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INTRODUCTION

Market economy necessarily implies the existence of a banking system to ensure

mobilization of all available funds in the economy and monetary stance temporarily

in pursuit of efficient economic activities.

Lending decisions are now subject to other requirements, as directed, primarily, to

avoid risks. Multiplication of the guarantee conditions by the wealth, by income, by

professional profile and behavior, each located on other scales of values, involves

difficulties in the hierarchy. Adapting computer methods in the banking business

requires solving two separate problems:

building a system for quantifying and ranking of conditions and assumptions of

credit

implement an information system and electronic data processing to ensure

objective ranking of each request.

The results of these actions represent only a base-setting of a decision. In most

cases, creditor makes a decision, especially when the fundamentals are expressed

unequivocally using these methods.

The work of banks, collection of funds placed while experiencing temporary

needs for additional units, they fulfill an important role of bank intermediation. In this

sense, the loan becomes an active tool in stimulating economic development through

encouraging the action of certain phenomena, depending on the objectives to be

achieved.

Credit is vital to economy, thus the granting of this is very important, this

intervening bank financial analyst position to orient resources towards the most

efficient investments.

In employing their resources, banks face a number of risks:

The risk of default;

Lack of liquidity risk;

Changes on the market of interest rate;

Risk capital;

Risk capital repatriation in conditions of external credit (currency risk and

country risk).


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Granting loans, bank assumes more types of risk, which are determined either by

quality of the bank or the overall economic development or the overall structure of

the bank.

Know that the bank's performance has two dimensions: cost and risk, bank seeksto maximize performance by harmonizing the following objectives: to maximize

bank profitability, minimize risk exposure and compliance with quality standards and

prudential behavior.

It is strictly important to analyze and consider all risks, this is a necessary and

important fact for each bank, but in terms of amplitude lending process, knowledge,

avoidance and prevention is of particular relevance at the national level.

This paper is divided into 2 chapters.

In Chapter I, entitled "Bases for making a crediting decision in granting a loan to a

commercial entity " is consist from theory about analyze of the firm and scoring

model, management analyze and financial analyze.

The second chapter "Establishment of crediting decision", examines The risks

analyze of the crediting activity and determination of the crediting decision.

Study on a loan granted is the practical analyze of a firm , of a FILACOL LLC,

a company that activate in retail in non-specialized stores with food predominating

sale, retail trade of alcoholic beverage and tobacco products.

This ends with conclusions which I have expressed after analyze achieved by

study of the literature and existing laws in force in Republic of Moldova.


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Chapter I. BASES FOR MAKING A CREDITING DECISION IN GRANTING

A LOAN TO A COMMERCIAL ENTITY

1.1. MANAGEMENT AND ECONOMIC/FINANCIAL ANALYZE OF THE

FIRM'S ACTIVITY

The purpose of credit analysis is the avoidance of loss of profit or business due

to irrecoverable debts, because that is granting loans to customers who do not

reimburse the debt, or because of denial of credit to potential better customers.

When applying for a business loan, the creditor has an informative discussion

with the potential future debtor and he completes a credit application form (annex 1),

they discus about following items:

Appreciation of a firm. At this stage creditor discuss with the debtor about the

field of its activity, type of the activity, the specific of that process and the situation

and specific of this product or service market. The purpose of the creditor is to

analyze if the potential debtor is a serious one and if this is a convenient business

partner, because this must be a profitable transaction but not an unfavorable one.

The creditor must identify the objects of the company activity, information on

the financial possibilities of the company's credit business prospects. It is necessary

for the creditor to consider the experience and quality of management, staff

qualifications, purpose and term , credits previously contracted, information on real

estate securities and possible guarantees. Debtor must clearly define the sector in

which its activity. The creditor must make a provisional picture of customers, those

who will buy products.

Creditor checks if the loan application meets the bank's financial possibilities.

If the creditor informs the debtor positive, then it must present the request and the

credit application to the bank. Also to this are attached the following documents:

applicant questionnaire

Legal documents

Financial documents

credit insurance documents

other documents required by the bank

For the firm analyze the most effective method is credit scoring (annex 2).


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Credit evaluation depends on negotiation with the applicant about maximum loan

amount that can be given depending on the number of points met by the applicant, the

level of interest, the proposed safeguards and arrangements for them.

