Hierarchy of C’s shouldn’t be changed i.e. capacity is analyzed before character it will be wrong. But in some conditions it can be changed or the client can be rejected if any C isn’t good and that is clearly known by the banker. For example if an industry’s condition isn’t good then the banker don’t have need to analyze the previous C’s. the banker can reject the client directly.
E-CIB = electronic – credit information beauru (if e-cib –ve then rejected, if +ve then accepted and if loan taken but installments is paying on time then also accepted.Criminality record is taken from the court.
Just liabilities will be analyzed in comparison of assets the equity will be ignored.Assets = liabilities + capital80000 = 70000 now (80000-70000 = 10000)Up to this extent (10000) loan can be disbursed.
Liquidity:Land (D.ground)Rs land (village)Rs100000 100000 Now the land in D.ground will be preferred because that is more liquid(easily saleable).Tangibility:Good will, copy right patents etc don’t have tangible mass so can’t be taken as collateral.
5 C’s of Credit Analysis1 Character 2 Capacity 3 Capital 4 Collateral 5 Condition Income Assets & Social character statement liabilities Tangibility Economic survey analysis analysis Interview & Real estate Legal character Interview Liquidity observation analysis
CharacterSocial LegalQualitative = values, ethics and Qualitative = criminality behavior with record societyQuantitative = NADRA record, Quantitative = credit history domicile through E-CIB
Capacity (financial performance)Income statement analysis Interview & observationQuantitative Qualitative If there is no I/S thenExpenses < revenues (accept) interview is conducted andExpenses = revenues (reject) his or her financial performance is observed.Expenses > revenues ( reject) For this purpose analytical approach should be higher.
Capital ( financial performance)Assets & liabilities analysis AssessmentQuantitative Qualitative If there is no B/S thenAssets > liabilities ( accept) interview is conducted andAssets = liabilities (reject) his or her financial position is observed. For thisAssets < liabilities (reject) purpose analytical approach should be higher.
Collateral (security)Tangibility LiquidityQuantitative QualitativeHaving tangible mass. • Easily saleable • No time waitingTotal assets – intangible fixed • Less transactional cost assets
ConditionEconomic survey Real estate analysisQuantitative Qualitative A business, industry or Specially for consumer sector’s condition is loans real estate study is checked through the study necessary because the of economic surveys. securities are in the shape e.g. sizing industry, CNG of land. pumps