of effective control of credit risk. As a kind of new credit risk control tools, application of the product in its published has been exceptionally fast, wide credit derivative, trading from $40000000000 in 1996 increased sharply to $500000000000 in 1999. In the modern credit risk management of commercial banks is becoming more and more important to play a role.

Credit derivatives to transfer the credit risk from one party to the other party to the contract. This product can make the credit risk from loans, bonds, swaps and other financial assets and arrange stripping trading in different markets. The operation is the credit premium, credit rating or default. As the derivative instruments like the others, which can separate transactions, can also be embedded in other investment tools, such as credit linked notes (credit-linked note). Credit derivatives have a variety of products, such as credit premium of forward contracts and options (Credit Spread Forward and Options), credit spread swap (Credit Spread Swaps). At present the market to see there are two kinds of credit derivatives: credit default swap (Credit default swap), total return swaps (Total return swap). Other types of credit swap contracts, such as credit linked notes are not universal.

1 credit default swap contracts

At present the product derivatives market has the largest share of the credit. As the name suggests, this product caused the arrears credit loss protection. Those involved in the specific property including loans, bonds and other payment flow, or a specific property, such as a single region loan package. Credit guarantee to the buyer bear the credit risk and credit guarantee the seller contracts swaps. Therefore, in the concept of credit default swap contracts, similar to a guarantee or standby letter of credit.  "JP
In the credit default swap contract, the seller by charging a fee to promise: if the relevant asset credit default conditions, the seller will pay to the buyer a contingency fee. Under normal circumstances, the basic point of a certain amount of the payment is higher than that of the asset value, to cover the time on a quarterly or annual radiometer. The seller only before the contract expires, credit default swaps really happened before payment. To pay for the cost of emergency to the buyer the seller can take several methods of calculation. Usually, in the value of the assets can be obtained from the market quotation. Then, the initial value of the lost assets market value from the beginning of a swap, the balance is the seller to pay the seller the amount. In addition, the contract the party can set a fixed payment amount, such as the swap transactions in asset values 10%.

2 Total Return Swaps

Total return swaps also known as total return swap contract, in the other derivatives, such as equity derivatives is very common. In this kind of swap contract, a party in the transaction life cycle total value will be related assets were transferred to another party, gross income can include interest and principal payments, payment and related assets of any value. The "gross income" recipients commitment to the total proceeds to pay a certain proportion of the value of assets (such as the delivery of LIBOR plus a difference). Because during the contract period, it also bear and property of the risks and rewards. But the intervention of assets are not in total income recipient's balance sheet report.

Risk control and management two, post loan

Banks in certain conditions will ultimately lending to different customers and not business, but the specific assets by one of the main ways to achieve profitability. Therefore, the structure of transfer under certain procedures and credit resources between itself and the borrowers, this is only the credit assets earning the starting point, and the far end. Can say, before the loan, loan agreed last moment arrival, banks are not sure to say out the loan funds can be recovered, and stable operation profit is. Because of the occupation of the bank credit resource customer revenue and production operation condition are due to market or because of its certain conditions change. If this change is healthy and positive, it can be said that the bank agreed to recover the loan principal and interest to have more reliable guarantee, on the other hand, sometimes don't talk about instant profit, is to recover the principal will become extremely difficult. So, give out loans to select their own customers, the only bank as an important step to make this part of the assets achieve the purpose of profit taking, and can effectively track and monitor the use of this part of the loan is to ensure the safety and profitability of credit funds can not be neglected in the game process. It is always in the active position in this process, the relevant personnel and unit banks must can find the internal and external factors that may endanger the safety of credit funds, and can take the corresponding measures, nip in the bud. This is also in the loans will be more closely to the reason of dynamic risk management for the use of the loan by the borrower is active.

As an important component of the whole process of credit risk control, monitoring loans is to be conducted under the framework of certain. Structure that includes monitoring content, including procedures, organizational structure, measures the content.