To determine the score depending on which credit is granted there are the

following groups of criteria:

material premises of using credit

loan guarantee

objective conditions for the operation depending on which will be able to

recover the loan and the interest payment

Consider that each of these groups are of equal importance and are each assigned

with 100 points. A debtor on exceptional situation that will meet all conditions and

criteria will have maximum score of 300 points. Todays credit professionals must

make accurate, on-the-spot decisions. Departments are consolidating and slimming

down as well as under more scrutiny from auditors. Under these conditions, creditor

perform the detailed and consistent analysis needed to avoid unnecessary credit risk.

Credit scoring can help. Credit scoring, by definition, is a method of evaluating thecredit worthiness of your customers by using a formula or set of rules. Depending on

the make up of your customer base, credit scoring can produce considerable benefits

to some firms and somewhat lesser benefits to others.

The Different Types of Credit Scoring

Credit scoring is based on the assumption that past experience can be used as a

guide in predicting credit worthiness. There are two types of credit scoring models.

Both can be statistically validated.

Judgmental Scoring Model

A judgmental scoring model is based on traditional standards of credit analysis.

Factors such as payment history, bank and trade references, credit agency ratings and

financial statement ratios are scored and weighted to produce an overall credit score.

The determination of which factors to use, and how each will be scored and

weighted, is generally based on the credit executive's past experience with their

company, the products or services they sell, and the industry they are in. Judgmental

models are enhanced by comparing industry financial profiles using peer groups from


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(RMA) Risk Management Associates Statement Studies. Including scoring factors

that reflect the individual characteristics and policies of their own firm further

enhances the judgmental model.

Judgmental scoring is the most straightforward to implement because it uses yourcredit policies and decision process, the number of rules are easily set, and the

grading scale can be simple or complex. Therefore, it is easier to understand and

augment.

Statistical Scoring Model

Statistical models function in much the same way as judgmental models.

However, in choosing the factors to be scored and weighted they rely on statistical

methods rather than the experience and judgment of a credit executive.

Statistical models consider many factors simultaneously, a process that calculates

and analyzes multivariate correlation to identify the relevant tradeoffs among factors,

and assigns statistically derived weights used in the model. The key factors are

generally captured from credit agency reports and the credit files of the client.

Statistical models are often described as a scorecard, a pooled scorecard, and a

custom scorecard. A scorecard uses data from one firm. A pooled scorecard uses data

from many firms. A custom scorecard blends a statistical model with some of thefactors used in a judgmental model.

When a company targets a bank loan request, it proceeds to achieve a detailed

analysis in different fields on that company. To begin the analysis, now is required to

submit a comprehensive economic and financial documentation:

credit application signed by authorized persons of the company

stocks and costs for requesting credit (quantities, values, causes, recovery time)

last balance sheet

trial balance

profit and loss account

list of material goods and values as collateral for credit insurance


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In front of the bank's business should come, primarily, with an economic activity

that does not present major risks in the use of credit. To this end, the internal and

external universe of enterprise is subject to rigorous analysis and interpretation to be

detected the possible effects of political, social, economic, military technology or to

changes in demand, and under the influence of inflation, recession .

All this fields and areas of a company management are analyzed by creditor and

communicated to the final interpretation. The credit committee gives points for all

this financial and economic performance of the firm, for making a crediting decision.

In acceptance of the application for credit, the decisive role is played by economic

and financial performance achieved by the company in the previous period and those

estimated for the commitment period of the loan.

Financial indicators are useful tools for comparing the performance of competing

firms within the same industry. These indicators help credit analysts to assess

creditworthiness of the customer. Essential types of indicators together in the same

financial framework as a company has achieved sales exceeding the cost of that

activity, the efficiency of companies in the management of resources and its

activities, the extent to which the funds used by a company from the creditors and not

from its owners (debt capacity is a key indicator of the commercial company to deal

with difficult situations and to absorb losses), liquidity and other assets available to a

company for meeting its obligations, including payments for interest and claim.

It should be noted that financial indicators are extremely important for effective

analysis of debt. In this context credit officer should not forget that indicators of

financial statements that are taken are safe. Meanwhile, the indicators are very useful

if creditor takes them into account as a whole and not isolated, and use additional

indicators.

Using a single indicator in isolation from the others, it can lead to errors, multiple

indicators help, usually, to identify trends, which are important factors for

determining solvency.

The ratios obtained can show a real financial situation of the company, and the

trend lines of all charts present an important information for the credit officer.

Indicators are analyzed in dynamic, comparing with the past years. This is done for to

interpret correctly information about company.

Taking into account the credit application requires a concrete analysis of

trustworthiness trader based on the indicators of liquidity, solvency, profitability and


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balance. Database necessary for determining those indicators is represented by

information in the enterprise financial situation drawn up to the end of quarter.

Key economic and financial indicators of firm performance play, based on data

from the financial situation and banking budget inspector ,are:

Current liquidity is given by the ratio of current assets that can be converted to

cash availability and current liabilities

Current liquidity = (1.1.1)

Solvency is a component of total liquidity, it has the capacity to transform the

company availability within 90 days of stocks of raw materials and unfinished

production, to handle payments become due in the same period (salary,supplies, financial obligations , credit refund).

Solvency = (1.1.2)

overall rate of return is determined as the ratio between net income and total

expenditure

Overall rate of return = (1.1.3)

Rate of return on equity is the most significant expression of profit, which

measures the results of company management, as a whole

Rate of return on equity=

(1.1.4)

Indebtedness show coverage of debt to equity

Indebtedness = (1.1.5)

Liquidity indicators

Current Rates express the coverage of current liabilities to current assets

Current rates = (1.1.6)

Quick ratio rate express the coverage of current assets to current liabilities


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Quick ratio = (1.1.7)

Reliable stock is expressed as the value of stocks at book value, it should be

sold to cover current liabilities covered by assets.

Reliable stock = (1.1.8)

Profitability indicators

Equity ratio shows the efficiency with which capital is used

Equity ratio = (1.1.9)

Capital ratio shows the efficiency with which capital is used

Capital ratio = (1.1.10)

Return on assets ratio shows the effective use of total assets

ROA = (1.1.11)

Gross Profit Margin express a percent of income from a company sale aftercoverage of expenses

Gross Profit Margin = (1.1.12)

Activity indicators

Asset turnover is a financial ratio that measures the efficiency of a company's

use of its assets in generating sales revenue or sales income to the company

Assets Turnover Ratio = (1.1.13)

Recovery Period shows the average number of days on which collects debts

from turnover at the time.

Recovery Period = (1.1.14)

Debt repayment period express the number of days that are repaid debt to

turnover.


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Debt repayment period = (1.1.15)

There are several reasons that ratios are expressed as percentages. This makes iteasy to compare the company's results at different time periods. It also allows creditor

to compare the company's results with those of its peers or competitors, and to

determine if this company is a competitive one.

1.2. EFFECTIVE ANALYSIS OF THE CREDIT REQUEST

Creditor must obtain a deep information of all firms activity through the analyze

of the company's business plan. In analyzing, ideas must be able to pass them through

a test of determine if they truly are valid opportunities. It is important that ideas must

have a demonstrated need, ready market, and ability to provide a solid return on

investment. Basis are that ideas are feasible in the market, there is a demand.

The most representative stages in the application of credit analysis are:

a) Identify the purpose and level of credit requested

The purpose of the application must clearly specify the form of resource scarcity.Also, loan application must fit in the banking law provisions.After specifying the

purpose of the request and credit accept, decision team move to quantitatively level

analyze of credit request. In this sense, the analyzed firm draws cash flows and

outlets. After the establishment and acceptance of the credit level, the decision team

goes to the negotiation of interest and fees accruing to the bank.

Creditor's concern is environmental analysis that determine if the firm is a

competitive one. Currently operating in a very dynamic competitive environment

and particularly with the unprecedented development of technology, an emerging

environmental legislation, to use specific strategies to conquer the markets, because

there is a fall of buyers fidelity, largely because of accelerated diversification of

products and services offered by manufacturers.

First creditor must appreciate the relationship of the debtor with operators and

suppliers, with which the firm deals in the usual direct relations, if influences are

strong and reciprocal, representing in fact a set of conditions, activities and relations.

Creditor must analyze the following relationships:


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Suppliers are those that provide the resources necessary to conduct normal

business economic activity, but competitors. It is possible that in certain

circumstances, the company becomes vulnerable to the supplier who may not

meet the deadline to supply or change prices, etc., may affect the possibility

borrower to repay the loan or rates. Therefore it is important first to monitor

activity providers and secondly to establish trusting relationships and long

term, achieving a mutual interdependence.

Intermediaries are represented by firms that help the enterprise to promote, sell

and distribute goods to the final consumer in the form: traders (wholesalers),

physical distribution firms (trade, transport, etc..) marketing service agencies

(such as advertising agencies), financial intermediaries, banks, insurance

companies etc.. The relationship is also important because they disruption of atleast one factor may result in unwanted financial imbalance.

Customers are the most important component because they constitute a market

of any production companies represented by: consumers, users, wholesalers,

government-governmental and international agencies, etc.. It is important to

examine the relationship time to identify the seriousness of the producer.

Competitors are economic units in competition with any company, because in

the market economy is essential to obtain advantageous conditions facing theproduction and sale of goods and services, with the goal to achieve outstanding

performances. As competition is a tough fight, in which always beat the best,

and that, though, outweigh economic interests - is conducted not only by

economic means, but also extra economic, the lender is absolutely necessary

to assess the debtor's ability to compete .

b)Identification of other sources of repayment

If low-risk loans, banks require a single source of payment for the other types of

high-risk loans, banks require a second source of repayment. The first source is

represented by liquidity resulting from the normal economic cycle of the firm.

Collateral source represented by deposit made by the firm, must be clearly and

accurately identified by inspectors and team decision.

c)Identification of guaranties


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An important moment in the process of adopting the crediting decision is given

for identifying and checking carefully of guaranties, that the company shows.Bank

will require guaranties, which may be offered from both debtors and third persons

and legal entities. Minimum value of guarantees that will be accepted by the bank in

all cases will be at least equal to the largest debt of the debtor made from loan plus

interest. The warranty is "safety net" of creditor if the debtor can not pay their debt in

full and on time. All data elements must be listed as a guarantee or that they are

actively controlled by the receiver loan or guarantees from third parties.

There are two main types of guarantee:

law is legal in favor of creditors of an asset or more of the debtor in possession

or control; a task can be specified, for example, a mortgage on a building or a

seizure on a machine; or can be generated, for example, a variable charge on

current assets of the debtor.

guarantee from a third party ( "guarantor") in favor of the debtor, that the legal

obligation of the guarantor to pay the creditor's debt if the debtor does not pay

the debt

The types of mortgages :

The pledge is constituted of a movable or immovable, or the universality of

movable or immovable, owned by the firm

The pledge of movable property takes place with or without deprivation of

them.

For the creditor is strictly important to identify the possibility of a compensation

insurance. Creditor is entitled to be satisfied in priority compensation insurance

account for ruin, loss or damage to property pledged, whether in whose favor was

ensured that good, but if this ruin, loss or damage not due to fault or if the creditor

pledge agreement does not otherwise this.

Creditor should analyze the existing mortgages because there is the most essential

way of recovering the value of the loan , in case if debtor would not be able to return

the loan. The mortgages are the insurance that the bank would not lose its money. So

this analyze is done because the creditor could not lose the value of the loan because

in case of insolvency or wrong going of he bossiness activity , he can recover the

credit.


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Creditor rights in case of loss or damage to the property pledged:

In case of loss or damage to the property pledged, the creditor may, among

other rights provided by law, to demand compensatory damages up to

competition its claim of lien in the same way, even if his claim is due.

If, following damage, the property pledged can not be directly used as

intended, the creditor is entitled to ask for replacement or supplement the

property pledged or paid by the debtor established in the contract's value.

If the debtor refuses to substitute collateral or do not substitute for a reasonable

period granted, the lender is required to enroll in the register or information

about loss of collateral, there are taken stipulations from the contract.

The debtor is required to report assessment of mortgage that will be provided.

Value of collateral is required to be greater than the amount of the requested loan. In

case of nonpayment of debt, the bank may sell collateral. The value of collateral must

be greater that the loan, because it should cover the costs for the transaction of

mortgage sailing and to cover the value of the loan.

Also it's quite important for the debtor to produce documents proving that goods

made as collateral, are not required elsewhere.

Also quite important is to analyze the potential client's reputation.Reputation is

actually a very simple concept which we know intuitively. It is the perception of

others on the firm. Reputation management is the process of tracking an entity's

actions and other entities' opinions about those actions; reporting on those actions and

opinions; and reacting to that report creating a feedback loop.

A reputation system computes and publishes reputation scores for a set of

objects ,within a domain, based on a collection of opinions that other entities hold

about the debtor. The opinions are typically passed as ratings to a reputation center

which uses a specific reputation algorithm to dynamically compute the reputation

scores based on the received ratings.

Creditor use reputation scores for decision making, in granting a credit. A firm

with a high reputation score will normally easily granted with a loan than a company

with a low reputation score. It is therefore in the interest of debtors to have a high

reputation score.

