Credit Control in Boom and Recession PDF
Preview Credit Control in Boom and Recession
Credit Control in Boom and Recession T. H. Donaldson CREDIT CONTROL IN BOOM AND RECESSION By the same author and from the same publishers CREDIT RISK AND EXPOSURE IN SECURITISATION AND TRANSACTIONS HOW TO HANDLE PROBLEM LOANS THE MEDIUM-TERM LOAN MARKETS {with J. A. Donaldson) THE TREATMENT OF INTANGIBLES UNDERSTANDING CORPORATE CREDIT Credit Control in Boom and Recession T. H. Donaldson Managing Director J. P. Morgan, London tt ©T.H.Donaldson 1994 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published in Great Britain 1994 by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 0-333-58667-0 Printed in Great Britain by Antony Rowe Ltd Chippenham, Wiltshire First published in the United States of America 1994 by Scholarly and Reference Division, ST. MARTIN'S PRESS, INC., 175 Fifth Avenue, New York, N.Y. 10010 ISBN 0-312-10642-4 Library of Congress Cataloging-in-Publication Data Donaldson, T. H. (Thomas Hay), 1936- Credit control in boom and recession / T. H. Donaldson, p. cm. ISBN 0-312-10642-4 1. Credit control. I. Title. HG3705.D66 1994 658.8'8-<ic20 93-31231 CIP To my wife, Natalie This page intentionally left blank Contents 1 Introduction 1 Credit Control/Strategy: a Subject for Recession Only? 1 Credit/Lending: Part of a Greater Whole 2 Credit Control Defined in its Different Aspects 3 Management Attitudes and Culture Rule All 8 Credit Control Covers More than Just Lending 9 PART I ANALYSIS, PRESENTATION AND THE DECISION Analysis 13 The Type of Analysis 13 Who Does the Analysis? 26 Presentation 36 Distinguish Between Presentation and Analysis 36 Combine the Two, or Separate Them? 37 Standard Format, or Presenter's Choice? 41 Who Makes the Decision? 46 Introduction 46 Assessing the Advantages and Disadvantages 46 Fitting the Authority to the Bank 54 Summary and Comment 60 Putting the Parts into a Coherent Whole 64 Introductory Comment 64 Some Permanent Dos and Don'ts 64 Fitting Training to the Structure 68 Putting the Parts Together 70 Some Specific Features to Consider 74 Credit in Treasury and Capital Market Products 77 Introduction 77 What Should Treasury Credit Cover? 79 Some Other Features 83 vn Vlll Contents PART II MONITORING Monitoring Each Loan 91 Introductory Comment 91 The Structure of Monitoring 91 Fitting in with Other Responsibilities 99 Justifying the Cost 101 Monitoring the Portfolio 103 The Overall Approach 103 The Overall Quality of the Portfolio 103 Different Forms of Concentration 109 Monitoring the Level of Problem Loans 113 Monitoring Treasury Products 115 Definition 115 Establishing a Basis for Comparison 115 Setting Limits and Keeping within Them 119 Statistical, Trader's Approach, or Realistic? 122 Getting Market Knowledge to the Credit Specialist 124 PART III STRUCTURE AND DOCUMENTATION 10 The Structure of the Facility 127 Introductory Comment 127 Key Features of a Facility 127 Protection within the Structure 134 11 Documentation 146 For Lending 146 Specific Items 148 Documentation for Swaps and Other Instruments 156 Third-Party Documentation 158 PART IV DAMAGE LIMITATION 12 Managing the Internal Process 161 Recognising the Problem 161 Deciding Who Should Follow Problems 162 Policy of No Surprises 168 Contents IX 13 Dealing with the Borrower or Counterparty 174 Introduction 174 Managing the Management 174 The Nature of the Problem 179 14 Dealing with Other Banks 189 Deciding the Roles 189 If You Want to Take the Lead 193 Outside the Committee What Role is There? 197 Views Required - Whether Passive or Active 201 PART V THE OTHER FACTORS 15 Training 207 The Essence of Credit Training 207 The Recipients of Credit Training 207 16 Credit and Marketing 216 Should be Linked 216 17 Computers and Credit 223 The Role of Computers 223 Control of Usage 223 Monitoring 224 The Dangers of the Computer 228 18 Pricing and Return on Equity 231 Pricing as a Defence against Bad Decisions 231 Different Ways of Assessing Capital and Returns 235 Index
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