Assessment of the borrower's financial condition. Analysis of the client’s financial condition Processing of the client’s monthly financial condition

According to the recommendations of the Bank of Russia, commercial banks are required to develop their own methodology for assessing the financial position of large corporate borrowers(hereinafter referred to as the OFPP methodology), based on a system of indicators of the financial performance of borrowers, as well as indicators of business and industry risks.

Methods of various banks: characteristic features and features

The methodology for assessing the financial position of large corporate borrowers and the system of financial indicators described in it, as well as the point system for each group of coefficients for business risks (business and industry risks) must comply with the requirements and recommendations of the Bank of Russia, be documented in a separate regulation and approved by the bank’s board. In some cases, for example, if a Russian bank is part of an international financial group (the parent organization is located in another country), in addition to the requirements of the Bank of Russia, the FPP methodology must satisfy the criteria and requirements of the parent company.

The Bank of Russia recommends that banks annually adjust the approaches set out in the FPP methodology, as well as the set of coefficients for assessing the performance of enterprises, taking into account the current economic situation, going beyond the scope of “classical” financial analysis. It is worth paying special attention to qualitative parameters, that is, the characteristics of the industry in which the borrower operates, focusing on business reputation, positive qualifications of managers, and the dynamics of the profitability of the enterprise, including in conditions of fierce competition and aggressive government policies in recent years. It is also necessary to develop methods for determining the reliability and reality of the financial statements of a potential borrower, which will help to promptly identify symptoms of financial danger.

Each bank uses its own methods and means of analyzing the creditworthiness of large corporate borrowers. The reasons for this diversity may be different degrees of confidence in quantitative and qualitative methods for assessing creditworthiness factors, historically established individual principles, lending culture and practice of creditworthiness assessment, and the use of a certain set of tools for minimizing credit risk.

To assess the financial condition and creditworthiness of a large corporate borrower - a legal entity (except for credit institutions), one should take into account objective indicators of its activities:

volume of product sales;
profit and loss;
profitability;
liquidity and turnover ratios;
cash flows (receipt of funds into the borrower's accounts) to ensure repayment of the loan and payment of interest on it;
composition and dynamics of receivables and payables;
availability of reliable sources of loan repayment;
relationships with counterparties;
dependence on suppliers and buyers;
other parameters characterizing the financial and economic activities of the enterprise.

In addition, banks must take into account the business risks of the borrower (business and industry risks). Indicators for assessing such risks are often subjective in nature (in international banks these criteria are included in a separate block and analyzed more carefully):

efficiency of enterprise management (participation of shareholders in management);
the market position of the borrower and its dependence on cyclical and structural changes in the economy and industry;
the presence of government orders and government support for the borrower in a particular region or industry (for example, reimbursement to alcohol production enterprises of part of the excise taxes paid from the federal budget of the region);
the borrower's history of repayment of credit debt in the past;
the possibility of introducing restrictions on the production and (or) supply of products (or raw materials for their production), including export/import;
the level of competition in the industry characteristic of the region;
international risks (sales and supply of products, political instability in the country of the manufacturer/buyer), etc.

All OFP techniques have their similarities and differences. Each technique has its own advantages and disadvantages. We will conduct a comparative analysis of methods for assessing the financial position of large corporate borrowers.

Comparison of methods for assessing the financial position of large corporate borrowers of various banks

Bank No. 1 (Russian subsidiary of one of the international banks)

To determine the credit risk limit, a quantitative and qualitative assessment of two groups of risk factors is carried out, assigning a score to each:

1. disclosure of client risks, their characteristics:

risks for business owners;
client group risk;
risks of company management;
industry risks;
financial risks;
relations with banks;
risks associated with the business plan, client limit;

2. disclosure and qualification of transaction risk. The financial condition of the borrower is assessed based on four groups of ratios: profitability, liquidity, turnover and financial stability.

The assessment of the results of coefficient calculations is that after calculating the indicators, depending on the industry, the sum of points is calculated taking into account the weight of the indicator.

After this, the final score of the analysis of financial reporting indicators and the financial position are determined: good/average/bad (according to Bank of Russia Regulations No. 254-P dated March 26, 2004, No. 283-P dated March 20, 2006)

Advantages. Simplicity and transparency of assessment. Accounting for quantitative and qualitative indicators of the borrower’s creditworthiness. For each group of factors, the analyst indicates not only scores, but also positive and negative factors. Analysts are not limited to accounting and reporting data. The credit history and business reputation of the borrower are taken into account. The effectiveness of management is taken into account, including the level of senior managers. The borrower’s position in the industry and region and the level of penetration of modern technologies are taken into account. Flaws. A large volume of assessed indicators (two groups, each of which is divided into indicators). Need for Industry Risk Assessment: The analyst must be knowledgeable about all the industries in which the borrowers operate. Short assessment time (no more than two days). Writing a conclusion in English.

Bank No. 2 (included in the top 4 large Russian banks)

To determine the credit risk limit, a quantitative and qualitative assessment of five risk groups is carried out:

risks associated with the share capital structure and internal structure of the corporate client;
risks associated with the credit history and business reputation of the borrower;
risks associated with management effectiveness;
risks associated with the borrower's position in the industry and region, production equipment and the level of penetration of modern technologies;
risks associated with the financial condition of the borrower.

