Training
Canons of Good Lending and Credit Risk Analysis
Credit risk analysis is the process of assessing the likelihood of a borrower defaulting on their loan or failing to repay their debt. The canons of good lending are closely related to credit risk analysis, as they guide lenders
in making responsible lending decisions based on the borrower's ability to repay the loan.
The process of credit risk analysis involves evaluating various factors, such as the borrower's credit history, income, employment status, assets, and liabilities. Lenders use this information to determine the borrower's creditworthiness
and assess the risk involved in lending to them.
Some key factors that lenders consider in credit risk analysis include:
- Credit Score: A borrower's credit score is a key indicator of their creditworthiness, as it reflects their history of managing credit and debt.
- Debt-to-Income Ratio: This ratio measures the borrower's debt burden relative to their income and is used to assess their ability to repay the loan.
- Collateral: Lenders may require collateral to secure the loan, which can help mitigate the risk of default.
- Loan Amount: Lenders also consider the amount of the loan relative to the borrower's income and assets, as larger loans pose a greater risk.
The Canons of Good Lending are a set of principles that guide lenders in making responsible lending decisions. These principles include:
- Safety: Loans should be safe, meaning that the borrower is able and willing to repay the loan.
- Liquidity: Loans should be made with consideration to the lender's ability to meet its obligations as they become due.
- Profitability: Loans should be profitable to the lender, providing a return on the investment made.
- Diversification: Lenders should diversify their loan portfolio to minimize risk.
- Flexibility: Loans should be flexible to accommodate changing circumstances.
“The first rule of banking is to never lend money to people who need it.”
- John Moody
What we offer in this Training
A Canons of Good Lending and Credit Risk Analysis training session may cover a variety of topics related to responsible lending and credit risk management. What we offer during such a session:
- Overview of the Canons of Good Lending: This may include a discussion of the five key principles of good lending - safety, liquidity, profitability, diversification, and flexibility.
- Credit Risk Analysis Techniques: This may involve an introduction to different credit risk analysis techniques such as credit scoring, ratio analysis, and cash flow analysis.
- Understanding Financial Statements: The training may provide an overview of financial statements such as balance sheets, income statements, and cash flow statements, and how to use them in credit risk analysis.
- Identifying Key Credit Risks: This may involve an examination of key credit risks such as credit concentration risk, interest rate risk, and liquidity risk.
- Mitigating Credit Risks: This may include a discussion of strategies to mitigate credit risks, such as collateralization, credit insurance, and loan covenants.
- Evaluating Borrower's Creditworthiness: This may involve a review of the factors that affect a borrower's creditworthiness, such as credit history, income, assets, and liabilities.
- Case Studies: The training may use case studies to illustrate how to apply the canons of good lending and credit risk analysis principles in real-world situations.
- Regulatory and Legal Considerations: The training may cover the regulatory and legal considerations that lenders must adhere to when making lending decisions.
