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  2. Credit and Lending Decisions [ECF6120]

Faculty of Business and Law

School: Business

This unit information may be updated and amended immediately prior to semester. To ensure you have the correct outline, please check it again at the beginning of semester.

  • Unit Title

    Credit and Lending Decisions

  • Unit Code

    ECF6120

  • Year

    2015

  • Enrolment Period

    1

  • Version

    1

  • Credit Points

    20

  • Full Year Unit

     N

  • Mode of Delivery

    On Campus

Description

Students will develop the practical knowledge and skills required to make sound lending decisions which balance risk and return, and which meet the needs of both lenders and borrowers. Core lending principles are examined, focussing on analysis of the first and second ways out (cash flow and security). Students will learn how to prepare lending proposals which critically appraise key risks and strengths in a lending transaction, and which persuasively communicate recommendations for the approval or decline of a proposal. The unit also incorporates more advanced lending aspects such as default probability models, covenants, risk mitigants, sensitivity analysis, loans to farmers, project finance and international finance.

Prerequisite Rule

Students must pass 1 units from ECF6110

Learning Outcomes

On completion of this unit students should be able to:

  1. Analyse and sensitise the financial projections of borrowers.
  2. Apply lending principles to a range of different credit and lending decisions made by financial institutions in common situations such as to individuals and corporate borrowers.
  3. Assess specialised lending proposals such as those involving small businesses, projects, farmers and international finance.
  4. Assess the strength of security in lending proposals (second way out).
  5. Communicate credit recommendations in a structured, logical and persuasive manner.
  6. Evaluate the financial position of a potential borrower and assess their ability to repay loan requests (first way out).
  7. Formulate strategies for mitigating key risks involved in lending proposals.
  8. Prepare a comprehensive lending submission which makes recommendations on the approval or decline of requests for finance and be able to fully justify those recommendations.
  9. Restructure credit proposals (including the use of covenants) to best suit the needs of both the borrower and lender.

Unit Content

  1. Detailed assessment of the first way out (cash flow), including ratios, projections and covenants.
  2. Detailed assessment of the second way out (security).
  3. Lending from the borrowers and lenders perspectives.
  4. Managing the lending portfolio: structures, policies, reviews and default models.
  5. Overview of lending in the Australian banking system.
  6. Principles of good lending.
  7. Risk analysis, mitigants and the writing of a lending submission.
  8. Specialised lending: project finance, international lending, farmers and small businesses.

Additional Learning Experience Information

Students attend a weekly two hour lecture and one hour tutorial. Research has shown that students learn best in situations where they apply their knowledge to practical situations that are relevant to them. So a real effort is made in this unit to make the weekly lectures, tutorial questions and assessment practical. There is a strong focus on practical case studies which involve making realistic lending decisions. These are designed to develop the students' critical appraisal skills, to generate ideas for mitigating risk, and to encouraging students to communicate their arguments and findings in a structured, logical and persuasive manner. A high level of engagement has taken place with industry to ensure materials are practical and reflect industry requirements. The tutorials encourage group discussion and sharing of ideas in arriving at credit decisions. Banking research undertaken by the Universitys FEMARC (Finance, Economics, Markets, and Accounting Research Centre) is integrated into the unit material to ensure leading edge, research informed learning by students.

Assessment

GS1 GRADING SCHEMA 1 Used for standard coursework units

Students please note: The marks and grades received by students on assessments may be subject to further moderation. All marks and grades are to be considered provisional until endorsed by the relevant Board of Examiners.

ON CAMPUS
TypeDescriptionValue
Tutorial PresentationGroup Tutorial Presentation10%
Case StudyCase Study Test20%
Case StudyCase Study Assignment30%
ExaminationFinal Examination40%

Text References

  • ^ Boffey, R., & Powell, R. (2012). Credit & lending decisions: Class notes. Edith Cowan University, Perth.
  • ^ Sathye, M., Bartle J., Vincent, M., & Boffey, R. (2013). Credit analysis & lending management. (2nd.). Melbourne: Tilde University Press.
  • Hogan, W., Avram, K. J., Brown, C., Degabriele, R., Ralston, D., Skully, M., Hempel, G., et al. (2004). Management of financial institutions. (2nd ed.). Brisbane: Wiley.
  • Gup, B. E., Avram, K. Beal, D., Lambert R., & Kolari J. W. (2007). Commercial banking: The management of risk. Milton: Wiley.
  • Koch, T. W., & McDonald, S. S. (2010). Bank management. (7th ed.). Milton: Wiley.
  • Lange, H.P., Saunders, A., Cornett, M.M. (2012). Financial institutions management. (3rd ed.). North Ryde, N.S.W. : McGraw-Hill.

Journal References

  • Accounting & Finance.
  • Australasian Accounting, Business & Finance Journal.
  • Australian Journal of Management.

^ Mandatory reference

Disability Standards for Education (Commonwealth 2005)

For the purposes of considering a request for Reasonable Adjustments under the Disability Standards for Education (Commonwealth 2005), inherent requirements for this subject are articulated in the Unit Description, Learning Outcomes and Assessment Requirements of this entry. The University is dedicated to provide support to those with special requirements. Further details on the support for students with disabilities or medical conditions can be found at the Access and Inclusion website.

Academic Misconduct

Edith Cowan University has firm rules governing academic misconduct and there are substantial penalties that can be applied to students who are found in breach of these rules. Academic misconduct includes, but is not limited to:

  • plagiarism;
  • unauthorised collaboration;
  • cheating in examinations;
  • theft of other students' work;

Additionally, any material submitted for assessment purposes must be work that has not been submitted previously, by any person, for any other unit at ECU or elsewhere.

The ECU rules and policies governing all academic activities, including misconduct, can be accessed through the ECU website.

