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Chapter 8 Basic considerations in granting credit facilities

1. purpose of the credit: it is the object of the borrowing. The bank must consider carefully whether the credit is most suitable to the borrower’s need. For what the bank is concerned with is that the loan shall generate sufficient profit and cash-flow desired by both the borrower and the banker, most banks tend to decline loan proposals which are highly speculative.
2. Repayment schedule the borrower must be able to service the debit. The banker will examine, in general, the possible sources of income of the borrower and, determine whether there will be sufficient cash-flow over the term of the loan to service the debt.) The customer is normally required to submit detailed financial statements that will substantiate his capability to generate adequate funds to repay the loan.
3. Amount of the loan granted: It depends on his business capacity. The banker may examine the corporate customer’s financial statements of assets and liabilities in order to determine the precise amount to be borrowed. These statement indicate the customer’s financial position. A bank should never lend a customer more than a quarter of his own resources or financial assets.
4. Term of loan: The term of the loan is an essential factor in assessing credit risk. The longer the term of the loan, the higher the risk exposure due to the increasing chance of unfavourable long-term economic and political changes. The bank should make some judgment on the future course of the economy and the political environment so that it is well prepared if, in fact, the expected risks materialize.
5. Credit risk assessment: Depending on the size of the loan, a banker should employ the credit risk assessment in order to determine the credit worthiness of potential customers.
1) current risk assessment: this assessment evaluates possible economic and political risks.
2) Potential risk of default assessment: this assessment involves the evaluation of the risks relating to the size of the credit, and type of security provided by customers.
A bank would issue guidelines to staff responsible for loan applications concerning the maximum risk the bank should bear for any particular type of loan.
6. Market analysis: before making any lending decision, the banker must check the economic/market prospect of the goods/services the customer is producing. The banker may visit the production plant or the operation site and make a judgement on the borrower’s experience, ability and integrity in running his business.
7. Pricing of loans: the bank has to calculate its own costs of providing loans to customers. The margin indicates the possible credit risk that the loans may bear. The rate depends on various factors: size of the loan, financial strength of the borrower and nature of security offered by the customer. The higher the possible risk involved, the higher the margin over the prime rate to be charged to the loan.
8. Collateral: it refers to security provided by a borrower to offset the apparent weaknesses of a loan. These weaknesses include inadequate capital, certain risks and uncertainty arising from market conditions. Collateral should be considered as a protection rather than as a source of repayment. Collateral should be the last item to be considered in loan approval.
9. Character of the borrower: it refers to the borrower’s determination to repay the loan. It can be assessed by examining his track record.
10. Capacity: it indicates a customer’s ability, financial strength, and legal capacity to borrow. As a limited company to borrow, the banker should have the legal authority under the memorandum and articles of association to borrow.
11. Capital: it refers to the cushion of assets for repayment of the bank’s advances in the event of the borrower experiencing financial difficulties. A strong capital base will demonstrate the customer’s ability to repay his loans. It also indicates the customer’s commitment to sustaining production capability in securing future income.


Sound bank lending-some points to remember

1. It is safer to lend small amounts to many customers rather than large amounts to a few customers.
2. Try to find out as much credit information as possible from any sources about the customers.
3. Short-term loans bear less risks than long-term loans.
4. The customer’s financial statements should be obtained and analyzed.
5. Make sure that the interest rate agreed with a customer reflects the degree of risk involved.
6. During the life of a loan, systematic and constant review of account should be conducted, loan performance and repayment records should be monitored.
7. Ascertain the value of a security and obtain safe title.
8. Do not borrow short and lend long. Pay attention to liquidity in loans both at the outset and at periodic reviews.
9. Never lend money solely against security, even though its realizable value may well exceed the loan amount

[此贴子已经被作者于2006-6-25 12:59:28编辑过]

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chapter 9

Private banking

1. It refers to the specialized bank services provided by banks of all sorts.
2. It offers a wide spectrum of personal services to wealthy clients who may have little knowledge of how to handle their own financial affairs or who are too busy.
3. This way of building up banker-client relationships is likely to be long-term, considerably personal and often spreads over a few generations.
4. Bankers in the private banking business are specialists in asset management; they are investment portfolio managers. They seek to satisfy his client’s references, risk taking or risk aversion investor.
5. private bankers provide a client with special information on real estate in exotic places, a piece of fine art and even a cruising fleet ect.

