Credit Risk Management
Security enhancement and
This section aims to explain the underlying assumptions and techniques
used in drafting loan covenants and illustrate how credit risk can be opti-
mized through the use of effective loan structuring by elaborating on:
the inter-relationship between loan structuring and repayment capac-
ity analysis;
the importance of working capital in loan structuring;
how loan covenants can be used effectively to achieve and maintain
proper structure;
the different underlying rationales and uses of covenants and security
testing the underlying security assumptions;
using projected balance sheets, and profit and loss statements to draft
loan covenants.
Security enhancement and management is a subject which encompasses
a broad range of financial, non-financial, and legal techniques which
will ultimately enable you to consider the results of a financial analysis
and use that information to make recommendations in the drafting of a
loan agreement structure. This loan agreement provides a structure to
the facility which is governed by loan agreement covenants, enabling the
banks to exercise control and protect their loan as well as the assets the
borrower has pledged to the bank as loan collateral.
This information is the fruit of the financial analysts work (analysing
historical and projected financial statements) and forms an indispensable
tool in enabling the bank (as well as borrower) to structure effective loan
agreements and maintain consistent asset quality throughout the banks
loan portfolio.
Follow-up on loan agreement
Following up on compliance with loan agreements is important but is
nevertheless neglected by some banks. This is extremely dangerous

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