Monday, May 27, 2002		Article

Using software to assess loan applicants
Sumesh Raizada

WHILE applying for a loan or credit facility from a bank or finance and leasing company, an individual as well as business organisation have to clear certain procedural requirements before a loan is disbursed. There is a time delay of few days, weeks or even months before the final decision is made on whether a loan or lease proposal has to approved, rejected or approved with certain conditions. Though senior level managers take the decision yet the groundwork for the same is done by individuals who are qualified and trained in performing the financial audit of the applicant. These professionals check and verify the financial details and credit history of the individual or a firm and also assess their repayment capacity. These professionals are called Credit Analyst.

Credit analysts analyse the financial information to evaluate the amount of risk involved in lending money to businesses or individuals. They make contact with associates banks, credit organisations, employer and other agencies to obtain credit information about the applicant. They prepare a written report of their findings and finally suggest credit limits that can be approved for the firm or an individual.

In today's world of rapidly advancing technology, computer plays an important role in this function of accounting and banking. The use of specific software for the function has made the job of a credit analyst more specialised and technology oriented.

So a person skilled in working on various computer programs and specific software has vast career scope in this field. These professionals are required to organise, assess and report data gathered by them on financial details of a company or an individual. They analyse complex problems, explore alternatives and suggest possible solutions for those problems. Besides, they must have strong interpersonal skills and be able to maintain the cordial professional relationship with the applicants. They also work together with other team members on large projects involving huge investments.

Most credit analysts should desirably have a bachelor's degree in accounting, finance, or business administration as a basic qualification. In addition, they should have thorough exposure to economics, statistics and mathematics. Nowadays people with engineering background with management degree are also joining this high potential field. Moreover, the proficiency in computers and related software programs is essential for succeeding in the career.

Credit analyst deals in two different functional areas that involve either individuals or commercial organisations. Commercial analysts evaluate risks in business loans, i.e. credit extended to commercial organisations, firms or business projects, which may sometime involve huge investment of financial resources. Consumer credit analysts evaluate personal risk loans involving individuals or smaller groups. The amount of work involved in a credit evaluation depends mainly upon the size and type of loan being requested. Though both personal and commercial loans require a check on financial statements and references of the applicants, the larger business loan needs a much closer analysis so as to determine the soundness of the business proposal and the feasibility of the project. The task of credit analysts working with commercial advances is thus extremely crucial.

Credit analyst job offers numerous career opportunities in related finance fields. The professionals work as a loan officer or a manager in the leasing or credit department of the bank, finance and leasing company. They also work as financial planner, an investment researcher or broker or a risk manager. The field is highly competitive and still there are not many IT-proficient credit analysts in the industry. Thus, those with required qualification and skills have a vast scope to succeed in this job. Apart from working in the accounting or finance firms, the professionals work with software developers and consultancies to develop specific programs to suit the scope of application. These programs are meant for collection, analysis and interpretation of information so that generated data is accurate and decision-making is fast.

The salary of a credit analyst varies depending on the individual's experience and education. Further it might vary for industries in which a person is employed. The remunerations are relatively higher in private sector especially multinational banks and finance firms. The salaries usually start with a range of Rs. 1.5 - 2.0 lakh per annum, while in the USA it might be around $ 50,000.

Credit analysts are also employed by the companies that deal in equipment leasing, financing and re-financing of equipment debt. Since traditional sources of financing cannot always provide the capital necessary to meet the changing demands of the present global economy, thus in order to meet these demands corporations seek alternative sources of financing for their capital equipment. This alternate source is equipment leasing through the leasing firms. The professionals working in these firms review initial credit packages, perform cash flow analysis, review financial statement in order to identify trends, changes and any anomalies in the credit.

In banks and finance firms, they conduct credit investigations and analyse credit information pertaining to loans, assists in the preparation of credit reports and furnishes information in response to credit inquiries. The credit analysts also develop credit information for use by senior managers or loan committees in lending decisions on new, renewal, and extension loans.

They analyse financial statements and related material, prepares summaries, presents facts and offers opinion concerning credit-worthiness of the customer. Moreover, these professionals need to have strong communication skills as they have to deal with different customers having varied background and requirement say for housing, consumer or personal loans.

In credit card companies, the task includes obtaining information from credit bureaus, employers, banks, credit institutions and other sources to determine applicants' credit history and ability to pay back. The credit analysts process and authorise applications for credit cards by verifying the information on the application, calling applicants if additional data are needed, contacting credit bureaus for a credit rating and obtaining any other information necessary to determine applicants' creditworthiness. On the basis of credit rating decision is taken whether the application should be rejected or approved.

In companies like Citibank, these individuals are responsible for the real time monitoring of all credit exposures and to identify solutions to cover the credit risk. They are required to have experience in a corporate or institutional banking environment and demonstrate a strong understanding of corporate credit.

Those having working knowledge of real time credit monitoring systems such as KMV and with exposure to Front Office, Corporate Lending, Equity Derivatives, etc. are desirably required to work for the position.

In consumer goods companies having large dealer or wholesaler network, they prepare and update documentation for dealer evaluation, does verification of information received from dealers, define credit limits and take immediate actions in case of defaults. In large consumer goods companies, credit analysts review and make decision on credit held orders. They evaluate industry and customer conditions by attending credit meetings and representing the company when necessary, and by tracking customer information from all available sources, including the Internet and print media.

Credit analyst should have strong oral and written communication skills to work with customer at varying management levels including individuals from various functional departments like finance, sales and financial services. They must also have strong problem solving skills with the ability to work independently and take the necessary initiative. Besides, the individuals should be able to work on multiple projects and must have proficiency in Windows, Word, and Excel.

In banks like ABN AMRO, credit analysts also work as Relationship Manager, which is basically a marketing function where an individual is responsible for developing new business, expanding relationships with commercial clients and managing a portfolio of commercial loans. While accounting and financial skills are essentially required, the candidates with strong marketing and analytical skills are required. Credit analysts work directly with commercial lenders in conducting research and analysis, and in preparing loan committee presentations. Also, credit analysts assist in acquiring new commercial banking customers and developing those relationships.

Credit analysts are mostly employed in accounting firms, insurance companies, advertising agencies, investment firms, aerospace industry, magazines, newspapers and periodicals, banks, management consulting firms, manufacturing firms, research and development firms, retailers, financial services and hospitals.