For the payment of loans, from the aspects of monitoring point of view, the bank must first close attention to whether the loan according to the application of the use of properly use. In modern society, an enterprise may be raising funds through various channels, including direct financing, including indirect financing, will establish the credit relationship between banks will also be more than one between different sources; after the money back into the business of production management system, will soon change in shape, if the lack of adequate tracking, desire credit bank the safety of the funds can only be wishful thinking. So, whether the bank itself, or the external supervision, will put forward clear requirements for the monitoring of credit funds loans. Such as the Hongkong monetary authority raises, the purpose is to ensure that the:

Lenders to repay the loan in accordance with the relevant credit terms, including compliance with contract requirements (such as compliance with the terms of the contract and keep the collateral);

Early signs loan default, in order to take remedial measures quickly, the loss to a minimum;

Management report set out loan default, breach of contract or loan is not a normal situation, and the result has been the implementation of the remedy;

Awarded individual customers, customer loans associated, as well as the overall loan portfolio (including all kinds of risk concentration) are in the credit risk strategy and policy limits and parameters;

Regulatory limits is complied with;

Reserves of gold according to the actual situation to;

The overall quality of credit committee or senior management group to determine the monitoring of credit, credit quality trends, and re evaluate the appropriateness of credit risk strategy.

The Hongkong monetary authority is also put forward, institutions should according to its organization structure and its credit business turnover and complexity, to develop an appropriate supervisory system.

If necessary (for example problems are found or loans close to limit), should increase the monitoring frequency. In case of special circumstances, should be promptly to report to senior management.

For the use of loans to give the necessary monitoring is an important step to ensure the safety of bank credit funds, but the bank timely, full recovery of principal and interest of credit funds, management status and value basically depends on the borrower's creating ability, or how to depend on borrowers include profit and cash flow, debt paying ability. But the solvency of enterprises is the final result, in many aspects of so, in order to realize the bank credit funds proliferation movement, using a bank only that part of the funds lent out of the track itself is far from enough, but to carry out system for all can affect the enterprise solvency. Understanding and analysis, especially in a timely manner to capture that can reflect the enterprise management change reversal signal and alarm, to take timely measures to restrain adverse situation, development, safeguard his credit interest.

The following is the signal about the borrower shall pay close attention to the business of bank:

The warning signal. The borrower in the bank accounts to reflect

Enterprises can reflect the following warning signals in the bank account:

⑴ often stop check and refund;

The long-term overdraft payment, and often exceeds the allowed limit;

The notes payable extended too much, if not for;

The requirements for loans to repay bank debt;

According to the shares of the company or by borrowing speculation and speculation;

The loan demand surge or abnormal change;

It is not by the difference between the demand for collateral, delinquent taxes and rent;

⑻ loan guarantor for the sudden lifting his guarantee liability;

Is the borrower is other creditors to recover arrears, or compensation;

The borrower fails to pay an interest, or request the loan etc..

Warning signals reflect the financial statements

The financial statements to reflect the following warning signal:

The repeated delays in providing financial reports and related documents, or statements that are not complete, discontinuous;

The qualified accountant report;

The inventory and receivables growth than sales growth rate;

The operating cost of the increase is much more than sales growth;

The continuous decline or loss of the continuous rise in sales;

The relative sales profits, total assets increase too fast, the current assets to total assets ratio decreased;

It is unreasonable to change or violation of accounting regulation;

In order to make long-term investment, short-term financing;

"Bad debts increase, or refuses to be bad and loss reserves;

An account receivable and account payable amount, aging (cycle) abnormal increase, extension.

Warning signal personnel management and Bank of the business relations

The enterprise personnel management and the relation between the bank and can reflect the following warning signal:

The change of the attitude of the banks, the lack of honest and cooperative attitude;

The account in the bank, or banks often transform;

The intentional concealment of some bank relations;

Major personnel of the board of directors or senior management changes affect the operation of the company;

The company is mainly responsible for the elderly or deteriorating health, successor is not clear or lack of successors;

It can be a law onto oneself self-willed, a responsible person, limit the ability of managers and other;

No change of accounting or management personnel;

⑻ lack of long-term business strategy, quick;

Is the market demand and business environment changes reflected in slow, strain capacity is not strong;

I came with the wrong people, all departments are not mutual coordination etc..

The management of the early warning signal

The management of enterprises can reflect the following warning signal:

The confusion of management, environment dirty, chaotic, poor, work discipline lax;

The factory or company obsolete equipment, poor repair, low operation rate;

The sales season, there are still a lot of inventory backlog;

The loss of one or more major customers, a customer or company's sudden bad economic situation;

The main products of company or enterprise investment project failure;

The borrower in the fierce market competition at a disadvantage;

The borrowing enterprise market share shrink;

⑻ borrowing the production scale of enterprises excessive tension;

The borrowing enterprise tensions with the main suppliers relationship;

I am the company or enterprise internal four rumours, divided in public opinion.

