Presentation byProfessor Emeritus & Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan (2003----), Member Governing Council, International Federation of Accountants (IFAC), New York (1997-2000), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan (1997-2000), President, Association of Management Development Institutions of South Asia (AMDISA) (1993-96), Pro Vice-Chancellor University of the Punjab, Lahore (1994-1996), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore (1973-1996) and senior faculty member of Hailey College of Commerce, University of the Punjab(1965-73) & Senior Faculty members, Hailey College of Commerce, University of the Punjab, Lahore (1965-73)Prof. Dr. Khawaja Amjad SaeedEventTraining Program Venue & DateDhaka, March 10, 2012Title of Paper CORPORATE LENDING RISK ANALYSIS *

PRESENTATION FRAME Section A:Risk:Concept CharacteristicsCategories Types Risk Management Model:RMMMRisk Assessment: Environment Management Approach Organizational Analysis Risk Mitigation:Characteristics of Successful Banks Mission Statement Market Research Innovation*

PRESENTATION FRAME 5.Seven Cs Analysis: Risk Evaluation NIB: Lending Models in Pakistan Projects Risks:Risks Safeguarding Against Project Cost Over Runs Project Profile Section B:Workshop Exercise, Problem Solving Session and Case Analysis Risk Assessment:Sensitivity Analysis Financial Analysis Exercise Case Study

*Concept:Loss of part or all of the actual.Lower Yield on an investment than expected. While it is futile to try to eliminate risk and questionable to try to misuse it; it is essential that the risks taken be the right risks (Peter Drucker).Characteristics:Uncertainly:May or may not happen.Loss: If the risk becomes a reality, losses will occur.

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*Types Specific Project Risks:Budget Schedules Personnel Resource CustomersTechnical Risks: Design Implementation Verification Maintenance Market RiskManagement Risk

RMMM1.Risk Mitigation 2.Risk Monitoring 3.Risk Management *

A: Traditional 1.Internal (4):- Revenue - Expenditure - Finances - Human Resources 2.External (4):- PESTB: Current: Task Orientation 1.Competition 2.Customers 3.Suppliers4.Distribution Channels*

1. Management Controls 1.Vision2.Mission 3.Objectives 4.Organization2. Marketing 1.Market Research (+Tools)2.Sales Trends 3.Sales Promotion 4.Sales Training 5.Sales Controls 6.Sales Force 7.Competition 8.Product (s)9.Pricing 10.Distribution*

3. Manufacturing 1.Plant 2.Equipment & Facilities 3.Plant Operations 4. Production Planning 1.Purchasing 2.Material Controls 3.Production Planning & Control 4.Quality 5.Cost Control 5. Industrial Relations1 +PR6. Legal*

Focus1.Customers-Enthusiastic 2.Performance- Financial 3.People-Inspired Aspects 1.Foundation-Strong 2.Customer -Special3.Goals-Bold4.Approach-Simplify, Simplify & Simplify 5.Technology-Your Servant6.Act -Fast7.People-Unleash the Power 8.Lead-With Care*

*Culture:Open Values:Strong and Shared Performance: Profit Orientation:Customers Products:Investment in New Leadership:Strong and Consistent Recruitment:The Best Persons Investment:In Training and Career Development MIS:Operational Credit Process:Strong and Balanced

Clear and Concise Statement of: 1.Who we are 2.What we Produce/Serve 3.Market we Serve 4.Philosophical Concerns 5.L.T Objectives 6.Being: -Result Oriented -Specific -Attainable *

1. Total Market:1.Increase 2.How Much:- At home - Abroad 2. Share of Market:1.Maintain 2.Increase 3. Customers: Present & Potential:1.Continue to buy 2.Who are they 3.Where are they 4.Who takes what 5.Will they continue to need our products or service6.What do they use these for7.Competition8.Obsolescence*

1.Product 2.Process 3.Function4.Inter-Departmental *

*1. One CCollateral 2. Three CsCollateral Capacity Condition 3. Five Cs1.1-3 of 2 above 4.Capital 5.Character 4. Seven Cs1.1-5 of 3 above 6.Country Risk 7.Currency Risk

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Focus Modes A: Lending (2) Service Charge Qarde Hasna B: Trade Related (6)Mark up Purchase of movable or immovable Property with buy back agreement or otherwise Purchase of trade bills Hire purchase LeasingDevelopment chargesC: Investment (4)

Total 12Musharka or profit and loss sharing Equity participation PTC and Modarba Certificate Sharing Rent Sharing

