Global Credit Certificate Level 1 Self-study

Chapter 1: Introduction to the Credit Decision Process

This chapter introduces the main concepts of credit risk, credit analysis, and credit portfolio management, including a four-step analytical framework used in the modern credit decision process.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Credit decision process and the importance of credit risk assessment
• Individual credit risk assessment based on purpose,
  payback, risk and structure
• Portfolio credit risk assessment and the impact of
  diversification within a credit portfolio
• Credit pricing and the relevance of reference rates, default ratings and lending business costs

Chapter 2: Debt Financing Instruments

This chapter discusses various types of loan and credit instruments, their purposes, pricing, and risks. It also touches on accounting for credit exposures and behavioural considerations in approving credit.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Features of credit facilities
• Types of credit facilities and loans
• Loan and bond pricing
• Forms of lending relationships
• Transactional credit exposures
• Leasing
• Securitization
• Covered bonds
• Derivatives
• Suitability and responsible lending

Chapter 3: Operating Environment and Sector Risk

This chapter examines external factors that can influence a company's performance, such as economic, political, sociocultural, technological, environmental, and legal factors. It also explores the relationship between sovereign and bank credit analysis.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Operating environment
• Political issues
• Economic environment
• Sociocultural issues
• Technological issues
• Environmental issues
• Legal issues
• Sector performance and trends
• Competitive intensity
• Sector specific critical success factors

Chapter 4: Business Profile, Management and Ownership

This chapter focuses on company-specific risks related to operations, business strategy, ownership structure, and management effectiveness. The role of governance and financial control in assessing a company's creditworthiness is emphasized.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Business profile
• Product life cycle and product/customer diversification
• Competitive position
• Ownership structure
• Shareholder types
• Investor return measures
• Cost of capital
• Management and corporate governance
• Management strategy
• Key performance indicators (KPIs) and funding strategy
• Management structure
• Management oversight
• Financial control, reporting and transparency

Chapter 5: Financial Statements

This chapter explains the purpose and contents of financial statements, including the balance sheet, income statement, cash flow statement, and notes to the accounts. Topics like group accounts and the impact of foreign currency on financial statements are also addressed.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Nature, purpose and contents of financial statements
• Balance sheet or statement of financial position
• Statement of changes in equity
• Income statement and statement of comprehensive income
• Cash flow statement
• Notes to the accounts
• Nature, purpose and contents of group accounts and accounting for investments
• Impact of foreign currency on financial statements
• Bank regulatory disclosure

Chapter 6: Corporate Financial Statement Analysis

This chapter delves into the analysis of a company's trading and financial performance and risks, using financial ratios to assess profitability, credit risk, and financial risk.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Uses, limitations and important considerations of ratios in respect of assessing a company’s/group’s:
  - Trading performance
  - Trading risk
  - Financial risk
  - Financial performance
• Potential distortions and the need for critical thinking in analysis
• Other analysis tools that are available

Chapter 7: Bank Financial Statement Analysis

This chapter dedicated to the analysis of a bank's financial statements, with a focus on regulatory liquidity and funding ratios, capital ratios, and the use of financial ratios to evaluate profitability and credit risk.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Nature, purpose and contents of a bank’s financial statements
• Bank regulatory liquidity and funding ratios and related Pillar 3 disclosures
• Bank regulatory capital ratios
• Uses, limitations and important considerations of ratios in respect of assessing a bank’s/banking group’s business risk, profitability, funding and liquidity, and capital adequacy
• Potential distortions and the need for critical thinking when conducting bank analysis

Chapter 8: Corporate Business Profile

This chapter examines a company's business profile, including its product life cycle, competitive position, ownership structure, management strategy, and financial control, discussing their significance in assessing credit risk.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Financial analysis
• Trading performance
  - Profitability ratios
  - Cash generation
  - Trading efficiency
• Trading risks
  - Cash conversion cycle
  - Working capital and net trading assets
  - Business risk and liquidity

Chapter 9: Bank Profitability and Risk

This chapter analyses the business risks and profitability of banks, focusing on asset quality, market risk, operational risk, and the use of financial ratios to assess profitability and credit costs.

By the end of the chapter you should be able to describe, explain, and evaluate the:

• Financial analysis
• Assessing business risk
  - Asset quality and credit risk
  - Market risk
  - Operational risk
• Bank profitability
  - Profitability ratios
  - Credit costs

Chapter 10: Corporate Funding Profile

This chapter explores the funding profile of a company, including its funding sources, leverage levels, and debt serviceability, underlining the importance of controlling financial risk and avoiding mismatches in funding instruments.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Funding sources and the capital structure
• Leverage levels
  - Balance sheet based measures
  - Income statement based measures
  - Cash flow based measures
• Servicing debt
  - Cash available for debt service
  - Debt service related ratios
• Controlling financial risk
  - Avoiding mismatches
  - Debt capacity

Chapter 11: Bank Funding, Liquidity and Capital

This chapter discusses the financing structure of banks, including deposits, market funding, regulatory liquidity and capital ratios, and the management of funding and liquidity risk and the importance of capital adequacy.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Bank’s funding sources and capital structure:
  - Deposits
  - Market funding
• Asset liquidity
• Management of funding and liquidity risk
• Capital adequacy

Chapter 12: ESG in Credit

This chapter highlights the impact of environmental, social, and governance (ESG) factors on credit decision-making processes and business activities, including the challenges of integrating ESG issues in credit analysis and global sustainability standards and regulations.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Impact of ESG on:
  - Credit decision-making processes and business activities
  - Long-term business performance and valuation
  - Credit-related policy and regulatory changes
• Challenges to integrating ESG issues in credit analysis
• Global sustainability standards and regulations
• ESG and climate reporting frameworks and standards

Chapter 13: Insolvency and Recovery

This chapter examines legal risks and protections in credit agreements, including preconditions, representations and warranties, priority ranking, covenants, collateral/security, default, insolvency process, bank recovery and resolution, and recovery.

By the end of this chapter you should be able to describe, explain and evaluate the:

• Legal risk and lending agreements
• Preconditions and representations and warranties
• Priority ranking and subordination
• Covenants
• Collateral/security
• Default
• Insolvency process
• Bank recovery and resolution
• Recovery