Credit Analysis for Account Officer

Banking institution is a core of a financial system in every country. Bank is a finance institution for individual person, non-government business entity, state-owned enterprises, even as a place for government institutions to save funds, through the credit system and various service that Bank give. The amount of credit service demand in Indonesia Bank has ascended annually which brings credit scoring a greater possibility of problem to arise. To deal with that, Bank officers have important roles from credit application process to credit decision making or we call them Account Officer that must be able to analyze credit for new customers. Hence, credit analysis is very important for an account officer.

I. Credit Analysis

Credit Analysis is assessment, observation, research, verification, and calculation done by BPR to a business of a new debtor, so that they understand the risk profile with 6 C approach, and its connection with juridical aspect, management aspect, social economy aspect, marketing aspect, production aspect, assurance aspect, and financial aspect, so credit risk can be controlled and proceed a credit facility as well as tool for a credit committee decision maker.

What is Credit Analysis Purpose and Goal?

The main purpose is to deliver recommendation to credit committee about assuredness that customers have will and capability to fulfil their obligation to the bank orderly, from the payment of principal of the loan to the payment of interest, according to the agreement with the bank.

How is Credit Analysis Purpose and Goal for an Account Officer?

1. Credit that was given by BPR or credit that accepted by debtor/customer, must be given back to BPR on the schedule as the agreement of payment done.
2. Credit that was given must be on track, which is mean it is used according to the plan when customers propose credit.
3. Credit that was given made impact, to develop debtor’s business not for another purpose.
4. Credit that was given increase income, profit, business development, and create a new employment of a debtor.

The importance of Credit Analysis for an Account Officer and a new debtor:

• Give description of risk profile of a new debtor
• Ensure the credit approval is on time, right amount and right purpose to avoid risks that may be occur.
• As a foundation of a prudent credit approval (Prudential Banking).
• As embodiment of a healthy credit approval principle.

How Credit Analysis Identification Process for Account Officer?

Process of credit analysis that propose by a debtor applicant can be recommended prompt, proper, and secure. This can be foundation of credit committee to make decision.

Details of analysis credit identification:

• Data collection
• Data verification
• Data Administration
• Visiting business/project spot
• Presentation to Audit committee (if necessary)

Factors that affect Credit Analysis success on the field

• Having technical and theoretical skills and knowledge
• Good mentality and able become “double size banker” (which is mean 1/5 of himself as a lawyer, 1/5 manager, 2/5 Accountant, & 5/5 Gentlemen) so he can manage credit risks.
• Having accurate data and informative information
• Understand effective method and analysis technic.

Successful Credit Analysis Characteristics

Able to create a good credit analysis recommendation and reassure credit committee, and give positive effect to debtor:

For BPR:

• Understand risks profile
• Able to decide positive and negative of debtors’ business
• Able to decide positive and negative point of debtors’ business condition
• Able to decide prompt, proper, and secure credit structure

For Debtor

• Push forward and develop debtors’ business
• Increase profit
• Competitive price
• Create new employment
• Increase value

As already mentioned above that credit analysis is assessment, observation, research, verification, and calculation that done by BPR to a business of a new debtor, so they understand the risk profile with 6C approach.

6C approach is Character, Capacity, Capital, Condition, Collateral, Cash Flow.

Character Approach

For the character approach more emphasize in prospective debtor characters or habit,

Such as integrity, impatient, bad faith, underestimate a problem, etc. All these characters must be able to describe qualitatively and quantitatively, which is can be conveyed verbally or with numbers in scoring subject. This works as a foundation of a commitment and capability to do payment to BPR, even though in predicament/ business does not work well. 

Capacity Approach

Capacity approach, BPR Account officer make efforts to know prospective debtor’s management ability in a business from the planning until the realisation, so the debtors able to fulfil obligation to BPR routinely, and when due date in any circumstances. Analysing this approach, emphasized in management aspects as debtor’s education, business management experience, leadership, and age of a debtor. To measure it Account Officer will request for debtor’s curriculum vitae. 

Condition of Economy Approach

Condition of economy approach overall could not be ignored, even it is local economy, national, and international, especially that connect with prospective debtor’s business. Success of a business could be affected by economy condition that occurs such as:

• Product marketing that rely on economy condition
• Capital that affected by economy condition
• Production of goods
• Legislation regulation which also affected on debtor’s business.

Collateral Approach

Credit collateral that submitted by prospective debtor to BPR such as:

• Ownership status
• Collateral location (strategically or not)
• Marketable/not
• Collateral saving place
• Collateral legal in assessment, is the collateral had been liquidated or taxed so can cover credit, also how much the LTV %

Cash Flow Approach

Cash flow approach is an approach that calculate ratio of cash in and cash out. Why cash flow is important in credit analysis? Debtors pay their credit from cash, not from capital or profit. Why cash flow is necessary?

• Decide schedule of repayment
• Planning maximum instalment payment
• Creating credit schedule that meet the debtor’s business

II. Data Collection Techniques and Verification

Data identification is an activity that seek, discover, research, register, record data and “requirements” information from the field.

As intensity requirements categorized two types, urgent and not urgent requirements.

Information that Account Officer should collect as follows:

• Id card (family card, marriage certificate, etc)
• Business identity (business permit, Trade business Registration Certificate, Tax Obligation Main Number, building permit, Hinder Ordonnantie, Deed of incorporation and changes)
• Financial statements (profit loss and balance, bank account and other financial records)
• Business location and year of establishment, sales turnover recent months, new business sales planning, supplier list, customer list, major buyers, number of employees, education, etc

Account Officer must have data collection & Information Technique such as:

• Customer Interview,

Account Officer carry out face to face dialogue with the prospective debtor by propose questions.

• Credit Investigation

Researching and investigating debtor or others that in credit process.

Collecting debtor’s data and information may present obstacles to Account Officer in the field such as:

1. Company is unable to establish financial report even never done accountancy/ record business transactions
2. Company had already established financial report but it was not appropriate as accountant principal
3. Company does not have current account (savings)
4. Company never correspondent to the bank especially in credit field, legal assurance was rudimentary
5. Company does not have business permit
6. Company is new or expansionary but never went to bank
7. Other problems

Skills that an Account officer should have in collecting prospective debtor data and information:

• Listen and take notes well
• Evaluate loan interview that expected by prospective debtor
• Applied efficient and effective interview technique
• Accentuate debtor’s role first the interviewee role
• Identify debtor’s business field character
• Specify good and bad factors of debtor’s condition during interview
• Evaluate interview based on special criteria

After required data and information for proposing credit according to BPR rules collected, Account Officer will work as workflow chart as following: