5 c’s of credit analysis
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5 c's of credit analysis prepared by muhammad zubair under the kind supervision of SIR AHMAD GILLANI.
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5 c’s of credit analysis
- 2. 5 C’s of Credit Analysis 1 Character 2 Capacity 3 Capital 4 Collateral 5 Condition Income Assets & Social character statement liabilities Tangibility Economic survey analysis analysis Interview & Real estate Legal character Interview Liquidity observation analysis
- 3. Character Social Legal Qualitative = values, ethics and Qualitative = criminality behavior with record society Quantitative = NADRA record, Quantitative = credit history domicile through E-CIB
- 4. Capacity (financial performance) Income statement analysis Interview & observation Quantitative Qualitative If there is no I/S then Expenses < revenues (accept) interview is conducted and Expenses = revenues (reject) his or her financial performance is observed. Expenses > revenues ( reject) For this purpose analytical approach should be higher.
- 5. Capital ( financial performance) Assets & liabilities analysis Assessment Quantitative Qualitative If there is no B/S then Assets > liabilities ( accept) interview is conducted and Assets = liabilities (reject) his or her financial position is observed. For this Assets < liabilities (reject) purpose analytical approach should be higher.
- 6. Collateral (security) Tangibility Liquidity Quantitative Qualitative Having tangible mass. • Easily saleable • No time waiting Total assets – intangible fixed • Less transactional cost assets
- 7. Condition Economic survey Real estate analysis Quantitative Qualitative A business, industry or Specially for consumer sector’s condition is loans real estate study is checked through the study necessary because the of economic surveys. securities are in the shape e.g. sizing industry, CNG of land. pumps
Notas do Editor
- Hierarchy of C’s shouldn’t be changed i.e. capacity is analyzed before character it will be wrong. But in some conditions it can be changed or the client can be rejected if any C isn’t good and that is clearly known by the banker. For example if an industry’s condition isn’t good then the banker don’t have need to analyze the previous C’s. the banker can reject the client directly.
- E-CIB = electronic – credit information beauru (if e-cib –ve then rejected, if +ve then accepted and if loan taken but installments is paying on time then also accepted.Criminality record is taken from the court.
- Just liabilities will be analyzed in comparison of assets the equity will be ignored.Assets = liabilities + capital80000 = 70000 now (80000-70000 = 10000)Up to this extent (10000) loan can be disbursed.
- Liquidity:Land (D.ground)Rs land (village)Rs100000 100000 Now the land in D.ground will be preferred because that is more liquid(easily saleable).Tangibility:Good will, copy right patents etc don’t have tangible mass so can’t be taken as collateral.