The financial condition of the borrower is assessed based on three groups of indicators. Evaluation of the results of coefficient calculations consists of assigning a category for each of these indicators based on comparison of the obtained values with established sufficient values. After this, the sum of points is calculated taking into account the weight of the indicator, the borrower’s creditworthiness class is determined and a conclusion is made about the possibility of issuing a loan

Advantages. Simplicity and transparency of assessment. Accounting for quantitative and qualitative indicators of the borrower’s creditworthiness. The information used by analysts is not limited to accounting and reporting data. The share capital structure and internal structure of the corporate client are taken into account. The credit history and business reputation of the borrower are taken into account. The effectiveness of management is taken into account, including the level of senior managers. The borrower’s position in the industry and region and the level of penetration of modern technologies are taken into account. Each of the ratios used to assess financial condition has a reference value with which its calculated counterpart is compared. When the overdue debt is fully repaid, the creditworthiness class is restored. Flaws. The rating assessment does not allow taking into account all the key characteristics of the client. The reference value of the coefficients is not differentiated for individual industries that have different structures of assets and liabilities. The reference value of the coefficients is not differentiated by territory. Weighting coefficients are subjective, while minor shifts in the system of these coefficients can fundamentally change the final result and transfer the borrower from one class to another. The indicators used in the analysis of creditworthiness are calculated based on reporting data, which do not allow assessing the borrower's creditworthiness in the future. When determining the class of the borrower, information on expected cash flows and financial results is not taken into account. Any errors and inaccuracies in determining the critical value of the sum of points can give a fundamentally incorrect result.

Bank No. 3 (one of the Russian agricultural banks)

Financial position is the most important characteristic of the reliability of a legal entity. Analysis of the financial situation includes the following steps:

analysis of the composition, structure and quality of the balance sheet;
analysis of performance results;
calculation of liquidity, solvency and turnover indicators, other quality indicators;
conclusions about the financial position based on the results of the analysis;
forecast of development prospects.

When determining the financial position of a legal entity, the calculated indicators are compared with industry averages and analyzed over time.

Based on the results of the review, a conclusion is drawn indicating the criteria on the basis of which the financial situation of the borrower is assessed as good, average or bad.

Advantages. Simplicity and transparency of assessment. Accounting for quantitative and qualitative indicators of the borrower’s creditworthiness. Availability of specially developed formulas to determine the financial situation of the borrower. The presence of corrective factors taken into account when assessing the financial condition of a legal entity. Use of reference values of financial ratios differentiated by industry. Taking into account changes in indicators over time and then making a forecast. A long analyzed period, which allows you to build an accurate forecast of the borrower’s long-term creditworthiness. Flaws. Lack of formal assessment of non-financial parameters. Non-financial indicators are taken into account additionally and do not make a significant contribution to the assessment results. Any errors and inaccuracies in determining the critical value of the sum of points can give a fundamentally incorrect result. The reference values of the coefficients are not differentiated by territorial basis.

Note that everything Methods for assessing the financial position of large corporate borrowers have common shortcomings:

incomplete methodological basis for assessing non-financial parameters of the borrower (lack of unified databases with accessible information about the client, such as tax payments, loan turnover in other banks, availability of card files, etc.). This is the main drawback inherent in all of these methods;
opacity of doing business (when assessing the financial condition of an enterprise, it is necessary to use a combined analysis of management and financial statements, since the latter does not allow external users to see the real picture of the business in question, and therefore understand the actual risks of lending to the enterprise).

Another drawback, inherent not only to the presented methods, but to all Russian methods, is associated with the peculiarities of doing business in Russia, in particular, the weak transparency of the financial and economic activities of enterprises. Thus, any method for assessing the creditworthiness of a legal entity is highly sensitive to distortion (unreliability) of source data, especially financial statements.

The above FPP methods show that one of the main areas of analysis of the borrower’s condition when assessing his creditworthiness is financial analysis. Various aspects of financial analysis as a specific system are reflected in all presented methods for assessing the quality of potential borrowers used by banks. Analysis of the borrower's financial condition is the most significant characteristic of his creditworthiness. And each commercial bank sets a specific set of financial indicators and their standard values independently, since today there are no regulatory documents regulating this area.

Symptoms of possible financial danger for a bank

In practice, in order to correctly assess the client’s financial situation and make timely conclusions about his creditworthiness and the feasibility of concluding a transaction, an enlarged scheme for analyzing the risk profile of a transaction in the corporate lending segment, divided into financial blocks, is used (Figure 1).

Picture 1. Scheme for analyzing the risk profile of a transaction in the corporate lending segment

Thus, risk analysts of a bank (whether it is a large Russian bank, an international bank or a regional branch) must formulate for each credit transaction a clear description and justification of the purpose of financing, the structure of the transaction, its risk profile (a transaction with a high risk, moderate risk or risk-free transaction), as well as assess the risks when analyzing the client’s financial situation.

When financing working capital, it is necessary to analyze the company's operating cycle, the reasons and timing of the working capital deficit, the timing and sources of replenishment of working capital. The structure of the transaction must correspond to the operating cycle (selection in the “low” season, repayment in the “high” season, etc.), that is, it must be explained why the borrower is offered this particular transaction structure.

A brief description of the cash flow model should include:

the main assumptions on the basis of which the forecast for the flow of funds from operating activities was made (revenue remains at the same level/increases for one reason or another; the same with expenses);
data on loan repayment (conclusion about refinancing risk);
stress testing results;
sensitivity analysis;
conclusions.

Next, it is necessary to analyze the sources of loan repayment: what the receipt of funds depends on, what are the possible negative factors, whether the bank (and why) satisfies the primary source of repayment. The presence of collateral can be considered as an additional comfort factor (but not as a basis for making a decision).

After this, the financial analyst provides in his conclusion a description of the business model of the borrower/group: products produced/sold, features of the production cycle, seasonality, conditions under which sales are made, specifics of settlements with counterparties, suppliers/clients (dependence), competitive advantages (reasons) and the purpose of purchases from this particular borrower, the possibility of reorientation to another manufacturer), pricing (what factors influence the price), business risks, interests of shareholders in this business, etc.