A low score represents a collaborative sanctioning of a firm than the creditor

perceives as having or providing low quality. Similarly, a high score represents a

collaborative praising of a firm that the creditor perceives as having or providing highquality.


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The creditor is required to identify the debtor's credit history. This is quite

important and essential to its evaluation as having the analytical landscape, the lender

can assess the seriousness of the debtor. This information, will position the debtor in

the category of bad payers or of welcome clients. Obviously if there is a positive

history, the debtor will benefit easier the value of the credit. Since the debtor are

confident and seriousness in entrepreneurial activity, it can also become a loyal

customer of the bank, and after to benefit from the facilities shepherd, to get a loan

with a low interest, or an extended grace period, or where a smaller volume of

guarantees required.

Borrower credit records, along time as monitored by the bank, used to predict its

future actions when not monitored. Those who borrow repeatedly do so because they

take into account the fact that information on their present actions will have futureeffects.

Thus, the reputation effect eliminates the need to monitor where the value of

future profits lost because of new information related to the failure of contractual debt

is high.

Borrowers with high credit ratings, have a low cost of capital, and need to

maintain this level, so that they can not afford not to meet its obligations. As a result,

these borrowers rated not need to be monitored.

But if borrowers with low ratings, they have little to lose so if they appear

negative information about its related failure, and if caught with irregular periods are

monitored. Thus, their monitoring is without any benefit, is less useful and not worth

the cost just for this type of debtors weak stock. Instead of monitoring used to find

those who engage in activities in their own interest.

The model has the following implications:

request for monitoring is higher during periods of high interest rates or low

future profitability, because then rated borrowers need to be monitored.

Therefore, in this period, bank loans are more numerous than direct, to the low

interest rate periods.

need to monitor rated borrowers during periods of high interest rates or low

future profitability, has the effect of increasing the average quality of new

loans


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the original debtor's reputation will be gained by paying the bank loans that it

monitors, but a good history of these loans will enable monitoring of the

debtor to make direct loans from the market, without monitoring.

monitoring will encourage debtors not scored poorly. Thus, many new borrowers will be denied the credit. Instead it will act as a monitoring

mechanism to sort them.

Any delay in payment can permanently destroy the reputation of debtor. Why

banks need credit bureaus? Credit - this is good. And the available credit with low

interest - even better. However, lending "a man in the street", the bank is not insured

against defaults. Against possible losses banks are insured by high interest rates.

The success of information impact on the debtor is:

Availability of information about the debtor: terms of both existing and

potential partners, the availability of credit and other obligations owed to banks

and financial institutions, planned to obtain loans, as well as the number of

persons to whom the debtor values its reputation as a respectable partner and

that may have it financial or moral suasion. Careful collect the necessary

information to help identify weaknesses of the debtor and to develop thecorrect tactics of presenting information.

The correct form of information messages (a form of communication and the

nature of submission). As with appeals to state bodies, the use of information

impact on the debtor must strictly follow the letter of the law and of particular

importance given the form and nature of information impact. Information

effects on the debtor can be used both independently and in combination with

other technologies penalty.


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Chapter II. ESTABLISHMENT OF CREDITING DECISION

2.1. ADOPTION OF THE CREDITING DECISION BASED ON RESULTS OF

FINANCIAL ANALYZE OF LEGAL ENTITY

After what all this stages are made, the creditor make a final act of a decision

making process: adoption of a decision. The bank will prepare a credit analyze for to

dimension correctly the necessity of credit financing, taking into the considerationsthe acceptable risk conditions for the bank and for maximizing the bank's profit,

following the taking of a correct crediting decision. There are the following stages:

Correlation with the availability of resources

For any bank there is a restriction on granting loans because of the limit of its

resources and those purchased from domestic and foreign markets. An efficient

management of resources requires a realistic forecast of credit, coupled with concern

of the widening of the range of resources in an optimal cost given by the interest ratespaid by bank on deposits, by the interest credits purchased from BNM and minimum


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reserves that must be deposited at BNM. In the process of lending, banks follow

certain regulations and legal compliance.

Adoption and communication of a crediting decision

Having the full analyze of the economic entity and the application for the loan, the

bank loan committee considers that the analyzed firm is allowed to crediting. After

adoption, the decision is communicated to the credit's applicant. The applicant

together with the bank unit that actually give credit, make a credit contract.

