Macquarie University

Credit and Lending Decisions - AFCL856

This unit examines the way that banks and financial institutions make credit and lending decisions. By understanding the investment goals of a debt stakeholder, we explore the extent to which debt can meet the capital needs of a borrower. We examine how the nature of the borrower (consumer, business or large/listed corporation) influences the approach of lenders and the decision making process. Consumer credit decisioning models are contrasted with the more tailored approach required by much larger individual exposures. Credit scoring and other analytical techniques are explained. The process of formulating a financing or credit proposal is analysed, linking the needs of the borrower and the protections required by the lender. This process includes structuring the credit facilities and documentation using concepts introduced in FRM (viz, probability of default, loss given default and exposure at default). Unsecured, secured and subordinated arrangements as well as “post-decision” matters such as loan monitoring and management of problem loans are also considered as part of the overall lending structure. Finally, the significance of “credit culture”, governance and regulation is highlighted in the context of a large financial institution.