Introduction
Corporate
lending
is
an
intuitive
process
that
is
more
an
art
than
a science
at
this stage of its evolution.
Credit
scoring techniques are fast
being
developed
and
applied to corporate lending, however,
and
are
set
to
add
a layer
of
protection over the approval process.
The
side effect
of
credit scoring is the acceptance
that
a percentage of
loans
will
go
bad;
in
the
past, loans
did
go
bad
but
would
not
have
been
approved
unless the analysis
indicated the
ability to repay .
In
this
chapter,
we
will
examine
the principles
of
corporate
lending
and
their application
in
the construction
of corporate loans.
In
addition,
we
will examine the actions
of
the
loan
officers
in
line
with the success
or
failure
of
the
loan
process.
Within
this process,
we
will examine the lifecycle
of
a
loan
to demonstrate the difference
between
the
products
of a financial
institution and
those
of other
corporate entities
An overview of corporate lending
Corporate
lending
represents the
high end
of
the
loan
portfolio
mix
for a
modern
bank
or
financial institution.
It
is also a fiercely competitive arena where margins can
be
small
and
the risks can
be
great; a successful
lender understands
the overall
market
and
its niche
in
that
market. Careful consideration needs
to
be
given to
the
type
of
client,
and
their
reputation and
standing; the selection of a carefully balanced
book
ensures prosperity
in
the good times
and
survival
in
the bad
times.
The
correct
mix
and
share of
various industries is essential to overall success.
Too
much
market share
in
one
segment of
the
economy
makes the
institution
vulnerable to movements
in
the economy;
in
other
words, a successful
bank
sometimes declines
good business
so as
not
to
be
overexposed
in
a particular
market segment
A
good lender needs
to
balance
the
requirement
to
meet their
target against the quality
of
the business
they
write.
The hallmark of
a successful
lender
is the ability
to
say no to a
bad
or
suspect
proposition.
One
of
the
most
important of
the
many
rules of lending
is
not
to
lend
for the
sake of
lending.
The
approval process
should
be
in
line
with
the lending criteria
of
the
institution and
the individual's
common
sense.
Loan
quality is the essence of good
management
of the
loan
portfolio.
The
importance
of
loan
generation
and the
credit competence
of
the approving officers
cannot be
overemphasised.
The
structural
changes
and
the reliance
on
technology
in the
finance
industry could send
a signal of
the
relative
unimportance
of credit approval,
but
the growth
of
a
loan
book
involves risk,
which
involves accountability,
which
introduces
the need
for education. A successful
loan
officer
understands
the
principles
of lending and
that
segmentation
in
the marketplace allows for an expertise to
be
gained -
in
this case,
in
the area
of
corporate lending.
Nobody
can get
it
right
all the time. A lender
who
claims to never have
been
involved
in
a loss has probably never effectively
and
profitably
lent money.