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Credit Analysis Flashcards

7 cards from real Banking practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Credit Analysis flashcards as text

  1. What does a high days-sales-outstanding (DSO) figure indicate about a borrower?

    Answer: Slow collection of receivables, potential cash flow issue

    High DSO means the company takes longer to collect payment from customers, which can strain cash flow and indicate credit risk.

  2. In leveraged lending, what is a 'term loan B' (TLB)?

    Answer: A long-term senior secured loan with minimal amortization sold to institutional investors

    Term Loan B is a senior secured credit facility with minimal scheduled amortization (often 1% per year), held predominantly by institutional investors like CLOs and hedge funds.

  3. Which of the following is an example of a negative pledge covenant?

    Answer: Prohibiting the borrower from pledging assets to other creditors

    A negative pledge covenant prevents the borrower from using assets as collateral for other debt, protecting the existing lender's security position.

  4. What is 'loss given default' (LGD) in credit risk modeling?

    Answer: The proportion of exposure the lender loses if a default occurs

    LGD represents the percentage of the exposure at default that the lender cannot recover, after accounting for collateral and recoveries.

  5. Which credit metric is most relevant when analyzing a startup company with no historical earnings?

    Answer: Revenue run rate and projected cash burn rate

    For startups, revenue run rate and cash burn rate are critical because they reveal how long the company can operate before needing additional funding.

  6. What is the primary difference between recourse and non-recourse lending?

    Answer: Recourse loans allow the lender to pursue the borrower's other assets beyond the collateral if default occurs

    In recourse lending, the lender can go after the borrower's other assets if collateral is insufficient, while non-recourse limits recovery to the pledged collateral only.

  7. Which component of the CAMELS rating system specifically evaluates the quality of a bank's loan portfolio?

    Answer: Asset quality

    The 'A' in CAMELS stands for Asset Quality, which assesses the credit risk in the loan portfolio including non-performing loans and provisioning levels.