BUSINESS V: WRITING THE CREDIT ANALYSIS REPORT
WRITING THE CREDIT ANALYSIS
REPORT
Once you have assessed the risks inherent in the
industry and the business, analyzed the financial statements, and projected the
company's borrowing requirements and ability to repay, the next step is to
write an analytical summary to communicate your conclusions about the company's
performance to others (specifically, the loan
committee). In your credit analysis
report, you will present the key conclusions on which the loan recommendation
will be based.
The biggest complaint about written analyses is that the
writers recite facts without drawing conclusions about the implications of risk
for the bank. Present your conclusions,
support them with cause-and-effect relationships, present only the essence of
the business to the loan committee, and keep the report to a maximum of three
to four double-spaced typewritten pages (not including spreadsheet of financial
statements and ratio, cash flow, and comparison analyses.
Each bank has its own format for the credit analysis
report. The following outlines are
general in nature. Most begin with
basic information about the company and the loan request. This is typically followed by a summary of
your recommendation concerning the exact loan decision and facility you are
recommending. The balance of the
narrative then supports your conclusion by summarizing your analysis of the
industry, the company, the financial statements, and projected repayment. Spreadsheets containing detailed financial
statements, ratios, cash flows, and comparison analyses are most often attached
to the report as back-up documentation.
By this point, you should have gathered the following
information:
1. description
of the company's business
2. description
of the industry (past/future major trends)
3. company's
current position within the industry
4. key
changes in financial statement & cash flow implications
5. analysis
of the company's capital structure
6. company's
projected needs and repayment capacity
7. description
and analysis of management
8. company's
strengths, weaknesses, and risks
9. company's
products, market, competitive strategies/advantages
10. company
trends and related management actions
11. company
profitability, efficiency, and liquidity
12. company's
respond to business cycle
This list is by no means exhaustive; each company, each
situation will require more or less then the items listed above. The list should only be used as a starting
point.
After gathering this information, follow these steps:
1. Review
information; a picture of the situation should emerge.
2. Take
notes; write phrases that captures the picture.
3. Review the
notes to connect various pieces of information.
4. Establish
cause-and-effect relationships.
5. Draw
conclusions about risk/opportunities of lending.
Presenting facts is only half the job. Anyone can find and restate facts. The major difference between a
"fact-finder" and a "commercial banker" is the banker's
identification of risks and the implication to the bank.
Once you have reached some conclusions about your
customer, you must present them in an orderly, clear, and efficient
manner. Use the following guidelines:
1. Select
details having direct bearing on your conclusions.
2. Outline
your analysis before you begin to write.
3. Use
standard bank industry vocabulary; avoid jargon.
4. Be as
brief as possible; select support details carefully.