Merchant banking

1. The terms of merchant banking has its origin in the merchanting activities in the late 18th century. They are originated in the form of an acceptance house whose main activities used to be the discounting of trade bills and trade financing. The another characteristic of merchant banks is raising of capital for foreign governments, as they got confidence of the concerned country.
2. Nowadays, merchant banking (investment banking) as specialised in equities / underwriting; while merchant banking will provide full service including arranging loan, syndication, project financing, advisory service, etc. Some merchant banks provide services to companies which fall outside the scope of commercial banks, such like venture capital financing.
3. Major customer of merchant banks are institutions, corporations and wealth individuals. Its main sources of income are the commissions or fees charged for the services they provide.
4. The two functions in merchant banking: the role of underwriting, and the role to be financial advisors. They are can be elaborated as follows:
1) merchant banks may act as both brokers and dealers in a wde variety of securities.
2) Provide research services and give consultancy services on all varieties of management problems that are caused by financial concerns.
3) Money market instruments such as certificates of deposit are traded.
4) Merchant banks underwrite the debt issues of government and mage the sale of corporate debt and stock.
5) They serve as agents for corporation as trustees to handle the payment of dividends to shareholders, maintain a register of owners of shares to mail official notices.
6) They handle mergers, acquisitions, interest rate swaps, leveraged buy-outs, and other fee-earning activities.
7) They arrange or participate in syndicated lending / project financing.
8) They provide advisory / underwriting services in IPO/placement.(初次公开招股)
5. The following factors explain the rapid growth of merchant banking:
1) institutionalization: the shifting of the market place towards more powerful institutional investors has provided and opportunity for merchant banks to expand.
2) Deregulation: the relaxation of regulations in the US and some European states and the development of the Euro-market provided more opportunity for financial institutions to compete across borders. Individuals with limited capital would have difficulties in meeting the minimum requirement of such across borders investment. Merchant banks with considerable scale in global operations provide a more efficient service to these individual investors.
3) Securitization and disintermediation: the increasig use of commercial papers ad other debt instruments by corporations magnified the participation of merchant banks. Rather than approaching commercial banks for loans, may qualified corporations seek financial arrangement through merchant banks.
4) Advanced technology: it result in more vigorous information exchange among merchant bankers ad other financial institutions.
5) Industrial organization restructuring: the breaking-down of conglomerates集团企业, introduction of leverage-buy-out, favorable acceptance of junk bond issues created the environment for the growth of merchant banking.
6) Globalization: the Euro-market, which is the first in history, functions outside the jurisdiction 司法权of any sovereign state, with minimum regulatory constraint. Favorable conditions provide tremendous impetus for the growth of merchant banking business.
6. the main activities of present day merchant banks tend to be medium-term lending, corporate finance advice, syndicated lending, project financing, new capital issues, equity participation in developing companies, underwriting for stocks and shares, acquisitions and mergers, debt restructuring, consultancy , various forms of investment management , wholesale suppliers of funds, they arrange large sized syndication loans.
7. Merchant banks that are resourceful and have the expertise, they still play a significant role in the securitization process, providing professional assistance in packaging and underwriting public issues of debts and equity.