Part of the problem loans early warning signals a warning signal is often appear in the credit risk management in practice, but not all. When using the borrowers in the loan in one or several early warning signals, is often not easy to be detected. If you can catch a warning signal of emerging, is an important index to measure the bank credit management level. Bank personnel and customer contact more and more serious, the supervision and inspection, the easier it is to obtain customer business health information.

For different alarm reflected in customer management, USA commercial bank also make the following classification of credit assets risk and treatment.

You need special management of the credit assets

(1) definition

Need special management of the credit assets (OAM) refers to the debtor's financial situation and credit is the issue of credit assets, or the loan plan impossible credit assets, and the lack of sufficient collateral, adequate information, complete legal documents of credit assets. If the problem is very serious or worse, so this or that some will prove this asset credit rating is poor. In order to make up for this deficiency, managers should pay attention, and discussed substantive and debt personnel.

(2) feature

The environmental factors / management factors

-- in a clear sign that the borrower has adverse changes.

-- the lack of control (such as plant is not neat, frequent accidents, a significant increase in inventory etc.).

-- labor problems.

-- the lack of in-depth and meticulous management, or the main managers to diverge.

-- branch amounts to misappropriation of funds.

-- too dependent on a single product or a single supplier / single customer.

-- products face fierce competition, or aging of technology.

-- too dependent on imports or exports, or a great risk of depreciation of currency.

-- political, economic, legal appeared adverse factor.

The financial situation

-- sales and profitability declining trend.

-- profit margins decline.

-- appeared temporary loss.

-- in the high inflation environment according to a fixed price contract.

The deteriorating balance sheets

-- financial leverage level compared with historical situation, plan and the industry low.

Uncollected accounts receivable -- too much, product backlog (management problems of the internal control information system /).

-- trade turnover slowed down.

The operating factors

-- bank was not cleaned regularly on the customer credit status, overdraft behavior of customers appear to downplay.

-- contrary to the regular loan contract (such as a waiver or amendment of contract etc.).

-- the short-term funds for long-term financing needs.

-- owing on the loan plan is not practical.

-- loans used for other purposes.

The other

-- the lack of contact with customers and field survey.

-- lack of control management and financial aspects of the lack of management information system, internal.

-- financial data are not sufficient, or is out of date.

-- not to listen to qualified audit opinion.

-- the case of great.

(3) requirements

Will determine the credit rating report to the examination and approval department for approval, and determine the management strategy in the future, including the promotion of the loan re rating etc.. Each quarter by senior credit management personnel on the project write loan rating management report.

Less than 2 of the general standard of assets

(1) definition

Below the general standard asset refers to the financial situation, management situation, economic and political factors is serious reversal or due to some major weakness as well as collateral shortage and other reasons, have been or may be credit assets into a dangerous situation cannot repay principal and interest. Although managers cannot foresee the extent of damage, but it could be turned into bad debt write off. In this case, the bank must quickly take action to correct problems, to strengthen its position as a creditor, to reduce their risk, and confirmed that the debtor can really enough to take remedial measures.

(2) feature

Similar to the above situation, but the characters need special management of the credit assets more serious.

Other.

Because of political factors or legal factors frozen credit.

- due to the lack of alternative financing channel, the business is in a mess.

Lack of agreement among creditors.

Assets mortgage problems.

Debt restructuring.

- bankruptcy, cancellation and foreclosing mortgages, or compulsory liquidation.

(3) requirements

Expand the any kind of unfavorable factors, should be timely and credit departments, Senior Credit Manager on a monthly basis to write the asset class rating report.

3 doubtful assets

(1) definition

Doubtful assets is based on the information available, all of its repayment has a problem of credit assets. This shows that the assets eventually there will be a certain degree of loss, but the loss amount and the specific time has not been determined. For such assets, we must take effective measures, as far as possible to reduce the loss.

(2) feature

As long as there may be loss of assets, the assets are assets into doubt. This asset class to show the characteristics of more serious than before, two types of assets at the same time, but also includes the following characteristics;

The auditors have a negative view of assets will recover, or restricted to hold this asset class.

The collateral is not clear.

The net asset value and liquidity is negative.

The trade credit freeze.

The asset quality improvement depends on factors difficult to grasp.

The compensation measures for the creditors and the debtor's.

The long term cannot fulfill its commitments.