This also includes figures on the dynamics of production/sales with an explanation of the main factors determining this dynamics (how and due to what the borrower survived the crisis, what are its market positions and prospects). It would also be good to evaluate the effectiveness of the business model in comparison with similar enterprises. If there is a group, it is necessary to explain intra-group relationships, commodity and cash flows.

The “Financial Analysis” section should include a description of the causes and consequences of the dynamics and structure of the main indicators of the income statement and balance sheet, as well as an analysis of ratios. All indicators should be considered from the point of view of their impact on the company’s ability to fulfill loan obligations, that is, organically leading to the conclusion about the good/average/unsatisfactory financial condition of the borrower. Particular attention should be paid to the size of the debt, its structure by maturity, to assess the risk of refinancing and the position of the bank relative to other creditors.

The final section of the risk analyst’s conclusion should contain conclusions - an assessment of the total risk when lending to a client (strengths and weaknesses of the client’s activities, business transparency, credit history with banks, dependence of the borrower’s financial condition on the activities of related structures, lack of consolidated reporting for the group, etc.) .

In addition, an important and integral element of the analysis of the borrower’s financial situation is the timely identification of symptoms and signs of possible financial danger for the bank (in banking terminology this is called EWS - Early Warning Signals, or “early signals/signs of problems”) both at the stage of issuing a loan and and in the process of monitoring the loan until it is fully repaid. In banking practice, a separate large section in the OFPP methodology is devoted to the criteria for determining early symptoms/signs of problems, as well as their set (Table 1).

Table 1. Early signals and signs of problems in the methodology for assessing the financial position of large corporate borrowers of various banks

Signals of possible financial danger	Signs of an impending financial crisis in the client’s activities
Financial signals
Lack of income from contracts with buyers/customers and, as a consequence, extension of terms for settlements with suppliers	Systematic violation of the conditions for maintaining credit turnover in the bank, associated with the lack of receipts for work performed/services rendered/goods supplied from buyers or customers
Absence of newly concluded contracts for the provision of goods/performance of work/provision of services (winding down the business)	Significantly exceeding the agreed credit limits at the bank(s)
The presence for several reporting periods in a row of negative values in lines 2400 (“Net profit (loss) of the reporting period”) of form No. 2 and 1300 (total for sections “Capital” and “Reserves”) of form No. 1 of quarterly reporting in accordance with RAP
Exceeding the value of the total debt burden (Total Debt/EBITDA) according to the quarterly/annual official reporting of the borrower in accordance with RAP, set at 3.5	Opening by the borrower of current accounts in other credit institutions without notifying the creditor bank, transfer of all funds
Non-financial signals
Establishing the production of previously unproduced products and, in connection with this, developing a new sales market	Inappropriate use of funds received from a loan
The emergence of client dependence on loans (usually short-term) due to increasing overhead costs	Insignificant and irregular cash flows from the sale of goods, especially in combination with significant payments to suppliers and an unjustified increase in credit sales
The client’s omissions in control over his working capital (general excess inventory, overstocking, illiquid stock, etc.)	Payments to other credit institutions or a sharp increase in the number of requests from them about the client’s financial condition
The client has large and unplanned losses	Client manipulations with checks
Unexpected radical changes in company management or unfavorable industry trends	Violation by the client of deadlines for preparing reports or submitting necessary financial documents to the bank (this is often associated with their falsification). Explanations from clients about the reasons for the delays are in themselves signs of a problematic loan
Client requests for additional funds to be allocated beyond previously agreed limits
Any unmotivated failure to comply with obligations

Banks are required to monitor changes in the shareholder structure of the borrower company, the state of its business as a result of financial/political instability in the country and economy in order to ensure the stability of its financial position and compliance with the terms of the loan agreement, as well as to search for new business opportunities cooperation with the client. Loan monitoring is necessary to promptly identify signs that the borrower may have difficulty repaying the loan (examples of early warning signs of problematic corporate clients are discussed in the figure below). This must be done at an early stage in order to maximize the effect of the bank’s corrective actions and reduce its losses.

Figure 2. Warning signals about problematic corporate clients

The human factor is one of the biggest obstacles to early identification of problem loans. Employees responsible for analyzing corporate borrowers often do not report warning signs due to their ignorance, heavy workload and short deadlines for assessing the financial situation of clients, as well as due to the lack of an automated system in Russian banks for detecting and preventing early signals/signs of problems (in This system is widely used in European banks).

Experience shows that problem loans, even after they have been identified, often turn out to be much worse than bank employees thought. But the situation can be even worse if the bank's management, knowing about the problems of its loan portfolio, hides them and at the same time tries to compensate for losses by issuing risky loans and speculation. To avoid this, banks conduct periodic independent reviews by the internal audit service so that it identifies signs of problematic loans that were missed or hidden by employees. Inspections conducted by supervisory and regulatory authorities (Bank of Russia, external audit companies) also often identify undetected problem loans. In the process of effective credit risk management, the first person to identify problem loans is the bank's internal control service. The measures to be taken upon such detection are shown in the following figure.

Figure 3.

Monitoring loans is especially important not only at the stage of consideration of a credit transaction, but also at all stages of the credit process, especially at the stage of repayment of the loan or when it becomes overdue, or in case of violation of the conditions established by the loan agreement for the minimum amount of collateral or the value of financial ratios. In order to avoid violations of loan agreements, as well as to eliminate them in a timely manner, the bank is developing a methodology for assessing the financial position of large corporate borrowers, which not only provides for assessing the borrower’s creditworthiness as the main way to reduce credit risk, but also includes general principles. Using these principles, it is not difficult to promptly identify early signs of problems and try to eliminate or prevent loan delinquency or borrower default.

Based on the materials of the article: Finogeev D.G., Shcherbakov E.M. Assessing the creditworthiness of legal entities using the example of the largest banks of the Russian Federation // Modern problems of science and education. 2013. No. 6.