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chapter 10

Banks role in international trade financing:
1. The local producer can use the banks’ overseas network to obtain information.
2. With the help of the bank, the producer may request a loan facility to finance his manufacturing facilities to satisfy the export order.
3. Bank may finance the importer who anticipating potential sales in the domestic market of a particular import item.
4. Banks may provide forward exchange contracts to both importers and exporters for reducing exchange risk
Trade finance
1. the bank may be involve in the provision of a letter of credit, or documentary acceptance, and trader through hire purchase if possible, make the loan granted to him against the goods being traded.
2. An exporter may enjoy the following financial services provided by a bank :
----forward cover to eliminate exchange risk
-----export finance on overdraft/loan etc.
-----negotiation or bill advance
------discount of bank acceptance under documentary credit
-----shipping/marine insurance
-----guarantee and performance bond
Documentary credit
A documentary credit is a written undertaking by a banker who is the agent for the importer or the buyer. In accordance with the instructions of the importer, the bank undertakes to pay the exporter, up to a limit, within a designated time period and against any stipulated terms and documents.
Documentary credit arrangements
1. issuing bank (importer’s banker or buyer’s banker, issues the credit and undertakes to pay ) will examine the credit-worthiness of the buyer before it considers issuing the documentary credit.
2. The advising bank is expected to pass the documentary credit to the beneficiary after verification of the genuineness of the credit.
3. The negotiating bank, after receiving the documents from the exporter, will check the document against the terms and conditions of the contract signed. If all is proper, the negotiating bank will pay the exporter and immediately forward the documents to the issuing bank and claim reimbursement from the reimbursing bank.
Functions of documentary credits
1. the credit created for international settlement among banks not only provides a sense of security for the traders involved, but also a reliable source of finance for foreign trade where required.
2. An irrevocable credit may not be amended or even cancelled without the consent of all parties involved.
3. A confirmed credit guarantees payment to the beneficiary by a confirming bank, it bears two undertakings to pay, one from the issuing bank and the other from the confirming bank.
Documentary collections
1. The drawer ships his goods and, at the same time, presents the shipping documents, including other transhipment documents, to his bank or sends them directly to the drawee.
2. The drawer provides the remitting bank with the bill of exchange, the transport documents and the instructions required.
3. The remitting bank will deliver all these documents to the collecting bank in the drawee’s country. Before sending all the documents abroad to the collecting bank for payment, the remittng bank must ensure that the documents are properly drawn and endorsed. It has no further obligation to examine the documents
4. The collecting bank will then follow the instructions on payment collection from the drawee at the time specified in the contract. Once the documents are passed the bank, the bank has an absolute right over the goods through the title documents. The right includes the arrangements concerning the release, protection, warehousing, and shipment of the goods on behalf of the exporter.
5. After the drawee makes the payment to the collecting bank, the collecting bank will then remit the proceeds of the collection to the remitting bank who will then credit the drawer’s account.
Clean collection
A clean collection consists of one or more bills of exchange or promissory notes, cheques, receipts, or other similar types f documents for obtaining cash. The collection requires no other documents to be attached.
Commercial invoice
It is a sales document issued by the seller who charges the buyer for the goods purchased. It contains the invoice number, sales contents, sales date and amount of items sold, description of the goods sold, delivery, shipping methods, date and payment term, unit price and total amount.
Bill of lading
It is a receipt for, and document of title to the goods. It is legal evidence of a contract of carriage for the goods dispatched by sea and land. It contains the name of shipper, the vessel’s name, place of delivery, receipt, port of loading, discharge, and the necessary description of the goods and the package.
Consignment note
The note is drafted by the seller who has to state the name of the departure point and the destination. The note may contain the name of the shippers and their addresses.

Insurance policy certificate
A document which shows the policy covering the gods being delivered; it states the type of insurance, the risks involved and the amount covered. The policy must bear the name of the insurance company ,its agents or the underwriter, it must also describe the date of the policy covered with the amount at least equivalent to the CIF value of the goods.
Export credit insurance
1. It provides the exporter with credit insurance against the risk of non-payment or non-acceptance by the overseas buyer.
2. It also insures against non-payment due to political and economic vents such as shortage of foreign exchange, import ban, civil disturbances or even disasters.
3. Most banks accept policy as a useful collateral for discounting export bills.
4. It is a new service tailored made to small-medium enterprises.
5. An exporter enjoys the following advantages:
------protection up to 90% indemnity
------by paying a low and reasonable premium, he takes only 10% of
risks.
------credit management ,ECIC solves this worrying problem by
checking the standing of oversea buyer.
------expansion of export business
6. Comprehensive shipment policy:
1) Rights under the policy should be assigned to bank before granting
facility. An ECIC limit will be assigned to each buyer, details of each
shipment should be declared to ECIC within two weeks after shipment,
with compensation of up to 90% of value of shipment.
2) It covers export of all kinds of all kinds of consumer goods, semi-finished goods and raw materials from H.K. and re-exports through H.K., on credit terms not longer than 180 days.
3) It means that protection is given to all export business i.e. D/P D/A O/A.
4) It gives the exporter protection from the day goods are shipped. The pre-shipment risks can also be covered once a Comprehensive Contracts Policy is taken out besides at CSP is taken. Protection then starts from the date the sales contract is entered into with the overseas buyer.
5) It also covers goods not of H.K. origin which have been imported into H.K. before they are subsequently re-exported.
6) Buyer’s risks, including insolvency, bankruptcy or failure to pay, and country risks, including blockage, delay, import bans etc. are all covered by CSP.

