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The objective of credit analysis is to look at both the borrower and the lending facility being proposed and to assign a risk rating. The risk rating is derived by estimating the probability of default by the borrower at a given confidence level over the life of the facility, and by estimating the amount of loss that the lender would suffer in the event of default
Tradentially lenders faces risk of default in every loan transaction. Credit risk is major concern for lenders. Bank's and financial itermederies appoints Credit Risk Analyst, who undertake risk assessment for various type of lending proposals, from salo proprietorship to public limited campany and for working capital to short term and long term loan.
Credit Analyssi consist of the following:
1. Analysis of business and industry.
2. Financial Statement analysis.
3. Cash Flow analysis.
4. Collateral Analysis.
Credit Analysis is based on5 Cs, which are
a. Capacity-It determine borrower's capacity to repay of loan.
b. Capital-What the owner are investing in particular business.
c. Collateral-Determine the security or guarantee offered against particular loan.
d. Condition-What terms and conditions offer to secure loan.
e. Character-It determine past history, loan repayment history etc.
The objective of credit analysis is to look at both the borrower and the lending facility being proposed and to assign a risk rating. The risk rating is derived by ...
The major purpose of credit analysis is to identify risks in lending situations, draw ... Credit analysis is the quantitative and qualitative analysis of a company, ...
The main objective of the credit analysis is to assess the risk of default (called credit risk) objectively so as to enable Credit Committees to take appropriate decision regarding the sanctioning of the credit facilities. The accurate measurement of risk of default not only helps in defining appropriate collateral security to mitigate the risk but also on deciding the right pricing for the risk.
It gives an indication of your credibility and credit risk.
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