To determine the validity of a loan application from the point of view of the company's need for additional financial resources and to calculate the company's development prospects in the future, its profit and the degree of probability of non-payment on the loan, banks use materials from the client's financial statements.

A loan (including a loan for which the agreement provides for a lump sum payment of principal and interest at the end of the agreement) issued to a borrower whose financial condition prevents the repayment of the loan received from the bank is classified as bad, regardless of the presence of other criteria that are formally indicate that the loan is uncollectible.

The financial condition of the borrowing bank can be assessed based on an analysis of the values of mandatory economic standards, as well as the bank’s reputation.

As a rule, to assess the borrower’s creditworthiness, banks analyze quantitative indicators and calculate coefficients that can, to one degree or another, characterize the stability of the client’s financial condition. At the same time, each bank develops its own set of indicators, which are used to assess the financial condition of a potential borrower. The system of such indicators must meet two main criteria:

- coefficients calculated on the basis of indicators should determine the essential (significant) features of the enterprise’s activities;
- these coefficients should duplicate each other to the least extent possible.

It is recommended to use nine coefficients characterizing the financial condition of the enterprise, combined into four groups: sufficiency of own resources, liquidity of assets, profitability of production, turnover of funds.

Coefficients characterizing the sufficiency of own resources:

- equity ratio (TO 1 ) - characterizes the availability of the borrower’s own working capital, necessary for its financial stability. The coefficient is calculated as the ratio of the difference between the sources of equity and the actual cost of fixed assets and other non-current assets and the cost of the enterprise's working capital.
- debt-to-equity ratio (financial leverage ratio) (TO 2 ) - allows you to assess the degree of security of the borrower with equity capital and its relative dependence on borrowed funds. The ratio is calculated as the ratio of total accounts payable to sources of own funds.
-receivables share ratio (K 3 ) shows what portion of liquid assets is accounts receivable. It is calculated as the ratio of the amount of accounts receivable and shipped goods to cash, settlements and other assets. This ratio is very relevant for Russian reality, since with possible delays in payments from debtors, the liquidity of this part of the assets decreases in proportion to the share of receivables.

Ratios characterizing the liquidity of assets

- current liquidity (coverage) ratio (K 4 ) makes it possible to establish the sufficiency of liquid assets to repay short-term obligations and can be used to assess the permissible volumes of lending to a given borrower. It is calculated as the ratio of current assets to current liabilities (short-term bank loans, short-term loans and accounts payable).
- quick liquidity ratio (K 5 ) is intended to assess the borrower’s ability to quickly release funds from circulation and repay short-term debt obligations. It is calculated as the ratio of the most liquid assets to current liabilities.

Coefficients characterizing profitability

-sales profitability ratio (K 6 ) reflects the efficiency of the borrower’s economic activities and is calculated as the ratio of book profit to sales revenue minus taxes.
- coefficient of profitability of production assets (K 7 ) reflects the relative efficiency of their use and is calculated as the ratio of book profit to the average cost of fixed assets and tangible assets for the reporting period. A decrease in the value of this coefficient may indicate a deterioration in the structure of fixed assets, overstocking of finished products, etc.

Coefficients characterizing the turnover of funds

-working capital turnover ratio (K 8 ) characterizes the efficiency of use of current assets and is calculated as the ratio of revenue from sales of products minus taxes to the average cost of working capital for the reporting period.
-inventory turnover ratio (K 9 ) shows the rate at which inventories are converted into accounts receivable and is calculated as the ratio of costs to the average value of inventories and costs for the reporting period. As a rule, the higher the inventory turnover, the more effectively it is managed.

annotation

This course work examines theoretical and practical issues of monitoring the financial position of a client in a commercial bank.

The structure of the course work is as follows.

The first section reflects the theoretical foundations of monitoring the client’s financial position: the concept and essence of monitoring is revealed, and the legal framework governing credit monitoring, principles and methods of monitoring the client’s financial position are also considered.

The second section discusses the organization of monitoring the client’s financial situation, using the example of the bank PJSC Sberbank of Russia. The organizational and economic characteristics of the activities of a commercial bank are given.

An analysis of the effectiveness of monitoring the client’s financial situation was carried out, the main problems and prospects for monitoring the client’s financial situation were formulated using the example of Sberbank of Russia PJSC.

The work was printed on _____ page using ____ sources, contains ____ tables, ___ drawings and ____ appendices.

Introduction

1. Theoretical basis for monitoring the client’s financial situation

1.1 Monitoring the client’s financial situation: concept and factors characterizing it

1.2 Classification of methods for monitoring the financial condition of the borrower

1.3 Legal framework governing credit monitoring

2. Organization of monitoring of the client’s financial situation in a commercial bank (using the example of PJSC Sberbank of Russia)

2.1 Organizational and economic characteristics of the bank’s activities

2.2 Analysis of monitoring the financial situation of a client of Sberbank of Russia PJSC

Conclusion

List of sources used

Applications

Introduction

The system for monitoring the client’s financial position is a mechanism developed by a credit institution for continuous monitoring of the most important current performance results in the constantly changing conditions of the consumer and financial markets.

The main purpose of monitoring the financial position of the borrower is to obtain operational information determining the creditworthiness, solvency and financial stability of the client. After the loan is granted, the borrower's financial position is monitored on an ongoing basis in order to timely identify credit risks.

The vast majority of crisis situations in commercial organizations could be resolved or minimized if they were diagnosed early. Such diagnostics are based on monitoring a number of key indicators.

It is based on monitoring data that control over their implementation of plans is carried out, reserves for increasing production efficiency are identified, and the results of the activities of the enterprise, its divisions and employees are assessed.