ECF6120|1|1

Faculty of Business and Law

School: Business

This unit information may be updated and amended immediately prior to semester. To ensure you have the correct outline, please check it again at the beginning of semester.

  • Unit Title

    Credit and Lending Decisions

  • Unit Code

    ECF6120

  • Year

    2015

  • Enrolment Period

    2

  • Version

    1

  • Credit Points

    20

  • Full Year Unit

     N

  • Mode of Delivery

    On Campus

Description

Students will develop the practical knowledge and skills required to make sound lending decisions which balance risk and return, and which meet the needs of both lenders and borrowers. Core lending principles are examined, focussing on analysis of the first and second ways out (cash flow and security). Students will learn how to prepare lending proposals which critically appraise key risks and strengths in a lending transaction, and which persuasively communicate recommendations for the approval or decline of a proposal. The unit also incorporates more advanced lending aspects such as default probability models, covenants, risk mitigants, sensitivity analysis, loans to farmers, project finance and international finance.

Learning Outcomes

On completion of this unit students should be able to:

  1. Analyse and sensitise the financial projections of borrowers.
  2. Apply lending principles to a range of different credit and lending decisions made by financial institutions in common situations such as to individuals and corporate borrowers.
  3. Assess specialised lending proposals such as those involving small businesses, projects, farmers and international finance.
  4. Assess the strength of security in lending proposals (second way out).
  5. Communicate credit recommendations in a structured, logical and persuasive manner.
  6. Evaluate the financial position of a potential borrower and assess their ability to repay loan requests (first way out).
  7. Formulate strategies for mitigating key risks involved in lending proposals.
  8. Prepare a comprehensive lending submission which makes recommendations on the approval or decline of requests for finance and be able to fully justify those recommendations.
  9. Restructure credit proposals (including the use of covenants) to best suit the needs of both the borrower and lender.

Unit Content

  1. Detailed assessment of the first way out (cash flow), including ratios, projections and covenants.
  2. Detailed assessment of the second way out (security).
  3. Lending from the borrowers and lenders perspectives.
  4. Managing the lending portfolio: structures, policies, reviews and default models.
  5. Overview of lending in the Australian banking system.
  6. Principles of good lending.
  7. Risk analysis, mitigants and the writing of a lending submission.
  8. Specialised lending: project finance, international lending, farmers and small businesses.

Additional Learning Experience Information

Students attend a weekly two hour lecture and one hour tutorial. Research has shown that students learn best in situations where they apply their knowledge to practical situations that are relevant to them. So a real effort is made in this unit to make the weekly lectures, tutorial questions and assessment practical. There is a strong focus on practical case studies which involve making realistic lending decisions. These are designed to develop the students' critical appraisal skills, to generate ideas for mitigating risk, and to encouraging students to communicate their arguments and findings in a structured, logical and persuasive manner. A high level of engagement has taken place with industry to ensure materials are practical and reflect industry requirements. The tutorials encourage group discussion and sharing of ideas in arriving at credit decisions. Banking research undertaken by the Universitys FEMARC (Finance, Economics, Markets, and Accounting Research Centre) is integrated into the unit material to ensure leading edge, research informed learning by students.

Assessment

GS1 GRADING SCHEMA 1 Used for standard coursework units

Students please note: The marks and grades received by students on assessments may be subject to further moderation. All marks and grades are to be considered provisional until endorsed by the relevant Board of Examiners.

ON CAMPUS
TypeDescriptionValue
Tutorial PresentationGroup Tutorial Presentation10%
Case StudyCase Study Test20%
Case StudyCase Study Assignment30%
ExaminationFinal Examination40%

Text References

  • ^ Boffey, R., & Powell, R. (2012). Credit & lending decisions: Class notes. Edith Cowan University, Perth.
  • ^ Sathye, M., Bartle J., Vincent, M., & Boffey, R. (2013). Credit analysis & lending management. (2nd.). Melbourne: Tilde University Press.
  • Koch, T. W., & McDonald, S. S. (2010). Bank management. (7th ed.). Milton: Wiley.
  • Gup, B. E., Avram, K. Beal, D., Lambert R., & Kolari J. W. (2007). Commercial banking: The management of risk. Milton: Wiley.
  • Hogan, W., Avram, K. J., Brown, C., Degabriele, R., Ralston, D., Skully, M., Hempel, G., et al. (2004). Management of financial institutions. (2nd ed.). Brisbane: Wiley.
  • Lange, H.P., Saunders, A., Cornett, M.M. (2012). Financial institutions management. (3rd ed.). North Ryde, N.S.W. : McGraw-Hill.

Journal References

  • Australasian Accounting, Business & Finance Journal.
  • Australian Journal of Management.
  • Accounting & Finance.

^ Mandatory reference

Disability Standards for Education (Commonwealth 2005)

For the purposes of considering a request for Reasonable Adjustments under the Disability Standards for Education (Commonwealth 2005), inherent requirements for this subject are articulated in the Unit Description, Learning Outcomes and Assessment Requirements of this entry. The University is dedicated to provide support to those with special requirements. Further details on the support for students with disabilities or medical conditions can be found at the Access and Inclusion website.

Academic Misconduct

Edith Cowan University has firm rules governing academic misconduct and there are substantial penalties that can be applied to students who are found in breach of these rules. Academic misconduct includes, but is not limited to:

  • plagiarism;
  • unauthorised collaboration;
  • cheating in examinations;
  • theft of other students' work;

Additionally, any material submitted for assessment purposes must be work that has not been submitted previously, by any person, for any other unit at ECU or elsewhere.

The ECU rules and policies governing all academic activities, including misconduct, can be accessed through the ECU website.

ECF6120|1|2