Let me explore the following example.

Legal person Filat Nicolae, makes a request to the bank for a mortgage loan in the

amount of 500000.00 MDL, within 84 calendar months, to purchase a building in

Chisinau. Full name of company SC FILACOL LLC.

For this purpose the bank requests from the potential client the following

documents:

the request for credit

company registration certificate

insurance contract and police for the proposes assets as pledge

labor contract

certificate on registered revenues extract from the register of immovable property

documents showing the possibility of reimbursement payments by the primary

source

documents showing the possibility of reimbursement payments by the

secondary source

balance sheet for last year

business Plan

During the formal review process the creditor's aims are to analyze all required

documents , presented by the potential client, their content and their signature by

legally authorized persons. Then the lender analyze the application form ( annex1)

and economic and technical arguments form (annex 3).

Responsible employee discuss with the applicant about its arguments about the

necessity of requested loan and determining the degree of readiness and safety of the

client plan. Based on data submitted by the borrower, bank employees must answerthe questions listed in the questionnaire design used in the loan negotiation stage.


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The main objective of the risk analysis is that bank can be exposed after granting

of credit is the knowledge of evolutionary potential of past periods and forecasting

performance for provisioning client's viability. There the creditor use a scoring

model. Tabel (2.1.1)

Working with mortgage applicant

Tabel (2.1.2)

Rationally 160 -300 points

Rationally with the condition of contributing with 40

%

100-159 points

Irrational less then 99 pointsSource:Regulation on the banks lending activity operating in Republic of Moldova

The scoring score is of 216 points so the work with this potential client is a

rational one.

The calculation of economic indicators.

Key economic and financial indicators:

Current liquidity = = = 1,19 ( 10 points)

Solvency = = = 4,9 ( 20 points)

Overall rate of return = = = 14.65 % (20 points)

Rate of return on equity= * 100%= * 100%= 4.67 % (20 points)

Indebtedness = = = 0,25 (20 points)

After summing up the score given to each indicator it is obtained 85 points. To

this points the creditor adds 15 points from subjective factors and as conclusion this

firm obtain 100 points, holds the A category and this is categorized by a good

financial situation and the firm will be able to pay all payments and interest rates.

Liquidity indicators

Current rates1 = = = 1,19

Current rates0 = = = 1,07


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Quick ratio1 = = = 0,329

Quick ratio0 = = = 0,209

Reliable stock1 = = = 0,78

Reliable stock0 = = = 0,97

After calculations, results show that the current liquidity ratio is above 1 in

both periods, which means that the trader has a good activity as liquid assets exceed

liabilities.

Regarding the real rate of liquidity and reliable stock it is found that it have

subunit value, which shows that the debtor is in a poor situation for the immobilized

part of funds from short-term loans and other debts (figure 2.1.1).

Current rate Quick ratio Reliable stock

Sourse: Dedu V.Gestiune Bancara.

Fig. 2.1.1. Graphic representation of liquidity indicators


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Graphic representation shows that the current liquidity ratio has a subunit value

in both periods, reflecting a good situation.

Quick ratio of liquidity has subunit value, which is considered to be a risky

situation, because the unit has restrained some of the earlier loans and did not get the

desired effect.

Reliable stock has experienced a decrease in current period to 78% when

compared to the previous period was 97%, which shows that the proportion decreased

in value stocks need to be sold to cover current liabilities.

Profitability indicators

Equity ratio1 = = = 0,0467

Equity ratio0 = = = 0,0018

Capital ratio1 = = = 0,051

Capital ratio0 = = = 0,0019

ROA1 = = = 0,037

ROA0 = = = 0,0015

Gross Profit Margin1 = = = 0,192

Gross Profit Margin0 = = = 0,013

The calculations show an improvement in current activity against the previous

period, especially as shown by indicator gross margin rate , which rose from 1.3% to

19.2%, so by 17.9% (figure 2.1.2).


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Equity ratio Capital ratio ROA Gross Profit Margin

Sourse: Dedu V.Gestiune Bancara.

Fig. 2.1.2. Graphic representation of profitability indicators

From graphic representation it is shown that equity capital rate and capital ratio

recorded a significant growth in the current period, compared to the previous period,

reflecting an increase in the efficiency with which capital is used.

Most significant indicator is gross profit marginthat has a significant increase

from 1.3% in the previous period to 19.2% in the current period.