The relevance of the chosen topic is due to the fact that often the lack of a system for monitoring the financial condition of an enterprise does not allow timely tracking and “stopping” the deterioration of the financial condition of the organization, which can lead to a crisis state of the organization. Constant monitoring of the financial condition of the organization is a necessary condition for making timely management decisions, so how it provides necessary and up-to-date information about

The purpose of the study is to analyze the process of organizing monitoring of the borrower’s financial situation and assessing the quality of debt servicing.
Research objectives:
- give a general description of credit monitoring and areas of monitoring of the issued loan;
- analyze the scheme for monitoring the borrower’s condition and identifying problem debts;
- determine the procedure for assessing the quality of debt service on a loan;
- characterize the regulatory framework governing credit monitoring;
- analyze the experience of monitoring the borrower’s financial situation and assessing the quality of debt servicing and creating a reserve for possible losses: characteristics of business processes for loan support; analysis of the borrower's financial situation; formation and regulation of reserves for possible loan losses; reflection in the bank's accounting of operations on the issued loan;
- identify problems in the quality of the loan portfolio;
- identify ways to improve the mechanisms for managing problem debt;
- explore the mechanisms of control by credit institutions and the repayment of overdue debt by the borrower.

Introduction…………………………………………………………………………………3
Section 1 Theoretical foundations of credit monitoring……………………………..5
1.1. General characteristics of credit monitoring. Directions for monitoring the issued loan………………………………………………………………………………….5
1.2. Scheme for monitoring the borrower’s condition and identifying problem debts…………………………………………………………………………………6
1.3. The procedure for assessing the quality of debt servicing on a loan…………………………..8
1.4. Regulatory framework governing credit monitoring……………..9
Section 2. Analysis of experience in monitoring the borrower’s financial situation and assessing the quality of debt servicing. Creating a reserve for possible losses…………………...11
2.1. Characteristics of business processes for loan support…………………11
2.2. Analysis of the borrower’s financial situation……………………………………..12
2.3. Formation and regulation of reserves for possible loan losses……..14
2.4. Reflection in the bank’s accounting of operations on the issued loan…….16
Section 3. Problems of improving the quality of the loan portfolio. Ways to solve them...18
3.1. Problems of loan portfolio quality………………………………………………………18
3.2. Improving mechanisms for managing problem debt......20
3.3. Mechanisms for control by credit institutions, repayment of overdue debt by the borrower…………………………………………………………………...22
Conclusion……………………………………………………………………………….24
Bibliography……………………………………………………………..25
Appendix A - Types of monitoring and timing of its implementation………………………...27
Appendix B - Differences in the content of quarterly and monthly monitoring………………………………………………………………………………….28
Appendix B - Documents requested as part of monitoring financial condition…………………………………………………………………………………………………………..29
Appendix D - Market and non-market factors…………………………………...30
Appendix E - Criteria influencing the determination of the quality of debt servicing on a loan………………………………………………………………………………………….32
Appendix E - Loan quality categories………………………………………………………...35
Appendix G - Risk rate………………………………………………………..36
Appendix 3 - Options for determining the minimum reserve rate for a portfolio of homogeneous loans………………………………………………………………………………..

Files: 1 file

As can be seen from Appendix A, the two types of monitoring complement each other, since monthly monitoring is not carried out on quarterly monitoring dates.

Based on the type of monitoring, documents requested from borrowers can also be divided into two groups: documents requested quarterly and documents requested monthly. The grouping of documents is given in Appendix B.

As part of monitoring, they usually request a detailed breakdown of long-term and short-term financial investments on pages 140 and 250 of the balance sheet, indicating the names of specific investments. During the analysis of financial investments, the following are examined: the dynamics of financial investments; structure of financial investments; goals of financial investments; sources of investment financing; liquidity of financial investments and the possibility of their rapid implementation.

The relationship between market and non-market factors is shown in Appendix D.

The monitoring results are presented in the form of an analytical note, which usually contains the following information: name of the borrower, type of loan product and transaction parameters; borrower's industry, brief analysis of market and non-market factors; conclusions based on the results of vertical and horizontal analysis of the balance sheet and income statement; conclusions based on the analysis of liquidity, financial stability, business activity and profitability; analysis of sales revenue; analysis of receivables, payables, financial investments, inventories, loans and credits; analysis of turnover in banks; analysis of the borrower's order portfolio and cash flow plan; conclusions based on the results of collateral monitoring; general conclusion about changes in risk for a specific transaction/borrower.

Factors that may indicate potential problems for the borrower: a sharp decrease in revenue and receipts to current accounts; increase in inventory and work in progress; growth of accounts receivable, growth of overdue debts; growth of accounts payable, including overdue ones; loan portfolio growth; availability of card files for invoices; submission of demands from tax authorities; filing claims by third parties; falling demand for products; the presence of predicted cash gaps without additional financing, etc.

1.3.Procedure for assessing the quality of debt service on a loan

The quality of debt service is an indicator that characterizes how timely and in full the borrower/debtor repays its obligations under the loan agreement/factoring agreement.

Depending on how timely and in full the borrower repays obligatory payments on its obligations to the bank, the quality of debt servicing is classified into one of three categories: good quality of debt servicing; average quality of debt servicing; unsatisfactory or poor quality of debt servicing.

The quality of debt servicing on a loan is determined in accordance with the criteria defined by Bank of Russia Regulation No. 254-P dated March 26, 2004 No. “On the procedure for credit institutions to form reserves for possible losses on loans, on loan and similar debt.”

The quality of debt service on loans is assessed by the bank for each loan issued; the quality of debt service under factoring agreements is assessed by the bank within the framework of each assigned monetary claim to the debtor/supplier.

The criteria influencing the determination of the quality of loan debt service are presented in Appendix D.

