Faculty of Business: Finance and Economics
Credit points: 6 cp

Subject level: Postgraduate

Result Type: Grade and marks

Requisite(s): ((25742 Financial Management OR 25746 Financial Management: Concepts and Applications) AND 25741 Capital Markets)
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.

Handbook description

This is a specialised subject in the management of the loan funds assets of financial institutions. It provides students with detailed knowledge of the theory of financial intermediation and its application in achieving the maximum shareholders return while managing the level of risk associated with the loan products. Topics covered include: the formulation of loan policy, the managing and selection of loans, loan pricing, portfolio loan risk management, individual loan risk management, problems loans and specialist loan risk areas such as project and infrastructure finance, corporate loans, consumer lending and small and medium enterprise lending and loan structuring and documentation and collateral.

The subject includes a number of recent case studies in major lending disciplines such as project financing, small and medium enterprise lending, consumer lending, corporate lending and problem loans.

Subject objectives/outcomes

On successful completion of this subject students should be able to:

1. Understand the structure and role of the lending organisation including loan policy.
2. Understand the key aspects of loan pricing and the importance of monitoring loans.
3. Evaluate the causes and remedies for problem loans.
4. Explain the particular risks that apply to special markets such as project finance and euro markets.
5. Evaluate the varieties of loan products available for corporate, small and medium enterprise and consumer lending.
6. Perform a Credit Risk Analysis for a commercial business or consumer applicant.
7. Describe the unique characteristics of specialist lending and the impact of these on the loan portfolio.
8. Understand the importance of corporate governance as the basis for sound loan making.

Contribution to graduate profile

This subject contributes to the degree by exposing students to the core principles of loan funds management. The subject begins with a discussion of general loan policy formulation and then moves through a number of specialised loan fund areas. The subject considers in detail the risk and reward (pricing) elements of each loan and how these should be managed in order to obtain the optimum return for institutions and their shareholders. Through the subject students will examine specialist loan areas such as project and infrastructure finance, small and medium enterprise lending, consumer lending, corporate lending and discuss topical issues such as the impact of corporate governance on the loans market. Finally, students will spend time examining the impact of risk on these assets and the use of a number of leading edge tools to manage the risk levels.

Teaching and learning strategies

The subject will be taught using a combination of lectures and workshops. These classes will be supplemented with both printed and electronic learning materials and resources. The UTS web-based communication tool (UTS Online) will be used to share information and encourage interaction between staff and students. Students will also use appropriate computer software such as spreadsheets and word processors to complete assigned tasks.

Content

• Introduction to the subject including its aims and rationale.
• Overview of the theory of financial intermediation.
• The formulation of loan policy.
• Loan selection, pricing and risk management.
• Specialist loan markets: project finance, infrastructures loans, overseas borrowing, corporate loans, consumer loans and small and medium enterprise loans.
• Loan documentation and the use of collateral and contract clauses to mitigate risk.
• The art of loan structuring that is the tailoring of a loan structure that suits both the borrowers and lenders balance sheet.

Assessment

Mid-semester exam (Individual)	25%
There will be an in-class test designed to assess students' understanding of the theories and concepts to demonstrate that students have met objectives 1-3.
Assignment (Group)	25%
This will assess students' understanding of the concepts of financial institution loan asset management particularly with regard to the risks and features of feasible loan structures. It will also allow students to demonstrate that they understand the risks in advancing loan funds and how these may best be mitigated. This assignment will allow students to demonstrate that they have met objectives 4-8.
Final Exam (Individual)	50%
This exam, consisting of short essays and a case study, will test students' understanding of the theory of finance as applied to banking and their ability to apply this to a contemporary case study. This will enable students to demonstrate that they have met objectives 3-8.

Examinations will be conducted under University examination conditions, and hence thoroughly address concerns regarding secure assessment. The assignment will be secured through a combination of updating of assessment tasks across semesters and/or plagiarism detection software.

To pass the subject, students must achieve at least 50% of the final overall grade.

Recommended text(s)

Sathye, Bartle, Vincent Boffey. (2002). Credit Analysis and Lending Management Wiley.

Indicative references

Bruce, McKern, Pollard, Skully. (1997). Handbook of Australian Corporate Finance, 5th Edition, Butterworths.