25752 Financial Institution Lending

Subject level: Postgraduate

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

Assessment item 1: Mid-semester exam (Individual)

Assessment item 2: Assignment (Group)

Assessment item 3: Final Exam (Individual)

Required text(s)

Sathye M, Bartle J, Vincent M, Boffey R, Credit Analysis and Lending Management (Wiley 2003)

Recommended text(s)

Bruce, McKern, Pollard, Skully, Handbook of Australian Corporate Finance, 5th edn, 1997 Butterworths

Indicative references

Koch, Timothy S. (2006), Bank Management, 6th Edition, Thomson

Hogan W, Avram K, Brown C, Degabriele, R., Ralston D, Skully M, Hempel G, Simonson D, Management of Financial Institutions (Wiley 2004).

Weaver and Kinsley (2001), Banking and Lending Practice, 4th Edition, Law Book Company

Carew E., Fast Money 4 Allen & Unwin 1997

Shanahan K., Australian Dictionary of Banking & Finance LBC 1997

Business & Law Dictionary Butterworths 1997

Saunders A.,. Credit Risk Measurement 2nd Edition Wiley Finance 2002

Altman E., Corporate Financial Distress & Bankruptcy 2nd Edition Wiley Frontier in Finance

Finnerty J.D., Project Financing Wiley Frontier in Finance

Everett & McCracken, Financial Institutions Law, 6th Edition Law Book Company

Lecture overheads

Copies of the lecture slides are printed in hard copy and distributed to students in the first week of term. The lecture slides are designed to assist students in directing their learning of the subject material and should not be regarded as a substitute for reading the text or other additional readings. It is unlikely that reading from the Sathye textbook alone would be sufficient knowledge for students aspiring to pass this course.

Useful websites

International websites