It should be taken into account that assessing the quality of debt servicing is an integral part of assessing the loan quality category. When carrying out inspections, the Bank of Russia has the right to assess the content of loan agreements to determine the presence/absence of conditions in them, upon the occurrence of which the borrower receives the right to fulfill obligations under the loan in a more favorable regime. If the initial agreements do not contain provisions clearly stipulating such conditions and/or parameters, and an additional agreement with improved conditions is concluded in favor of the borrower, then the loan should be considered restructured with an appropriate assessment of the quality of debt servicing.

1.4.Regulatory framework governing credit monitoring

The organization of a credit monitoring system is based, as a rule, on the following documents:

Current legislative acts and regulatory documents of the Russian Federation;

Regulatory acts of the Bank of Russia, the Federal Service for Financial Monitoring and the Federal Service for Financial Markets;

Internal regulatory documents of a credit organization.

The legislation of the Russian Federation includes such documents as:

Federal Law of August 7, 2001 N 115-FZ "On combating the legalization (laundering) of proceeds from crime and the financing of terrorism" (as amended and supplemented on July 20, 2012 N 121-FZ) 2, c p .2 tbsp. 7 of which credit institutions, among other organizations carrying out transactions with funds or other property, are obliged, in order to prevent the legalization (laundering) of proceeds from crime and the financing of terrorism, to develop rules of internal control, to appoint special officials responsible for the implementation of internal rules control, as well as take other internal organizational measures for these purposes;

Federal Law of July 10, 2002 N 86-FZ “On the Central Bank of the Russian Federation (Bank of Russia)” (as amended and supplemented as of November 21, 2011 N 327-FZ) 3, in accordance with clause 9 of Art. 4 of which the Bank of Russia supervises the activities of credit institutions and banking groups;

Federal Law of April 22, 1996 No. 39-FZ “On the Securities Market” (as amended and supplemented by No. 145-FZ of July 28, 2012) 4, according to clause 11 of Art. 42 of which the Federal Financial Markets Service of Russia controls the implementation of the legislation of the Russian Federation by professional participants in the securities market.

Thus, the economic purpose of implementing a credit monitoring system in a commercial bank comes down to more efficient use of the interdependence of lending policy and the potential capabilities of the bank, as well as turning the function of forecasting credit policy into a source of competitive advantages of a commercial bank, expressed in maximizing profits and minimizing risks in the process of formation resource base and efficient placement of raised funds.

Section 2. Analysis of experience in monitoring the borrower’s financial situation and assessing the quality of debt servicing. Creating a reserve for possible losses

2.1.Characteristics of business processes for loan support

An employee of the credit department constantly monitors compliance with the borrower's principal and accessory obligations, including: control of the intended use of credit resources, control of timely and full repayment of principal and interest, commissions 5.

Monitoring the borrower’s compliance with business development conditions: carried out by the employee of the business development department responsible for this loan transaction. If the conditions for business development are stipulated in the loan agreement, then control is carried out within the framework of the specified conditions.

Credit risk control: a credit department employee accompanying a credit transaction is obliged to request from the borrower official financial statements, documents, as well as other information provided by the credit department, which is necessary to analyze the financial and economic activities of the borrower and may affect debt servicing and repayment.

Financial statements are analyzed quarterly as of the date following the reporting one, throughout the entire period of validity of the credit transaction using the calculation module. Based on the results of the analysis, a report is drawn up, which also reflects the results of assessing the level of credit risk (taking into account the quality of loan servicing) and the calculation of the reserve. The report must be signed by the employee who compiled it, the head of the credit department, and included in the credit dossier.

The formation and regulation of the reserve for possible losses on loans and the reserve for possible losses on contingent credit obligations is carried out in the manner established by the current regulatory documents of the Bank of Russia and the internal documents of the Bank.

An employee of the credit department monthly monitors the volume of funds passing through the borrower's accounts with the Bank. If there is a significant decrease in the volume of funds in comparison with the volume that was taken into account when determining the borrower’s creditworthiness, an employee of the credit department is obliged to establish the reasons for the drop in volumes.

Upon receipt of information about the borrower, which, in accordance with the loan agreement, may be the basis for the Bank’s refusal to fulfill obligations under the loan agreement or demand early repayment of the loan, or any other information that may negatively affect the return of the loan product and the payment of interest, the loan officer is obliged immediately report this to the Head Bank.

Control of collateral: control of the availability, safety and liquidity of property accepted as collateral is carried out by an employee of the collateral service in accordance with the procedure established by separate regulatory documents of the Bank. An assessment of the value of collateral in cases where the value of the collateral is taken into account when forming a reserve for possible loan losses is carried out by an employee of the collateral service on a quarterly basis, and a report with the assessment results is included in the credit file.

Control of the guarantor for a credit transaction is carried out by an employee of the credit department in accordance with the terms of the guarantee agreement.

If negative factors arise related to the condition of the collateral, the financial condition of the pledgor (guarantor, guarantor), an employee of the collateral service (employee of the credit department) immediately notifies his manager, the head of the problem assets service, the credit department of the branch, the security service and the control department. credit risks of the Parent Bank to determine a plan for further action.

Control of the provision and support of credit products by credit departments: the credit risk control division monitors the compliance of the terms of the provided credit products with the adopted decisions, as well as the compliance of the credit transaction and the support of the credit product with the internal regulatory documents of the Bank and the regulatory documents of the Bank of Russia.

In addition, the emergence of debt with signs of increased credit risk is monitored.

2.2.Analysis of the borrower’s financial situation

The process of assessing the borrower’s financial condition consists of several stages: submitting an application to the bank; an initial assessment of the borrower's creditworthiness by a bank employee and determination of his rating as a debtor (it is expressed in points and includes many quantitative indicators); assessment by the bank of credit opportunities taking into account the amount requested by the potential client; a meeting of the bank’s credit committee, where the decision to issue funds is made. If this decision is positive, all terms of the loan agreement are determined.