I: Institutional Factors (10)1.Final Engineering2.Concluding Contracts with Consultants 3.Acquiring Right of Way 4.Utilities 5.Procurement Speed of Equipment 6.Funds diverted to other projects 7.Management Consultant Problems 8.Inadequate Supervision 9.Shortage of Local Funds*

II: Technical Factors (7)1.Uncertainty of Original Engineering Estimates 2.Conservative Engineering Estimates 3.Unforeseen technical problems (Soil, slides, water ----)4.Faulty Design 5.Inefficient Contractors 6.Disputes & Claims of contractors 7.Change in Specifications (Additional work-----)III: Economic & Political Factors (3)1.Change in Project Composition 2.Price Increase 3.Labour Shortages & Disputes Total 20

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*Consultants-Careful Selection Consultants-Be Experts and Cost Estimators Contingency Allowance-realistic Estimates Reduce Contractors Fears (Risks) by Proper Explanations in Bidding Documents Supervision of Site-Sound

1. Name and Brief Description 2. Criteria 1.Importance to economy 2.Operationalability 3.Viable Results 4.Size 3. Promoters 1.Names 2.Addresses 3.Financial Position 4. Investment 1.Cost 2.FX*

5. Available Finances 1.Amount 2.Terms & Conditions 3.Sources 6. Preliminary Assessment 1.Executing Agency 2.Inputs3.Water Supply4.Labour Situation 5.Management 6.Production Methods *

7. Amount Needed 1.Form2.Amount 3.FX 4.Timing of Utilization 8. Information 1.Sources 9. Remarks 1.Regional Head 2.Aspects: -Financial Status -Technical Acumen -General Reputation of Applicant-Feasibility -Marketability of Products *

*Given Data: Taka. 000Estimated Investment (Taka)1,000Desired Rate of Return (%) 20Estimated Units Contributing Normal Value (Number)500Estimated Variable Cost (Taka)1,000Estimated Fixed Cost (Taka) 800Estimated Revenue at Prevailing Price (Taka)2,000Required:Visualize several, at least, three sensitivities.Quantify the factors at (1) above.Compute the impact of all the three sensitivity factors.Offer your comments to assess operational risk.

*1.Nijat Hussain & Co. Ltd has approached you for financial assistance.Three years balance sheets and income statements figures have been made available to you. Required: a.Undertake trend analysis of time series to develop a perspective b.Develop initial thoughts as to what financial policies the company is following in respect of: Resource Mobilization Resource Utilization Protection of Financial Resources:Risks which the company is facing Financial Management Problems Distribution in Terms of Dividends

Having built a perspective, undertake financial analysis exercise by computing various ratios:LiquiditySolvencyProfitabilityPrepare credit appraisal report.Write up for discussion is enclosed. *

*Jauhar Brothers, manufacturers of all metal garden and porch furniture, presented their operating statement as of June 30, 2011 the result of six months operations.

Sales TAKATaka 525,000Cost of Goods Sold: Variable Expenses: MaterialsLabourSuperintendenceHeat, Light, Power

52,50070,750

21,0005,250

Rs. 149,500

Fixed Expenses:Superintendence9,000Heat, Light, Power3,000Depreciation6,000Repairs to Building7,50025,500Cost of Goods Sold175,000Gross Profit350,000Selling and Administrative Expenses:Variable Expenses:Commission105,000Advertising5,250110,250Fixed Expenses:Officers Salaries30,000Advertising30,000Office Salaries 72,000Miscellaneous Expenses30,000162,000Total Selling and Administrative Expenses272,250Net profitTaka77,750

*Based on discussions held, it transpired that the above enterprise was operating at 60% of its installed capacity. However based on marketing survey carried out, it was concluded that the enterprise has good market potential which could be tapped by increasing its capacity to 85%. Accordingly the bank has been approached to finance the expansion plan which will result in almost doubling the profit.Required: The enterprise seeks your guidance in respect of management decisions to be taken to meet the challenge to raise the capacity from 60% to 85%. With ensequential benefits. Suggest a sound managerial plan to achieve the above goal so that the bank can then guide the enterprise to achieve desired results and also pave the way to finance expanding needs.

*Guidelines for developing a managerial decision plan to raise the capacity from 60% to 80% are suggested below: Sales:- Assume a constant price. - Can suggest others also. Labour:- Suggest some percentage of sales: 15%.- This will serve as motivational.Superintendence:- Variable: suggest some percentage: 3%. - Fixed suggest some increase: Taka: 8,250.Advertising:- Present fixed and variable amounts are adequate for all volume upto 60%. - Variable rate may be 5% of such increase.

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