Banks own investment securities and money market assets in order to manage asset and liability positions, diversify their earning assets base, maintain a liquidity cushion, and meet pledging requirements. For most banks, the investment portfolio constitutes a significant earning asset. The increasing complexity of the securities available in the marketplace has heightened the need for […]
1. The banks productivity Benchmarking studies comparing how banks in different countries go about their business, show that there is a wide spread in productivity. In 1991, added value per working hour was 93 USD in America versus 84 USD in Asia and only 52 USD in Europe. The number of people employed by the […]
It is obvious that every bank must have an independent department that deals with the credit function. There is, however, no organizational model which is right for every bank. Different market conditions or cost structures may require different organizational solutions.
The price charged for a credit must cover the banks administrative and refinancing expenses. Most important, the margin must reflect the risk that is associated with each particular credit. The various factors influencing the pricing decisions are as follows:
This chapter will focus on loans as a means of financing a company. Financing instruments like leasing or factoring , in effect, pose similar risks as loans. It is mainly for tax-driven reasons that companies resort to leasing. Since tax laws are very different even within Western countries, this chapter will only give a brief […]
Increasingly, environmental issues have to be taken into consideration when a bank tries to assess a business. This is not due to fashionable trends, but a number of hard facts forcing banks to have a close look at the environmental implications of businesses, their products and their markets.
1. Customer satisfaction Recent trends stress the importance of customer satisfaction for a company’s long—term success. Loyal customers contribute most to a company’s profits. They buy more and more often — they have a higher «re-purchasing factor», and they are less price-sensitive, than new customers.
1. Qualifications of the management The qualifications of a companies management team are of paramount importance to the survival and long-term success of any business. Surveys among those German small and medium-sized companies, which have failed to survive, have shown that in most cases management failure was one of the key reasons for their collapse.
1. “The plan is nothing, planning is everything“ Analysing the financial statements of a company is absolutely necessary to assess its creditworthiness, but it can hardly make any sound predictions about the company’s future.
The cash flow gives the analyst a better understanding of a company’s financial strength than traditional balance sheet ratios, which all too often have not provided creditors with early warning signals. Cash flows are less prone to distortions by accounting policies or changes in accounting methods.