(3) requirements

Measures should be taken, assets and lower than the general standard of similar in addition, but also due for repayment of loans to assets, and to all the debtor due at the end of the interest paid by a corresponding accounting adjustments (credited to the overdue interest subjects), will be the principal subject to collection, where considered necessary, should be the principal ledger or as bad debt write off.

4 bad debt losses

(1) definition

Bad debt loss refers to those who have been unable to recover the credit assets.

Bad loan loss depends on the following factors: determine the amount of insufficient collateral; litigation and claims too much, these will affect the amount of capital recovery.

(2) requirements

For this kind of problem assets, should immediately write off; the unpaid interest, but also to deal with the account of the. However, the credit assets included in such, does not mean that the future will not come back. Responsible for the credit departments should continue to take measures, try to recover these assets, until do that the loan will not repay. Prior to this, should at least semiannually submit a loan management situation as bad debt write off of the report. Once found impossible to recover, shall issue a "certificate of give back".

In order to ensure the security of bank credit funds, the secured mortgage loans, banks must also be regularly or irregularly for inspection and evaluation of guarantee or mortgage, due to the change of guarantee or collateral security level and the security level of loans, must require the borrower will guarantee mortgage appended to the reliable amount or level. Otherwise, you should consider whether to stop loans or loan.

In the bank credit funds on the possible problems will be all kinds of problems, of every hue, using different, the different forms of loans, banks must also be due to customer, because of, due to the nature of the organization, from the staff, procedures to take different measures, promote business activities to the borrower the normal direction, resolve the problem in the bud. If the issue is the need for credit personnel specific follow-up, there is need to internal and external personnel to interventional treatment; some are pure file problems, while others may be asset management and use of the problem, sometimes is to change the direction of management problems. Obviously, the treatment of these issues is not lump together. Different issues, must be resolved to a structured approach to different.

Three, loan processing

Because of asymmetric information and intermediary bank vulnerability inherent, bank loan problems also can hardly be avoided. A Western banker once said, not bad loans than banks, also cannot expect the bank non-performing loans. The most important is how to control the non-performing loan, how to deal with and digestion in non-performing loans, expanding the choke loss, most likely to benefit from the treatment of non-performing loans in.

For according to the provisions of regulators has been attributed to bad loans range of loans, the bank a reaction the first should be immediate action, has been the formation of non-performing loans is like the summer exposed ice cream, if not as soon as possible will soon melt. According to American 16 after his company experience, account receivable overdue payment immediately after the success rate is 98.2%, within a month to 93.8%, for the first half of the 57.8% to 26.6% a year, two years, 13, 6%.

At the same time, the causes of non-performing loans and non-performing loans trend is different, different types of the debtor's own assets, possible future earnings forecasts and the debt make a different response. For different background of non-performing loans, the ancient Greek physician Hippocrates sentence might be more practical significance, that is the "first do no harm". This sentence has two meanings, namely: "do not attempt to save the living dead" and "don't kill and vitality of the people". This requires banks to loan the operation, assets and future income, systematic and rigorous analysis, distinction, have a definite object in view of physical work.

Therefore, the adverse alarm loans, bank the first step to consider is to collecting all the relevant information on all aspects of customer management changes, re check the credit data, rapid determination of the degree of risk their own face. The genus can be identified by the non-performing loans, but also to distinguish whether the client is past hope, if yes, it should be entered the stage of the proceedings urges the principle, disposal of assets or the bankruptcy law directly. If a customer temporary problems, or because of unexpected events that lead to operational difficulties, banks can, from a positive start, such as customer requirements increase collateral, reducing the loan balance, increase financing channels, strengthen customer management constraints, in order to continue to maintain customer lending relationship, avoid bad loans disposal cost. Even urges the principle for stage, banks also need to consider is completely rely on the internal mechanism to deal with, or take credit authorization or cooperation and asset management agency management, recovery of non-performing loans, in order to obtain the better asset management efficiency.

Regarding the handling of non-performing assets, American Beck Mackens international law firm partner Jerome Jakubuk put forward the disposal opinions from a legal point of view:

(a) choose to trade structure commonly used to dispose of bad assets

(1) a one-time sale and transfer. Financial institutions to divest non-performing assets in the most direct way is sold or transferred to third parties. Can you may recover from the bad assets in the amount of agreement is the main problem in the direct sales. If expectations of recovery of bad assets in line with the values of non-performing assets of financial institutions selling price, then the direct sale or transfer is priority transactions; if the recovery expectations of non-performing assets of value for such as economic situation cranky and other reasons it is difficult to determine, recovery expectation of investors and financial institutions will be very difficult to hold the same value then, proposed by other transaction structure.