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chapter 12

international money transactions

Draft
1. It is an order in writing, made out to a person other than the maker, instructing him to pay a certain sum to a named person called the payee.
2. A bank’s draft is normally honored as long as the bank handling the draft remains in business. A draft may or may not be a negotiable instrument, depending on whether the instrument satisfies the requirements of negotiability.
3. The draft itself is a bill of exchange issued by a bank. But a bill of exchange in draft form must be made payable to a specified person.
4. When a customer requests a banker to issue a draft to a recipient , the drawer bank will draw the draft on the drawee bank for the transaction of the draft. The drawer will advise the drawee of the issue of the draft and inform the drawee bank to pay the payee when the draft is presented for payment.
5. The name of applicant shall not be shown on the draft, the drawer will act on behalf of the applicant


Mail transfer
1. Mail transfer is an instruction given by one bank to another, based on the request of the customer.
2. The drawer bank would normally send a statement telling the
drawee bank the exact amount being transferred, the name of the payee and his address.
3. The bank which instructs another bank to make payment to the nominated recipient is called the remitting bank.
The bank which receives the instruction from the remitting bank is called the advising bank. Its main job is to advise the recipient to collect the funds transferred as requested by the customer.
3. the advising bank will check the identity of the recipient before releasing the funds.
Telegraphic transfer
1. It is an authenticated order given by the remitting bank to the advising bank to which it is addressed to make available specified funds to a named recipient.
2. It is transmitted through cable or telex, with the bank’s test key.
3. The advising bank, when receiving the transmission from the remitting bank, can use the test key to verify the genuineness of the telex or cable instruction.
Society for world inter-bank financial telecommunications
1. It is a computer-based telegraphic transfer system.
2. It is fully integrated computer transmission system where massages can be transmitted in a standardized format.
3. Its functions are to provide its member banks with access to the system for the settlement of international money transfers. The settlements amount among banks would require the international clearing house.
4. A member bank in SWIFT has computer hook-ups in the system which permit banks to replay funds to one another. With the computer code known only to its members, international banks are able to transfer funds at a faster rate.

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Chapter 13 foreign exchange
Currency exchange conversion
1. The currency exchange market has kept pace with the clock for 24 hours.
2. Market exchange rates are rates quoted for the selling and buying of foreign exchange in the foreign exchange market.
3. Spot rates are rates that are quoted for spot transaction of foreign exchange. They are normally determined by the demand for and the supply of the continuously needed foreign currencies.
4. The turn or the spread is simply the difference between the buying and selling rate for the foreign exchange concerned.
5. The rate determined in terms of a third currency is called the cross-rate.
6. In the direct dealing, which is based on a spirit of reciprocity, ( 互惠)participants simply call each other on telecommunication equipment.
7. Indirect dealing occurs via foreign brokers, who are middlemen between two parties wishing to deal.
Forward exchange rates and froward exchange contracts
1. In order to avoid any potential loss resulting from the fluctuation of foreign exchange, the exporter as well as the importer can easily enter into a forward exchange contract with a banker or a foreign exchange dealer.
2. A forward exchange contract is therefore a contract between a customer and the bank, enabling the customer to purchase or sell a stipulated amount of currency over an agreed period of time.
3. The rate of exchange is fixed at the time the contract is opened and the contract is firm and binding upon both parties for delivery or sale or sale at an agreed time in future.
4. The forward exchange contract is a valuable method not only of protecting one from any financial loss as a result of exchange rate fluctuation, but also of providing one with at least some degree of security.
Currency futures contracts
1. it must be distinguished from spot foreign exchange or forward exchange contract.
2. Futures contracts are traded on futures exchanges, they are standardised contracts, the specifications are established by each futures exchange and therefore specifications for the same underlying foreign currency may differ from exchange to exchange.
3. A future contract is a legally binding contract and can be bought or sold in that exchange in contract unit size.
4. The contract price is determined on the foreign exchange trading floor.
Option on foreign exchange
1. An option is an agreement between a buyer and a seller by which the buyer has the right to exercise his option.
2. The seller is obligated to make a delivery at any time up to the expiry date if the buyer has opted to do so.
3. You need to pay to buy an option
4. If the option has not been exercised by the buyer before the expiry date, then the option becomes worthless.
5. Useful terms: premium----price of an option
Strike price-----the price of the currency at
which the option can be
exercised, also known as
exercise price
expiry date----the last day on which the option
is to be excised
6. call option: option which gives the buyer the right to purchase the currency at the stated strike price on or before the expiry date
7. put option: option which gives the buyer the right to sell the currency at the stated strike price on or before the expiry date
8. the main purpose of an option contract is to hedge against foreign exchange risk.

shadow

努力赚钱中。。。。[em03]

无边丝雨

呵呵,好多啊~~谢谢

cherrie

多谢了，大家一起努力啊！

024070125

楼住有没初级的啊

kevinxu

承受不了了. 太多了.