Sophisticated banking is vital for modern society to function and prosper. Banks lend to individuals and corporations but do so after carefully exploring the risks they undertake to each customer. This book examines the important role of lending in banking operations and how banks can implement safe and effective loan initiatives. Banks rely on lending to generate profits, but it can be a risky venture. It is important for banking professionals to understand how to mitigate those risks. Bank Lending from the Hong Kong Institute of Bankers discusses a variety of topics that impact a bank's loan strategy. This is an essential read for candidates studying for the HKIB Associateship Examination and those who want to acquire expert knowledge of Hong Kong's bank lending system. Topics covered in this book include: Assessing and reducing lending risk Understanding the customer through financial statements Using ratios to determine risk Setting up an internal structure to reduce risk Pricing and managing loans Dah Sing Bank is delighted to sponsor this resourceful book. The Dah Sing Group is a leading financial services group in Hong Kong, active in providing banking, insurance, financial, and other related services in Hong Kong, Macau, and the People's Republic of China. The Dah Sing Group has gained a reputation as one of the most progressive and innovative financial services groups. Keys to its success are the strength of the Dah Sing management team and the group's commitment to serving its customers.

Table of Contents:
Preface ix PART 1 PERSONAL AND CORPORATE LENDING 1 1 Lending to Personal Customers 3 Introduction 4 General Lending Principles 4 Types of Personal Customers 5 General Purposes of Personal Advances 6 Types of Lending to Individuals 7 Consumer Credit Data 22 Evaluating a Personal Advance Application 24 Summary 26 Key Terms 26 Study Guide 27 Further Reading 27 2 Lending Considerations for Corporate Customers 29 Introduction 30 The Balance Sheet 30 The Profit and Loss Account 37 The Cash Flow Statement 42 Cash Budget and Cash Flow Forecast 49 Reliability of Accounting Information by Source 50 Summary 55 Key Terms 55 Study Guide 56 Further Reading 56 Appendix 2.1: Comparing FIFO, LIFO, and AVR Inventory Methods 57 3 Financial Ratios and Operating Risks 61 Introduction 62 Techniques of Financial Analysis 62 Understanding Ratio Analysis 63 DuPont Analysis 80 Limitations of Financial Ratios 81 Operating Risks of the Borrower 82 Analysis Tools and Approaches 86 Summary 94 Key Terms 94 Study Guide 95 Further Reading 95 PART 2 CORPORATE CREDIT 97 4 Credit Assessment 99 Introduction 100 Lending Principles 100 Credit Decision Tree 102 Credit Risk Rating 110 Summary 118 Key Terms 118 Study Guide 118 Further Reading 119 5 Structuring a Loan Facility 121 Introduction 122 Security in Bank Lending 122 Conditions and Covenants 132 Pricing a Loan Facility 134 Summary 140 Key Terms 141 Study Guide 142 Further Reading 142 Appendix 5.1: Sample Loan Agreement 142 Appendix 5.2: SME Funding Schemes 148 6 Meeting Business Needs 151 Introduction 152 Business Sectors in Hong Kong 152 Types of Credit 163 Trade Finance 169 Working Capital Management 180 Summary 186 Key Terms 186 Study Guide 187 Further Reading 187 7 Credit Control and Problem Loans 189 Introduction 190 Credit Management Process and Structure 190 Characteristics of a Sound Credit Monitoring System 196 Credit Risk Mitigation 197 Corporate Failure 198 Remedial Actions 202 Summary 206 Key Terms 206 Study Guide 206 Further Reading 207 Index 209