(2) the service trade. If the bad assets all people are unwilling to sell the asset, the asset value higher than or other types of transactions may be one-time transfer of the purchase price, it may enter into a service agreement with the third party. Such transactions may have many of the same and one-time sale of benefits, because by the third party control associated with the non-performing assets of the collection and management work, make all the people to get rid of this burden.

(3) structure of the joint Asset Management Co. The joint venture company is often in the form of financial institutions, to sell assets to participate in the final recovery of bad assets. Especially in the period of financial turmoil, it is difficult to estimate the amount of bad assets may be recovered, making it difficult to agree on a suitable disposable price. All the bad assets tend to abandon the one-time sale of practices and the bad assets transferred to a new joint venture company in exchange for cash and equity.

The joint venture company usually does not manage or dispose of bad assets, and generally with another Asset Services Company signed a service agreement, by the collection. The Asset Management Co of the Service Corporation is usually a jointly owned by all the people and investors of the new company. So, the ownership structure by using the two different, investors enjoy the non-performing assets in advance the amount recovered as their investment returns, the residual rights and all people are reserved for later to recover the amount.

(two) non-performing assets of the bidding procedures

No matter how bad assets transaction structure, in typical transaction, financial institutions will be separated into the same bad assets, asset classes, such as retail and commercial loans and real estate and other types of collateral loan. This separation requires financial consultant and legal experts, they kind of assets should be reasonable in the same category to facilitate transactions, as well as the kind of assets because of the difficulty of valuation or legal transfer and completely should not be sold to provide advice.

Once the transaction structure disposal of bad assets is determined, must trade negotiations to ensure that financial institutions to obtain the optimal value. In the stage of financial institutions to offer financial adviser under the leadership of. But, as with any bid sales, lawyers often participate in organizing bid details, including the accuracy and validity of the bid document review.

Including bid stage problem:

1 prudent investigation activities. The loan documents to review that non-performing assets of the habits, in order to determine the quality of assets and the above-mentioned documents.

Statutory audit 2 assets. Suggestions are reviewed in any investors, financial institutions sell assets to carry out an internal review, so as to avoid any inadvertent error. The internal review are completed by the existing staff, but suggested that at least some random file by lawyers, to determine whether can affect the sale of the assets or need to be addressed in the loan sale file preparation difficulties, in order to avoid the financial institutions have been returned.

3 related to database problem. As a part of bidding procedures, the non-performing assets to loan files are then placed in the central region or database for loan portfolios to bid. Similar conditions to access database and deals in.

(three) points of transaction documents

In the majority of non-performing assets of the transaction, the transaction documents by financial institutions as the seller's lawyer, preparation, and are included in the bid documents. But, especially in the direct sales business negotiations, often the buyer wants its lawyers prepared, the habit of using file as a trading base. In addition to the pricing problem of non-performing assets transaction, there are different from other types of asset sale agreement:

1 right of return. When the buyer discovered characteristics of assets and the Seller stating the actual buy inconsistency, will have the right to return. Such rights relates to the asset purchase price refund (but if the assets are only a unified purchase price, it is necessary to refund the price agreement), or involve replaced by equivalent assets. The main goal of the seller is the continuous time limit the rights, and limit the scope and the reason for return.

2 compensation. Compensation than the general right of return range, relates to the bad assets transaction itself the ultimate legitimacy and the seller had previously used methods of collection, may also contain such as environmental liability matters. Subject to judicial jurisdiction conflict in the legal transfer of bad assets, the buyer will particularly for higher compensation from the seller. If the seller is a Asset Management Co and is not to sell the loan management, it may be reluctant to use the sale of assets to the bank may use the collection methods, we need to negotiate this risk, and will in the relevant documents clearly the scope of compensation or the amount of.

3 deadline. Most of the transactions are set a deadline, usually in the transaction date. So, the idea is the acquirer has carried out according to its date of audit and audit collection is expected to determine the bid, therefore should obtain the bargaining income.

4 service fee and service standard. Service recovery is usually paid by a certain percentage or the asset income payment. If the Service Corporation to recover the amount exceeds the predetermined target, the retention ratio will be greater. Traditionally, recycling goal is according to the different categories of non-performing assets one by one to identify

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