Let's consider the features of assessing the creditworthiness of an individual borrower.

A mandatory stage in lending to individuals is the procedure for assessing their creditworthiness, which is carried out primarily on the basis of information regarding their level of income. At this stage, it is also necessary to conduct a scoring assessment of the borrower and study his credit history 6 . The methodology for assessing the borrower’s creditworthiness based on such an indicator as income level is carried out on the basis of data not only directly on income, but also on the degree of risk of losing it. It is possible to determine your income level by studying the relevant salary certificates or tax returns. In this case, it is mandatory to make certain adjustments to the results, taking into account the risk coefficients of the bank itself and mandatory payments. The term “credit history” is used to determine information about a possible borrower’s receipt of loans in the past, as well as their repayment. In many countries, the formation of credit histories is carried out by bodies specially created for this purpose - credit bureaus.

Scoring is a statistical or mathematical model with the help of which, based on the credit histories of other clients, the bank is able to calculate how likely it is that the next potential borrower will return the funds received on time. This method of assessing a borrower in the most simplified form is a kind of weighted sum of certain characteristics, which is necessary to form an integral indicator. It, in turn, is compared with a numerical threshold (by and large, which is the so-called break-even line) and is calculated depending on how many clients making payments on time are necessary to compensate for losses from one particular debtor. Such an assessment of the borrower’s solvency is necessary in order to determine the integral indicator of each potential client and compare it with the above-mentioned line (accordingly, only those borrowers who have this indicator above the break-even line will be able to receive a loan).

This control, implemented in the form of an in-depth monitoring system of financial condition, will help to immediately respond to negative trends in the financial and economic activities of borrowers.

The current macroeconomic situation in the Russian Federation gives rise to a large number of risks that manifest themselves both in the financial sphere and in the sphere of real production. It should be noted that the current economic situation has revealed all the problems of corporate governance, not only among borrowing enterprises, but also among credit institutions themselves. According to some experts, the share of problem loans in the loan portfolio of some large banks is currently approaching 10-15%.

Since September-October 2008, almost all banks have tightened the requirements for new borrowers in terms of collateral and creditworthiness. They revised the parameters of the financial and economic activities of new borrowers, which suited the lenders. Banks began to pay more attention to the activities of existing borrowers.

What is in-depth monitoring and why is it needed?

In-depth monitoring is carried out in an unstable economic situation in order to respond more quickly if the borrower encounters problems.

In-depth monitoring differs from regular monitoring:

Frequency of conduct;

Large volume of information considered;

Complex character.

Monitoring is a periodic assessment of the borrower's financial condition based on financial statements in order to determine the likelihood of loan repayment and the estimated reserve for possible loan losses.

According to the Regulation of the Central Bank of the Russian Federation dated March 26, 2004 No. 254-P “On the procedure for the formation by credit institutions of reserves for possible losses on loans, loan and equivalent debt” (hereinafter referred to as Regulation No. 254-P) assessment of credit risk for each loan issued ( professional judgment) must be carried out by the credit institution on an ongoing basis.

The credit organization, in the manner established by the authorized body (authorized bodies) of the credit organization, documents and includes in the borrower’s dossier information about the borrower, including the credit organization’s professional judgment on the level of credit risk for the loan, information about the analysis, based on the results of which the professional judgment was made , conclusion on the results of assessing the financial position of the borrower, calculation of the reserve.

The specified documents are drawn up:

For loans provided to individuals - at least once a quarter as of the reporting date;

For legal entities that are not credit institutions - at least once a quarter as of the date following the reporting date;

For loans provided to credit institutions - at least once a month as of the reporting date.

Factors driving in-depth monitoring:

The need to understand the real state of affairs of specific borrowers and the industry as a whole;

Increase in non-payments;

An atmosphere of general mistrust in the corporate and financial sectors;

An increase in the number of defaults on corporate bonds;

Decline in production in the main sectors of the economy;

Refusal of most banks to provide loans, even with open limits;

Requirements of Regulation No. 254-P, Regulations of the Central Bank of the Russian Federation dated March 20, 2006 No. 283-P “On the procedure for the formation of reserves for possible losses by credit institutions,” as well as the need to determine the reserve for possible losses on loans, including for the purposes of generating bank reporting on IFRS.

As can be seen from the figure, the two types of monitoring complement each other, since monthly monitoring is not carried out on the dates of quarterly monitoring.

Table 1. Differences in the content of quarterly and monthly monitoring

Industries most affected by the crisis

In our opinion, factors that contribute to classifying the industry in which the borrower operates as problematic may be the following:

Significant drop in demand for products;

The industry's main product is not an essential product;

Significant production costs;

The industry is significantly dependent on government orders;

The industry's products are exclusive and aimed at a specific group of buyers.

Based on these factors, the problem sectors include:

Wholesale trade;

Trade in luxury goods;

Car trade;

Construction;

Metallurgy.

It should be noted that enterprises operating in these industries do not necessarily experience serious financial difficulties, but it is necessary to pay special attention to market factors when analyzing their financial activities.
Documents required for monitoring the status of borrowers

Table 2. Documents requested as part of financial monitoring

Quarterly monitoring based on financial statements

The analysis algorithm based on financial statements can be presented as follows:

Vertical and horizontal analysis of the balance sheet and profit and loss account;

Research of accounts receivable and payable, inventories, financial investments, loans and credits;

Research of liquidity and solvency;

Financial stability analysis;

Analysis of business activity;

Cost-benefit analysis;

Analysis of market and non-market factors.

Typically, credit institutions assess the financial condition of a borrower based on their own methodology, which most often involves calculating a rating based on a number of financial indicators. Let us dwell on the most important components of monitoring in the current conditions.

ACCOUNTS RECEIVABLE RESEARCH

As part of the monitoring, a decryption of accounts receivable is requested (lines 240, 241, 246, etc. of the balance sheet). In general, at least 80% of all receivables must be deciphered, indicating counterparties, as well as all debtors whose debt is at least 5% of all receivables.

Debt analysis examines:

Dynamics of accounts receivable and comparison with the dynamics of revenue;

The presence and dynamics of overdue receivables (determined based on the borrower’s data, as well as on the basis of the dynamics of reserves for doubtful debts, account 63);

Structure of receivables (dependence on large buyers, customers, identification of companies affiliated with the borrower);

Determination of the main forms of settlements with customers and their changes.

RESERVES STUDY

Inventories can be classified:

For raw materials and supplies;

Costs in work in progress;

Finished products;

Goods shipped;

Future expenses.

During reserve analysis, the following is examined:

Inventory structure;

Inventory dynamics.

In addition, it is necessary to compare the dynamics of work in progress and finished products with the dynamics of revenue, receivables and payables.

RESEARCH OF LONG-TERM AND SHORT-TERM FINANCIAL INVESTMENTS

Dynamics of financial investments;

Structure of financial investments;

Purposes of financial investments;

Sources of investment financing;

Liquidity of financial investments and the possibility of their quick implementation.

RESEARCH OF MARKET AND NON-MARKET FACTORS

The relationship between market and non-market factors is shown in Table 3.

Table 3. Market and non-market factors

Monthly monitoring of financial condition

The analysis algorithm can be presented as follows:

Revenue research;

Research of receivables and payables, identification of problem debts;

Research of reserves, financial investments, loans and credits;

Analysis of bank turnover and the borrower’s cash flow plan;

Monitoring the condition of the collateral.

The following features of monthly monitoring can be noted:

In relation to receivables, payables, inventories, financial investments, loans and credits, the analysis is carried out similarly to quarterly monitoring, however, the basis for the analysis is not financial statements, but balance sheets for accounting accounts.

As part of the study of receivables and payables, balance sheets are requested for accounts 60, 62, 76 for a certain period, broken down by counterparty, or a breakdown of receivables or payables for a specific date, indicating overdue ones. The objectives of debt analysis are:

Comparing accounts receivable and payable with reporting data or data from the previous month and identifying trends;

Identification of changes in the structure of debt and the reasons for its change;

Identification of overdue debts (can be indirectly found by identifying debtors and creditors for whom the debt is growing or has not changed for a long time);

Identification of affiliated companies in the debt structure, determination of possible changes in the work scheme or forms of settlements with counterparties.

As part of the inventory study, balance sheets are requested for accounts 10, 20, 41, 43, etc.

The objectives of inventory analysis are:

Compare various inventory items with reported or previous month data and identify trends;

Identification of the structure of inventories and the reasons for its changes;

Comparison of inventory dynamics with the dynamics of accounts receivable and payable, as well as revenue;

Determination of possible overstocking and illiquid inventories.

As part of the revenue analysis, either a VAT declaration (reflecting quarterly revenue), or a balance sheet for account 90-1 for a certain period, as well as certificates of revenue in kind are requested. When analyzing revenue, the main attention is paid to:

The structure of revenue by type of product and its comparison with previous periods;

Revenue dynamics and comparison with previous periods.

In addition, when studying revenue, it is important to take into account seasonality, as well as the characteristics of the company’s production cycle.

It is very important to analyze bank turnover as part of monthly monitoring for the following reasons:

According to RAS, revenue is reflected by shipment, so analysis of turnover in banks makes it possible to assess cash flow;

Certificates from servicing banks should reflect information about the presence of a file cabinet of unpaid documents, which makes it possible to identify potential problems of the borrower;

Also, the certificates must contain information about loans issued by banks, which allows you to compare this information with accounting data and estimate the loan load.

Typically, as part of a study of turnover in banks, the following is requested:

Certificate from the Federal Tax Service regarding open bank accounts;

Certificates of turnover, card index and availability of loans, off-balance sheet obligations.
Registration of monitoring results. Dealing with problem debt

The monitoring results are presented in the form of an analytical note, which usually contains the following information:

Name of the borrower, type of loan product and transaction parameters;

Borrower's industry, brief analysis of market and non-market factors;

Conclusions based on the results of vertical and horizontal analysis of the balance sheet and income statement;

Conclusions based on the results of the analysis of liquidity, financial stability, business activity and profitability;

Analysis of sales revenue;

Analysis of receivables, payables, financial investments, inventories, loans and credits;

Analysis of turnover in banks;

Analysis of the borrower's order portfolio and cash flow plan;

Conclusions based on the results of collateral monitoring;

General conclusion about changes in risk for a specific transaction/borrower.

Factors that may indicate potential problems for the borrower:

A sharp decrease in revenue and receipts to current accounts;

Increase in inventory and work in progress;

Increase in accounts receivable, increase in overdue debt;

Increase in accounts payable, including overdue ones;

Loan portfolio growth;

Availability of card files for invoices;

Presentation of demands from tax authorities;

Submission of claims by third parties;

Fall in demand for products;

Presence of predicted cash gaps without additional financing, etc.

If a potentially problematic debt arises, you must:

Conduct negotiations with the borrower, guarantors, and pledgors for loans;

Understand the causes of potential problems;

Understand the need for loan restructuring;

Find a mutually acceptable restructuring solution.

Basic rules of conduct for creditors in the event of overdue debt:

Correctness;

Persistence;

Focus on finding a mutually acceptable solution;

Compliance with laws.

In conclusion, it should be noted that credit institutions need to restructure their work in relation to assessing the financial condition of existing borrowers by deepening and increasing the frequency of analysis. The proposed approaches to building an in-depth monitoring system will help not only to correctly assess the financial condition for reserving purposes, but also to immediately respond to the occurrence of financial difficulties among borrowers.