It is estimated that the company has been active a acceptable profitability,

because it is higher then net profit that can be achieved by capitalization of capital on

the financial market.

Activity indicators

Assets Turnover Ratio1 = = = 0,24 rotations/year

Assets Turnover Ratio 0= = = 0,11 rotations/year

It is observed an increase in of this indicator in current period comparing with

the previous period by the increase of turnover.

Recovery Period1 = * 365= * 365 = 60 days


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Recovery Period0 = * 365= * 365 = 100 days

It is observed an improvement in debt recovery period, allowing the effective

exercise of a debtor economic activity.

Debt repayment period1 = * 365 = * 365 = 313 days

Debt repayment period0 = * 365 = * 365 = 643 days

It is considered a reduction in debt repayment period following from the

increase in turnover on account of raising the volume of outlets.

Another representative stage in the application of credit analysis is to identify

the purpose and level of credit requested.Filat Nicolae, makes a request to the bank for a mortgage loan in the amount of

500000.00 MDL, within 84 calendar months, to purchase a building in Chisinau. Full

name of company SC FILACOL LLC.

Company develops entrepreneurial activities that provides manufacturing

production, and services and the execution took place independently on their own

initiative, on the company name, on its own risk and under the patrimonial

responsibility, by its organs in order to ensure a permanent source of income. To

accomplish tasks aces company develops these types of activity: retail trade in non-specialized stores with food predominating sale, retail trade of alcoholic beverage and

tobacco products.

Identification of other sources of repayment

Financial situation

Mr. Filat Nicholas is committed as director of SC Filacol. Net income for

the past 12 months of Mr Filat was 97,671 lei, the average monthly income is 8139

lei. Ms. Valentina Filat, the wife, is employed according to Deputy Director in theEnterprise "FILACOL" the average monthly salary of 7558 lei net.Net monthly

average of Filat income is 15,697 lei.

The primary source of repayment

The primary source of repayment of loan and related interest are paid be Mr

Filat and his wife Valentina Filat mentioned above.

Conclusion:

Taking into consideration the 16% annual interest rate on the loan, the loan

term of 84 months and request for payment amount will be equal to 9931 MDL, this


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mean that monthly average of Filat family will be enough to pay off the loan and

calculated payments .

Identification of guaranties

As a guarantee of reimbursement within the requested loan and related interest

payment, Mr. Filat Nicolaie proposes to pledge the property, located at the address of

Moldova, or.Cimislia, str.Suveranitatii specified in the table below.

SUBJECTS OF GUARANTIES Tabel 2.1.2.

Subject of guaranties The guarantie's value (MDL)

Commercial room with total area of 84.5

m2 located in the or.Cimislia,str.Suveranitati and identified by the

cadastrel number 281936583

510000.00

Land on an area of 0.0189 ha land,

cadastrel number 6563763, or.Cimislia,

str.Suveranitatii. Lien extends to fruit,

income, accessories and upgrades

pledged asset.

3000.00

Total 513000.00

Sourse: . Internal regulation of commercial bank Banca de Economii

Real value of the guarantee is 513,000.00 MDL, covering the total amount of

credit in the amount of 500,000.00 lei and related interest for 2 months, which will be

assumed by individual Mr. Filat Nicolaie.

Conclusion :

Taking into consideration the above mentioned security proposed, we consider

it possible to grant credit, as credit to purchase property on the secondary market,amounting to 500,000.00 lei, within 84 months.

Minutes of a Credit committee meeting on a credit granting

MrFilat Nicolaie addressed on April 13, 2010 with a request for a mortgage

loan in the amount of500000 MDL, in term of 84 calendar months, to purchase a

building in Chisinau.

Mr Filat Nicoaie birthday 26.05.1962, identified by ID Series A nr.23525363,

is domiciled at: or.Cimislia, str.Donici nr.235. Mr. Filat has a secondary education,


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confirmed by KT nr.25629809 series diploma, issued by the Cooperative College in

Chisinau, planning department.

As the primary source of repayment of the loan and related interest will serve

Mr. and Mrs. Filat revenus from wages.

Mr Filat is employed starting with 01.01.2004 as director in the SRL Filacol.

The Mr.Filat's net income average for the past 12 months is amounted to 96671

MDL and monthly net income average is 8139 MDL. The Mrs. Filat Valentina's

monthly net income average constituted 7558 MDL. Such monthly net income

average of Filat family is 15697 MDL.

Calculation based on the scoring model the applicant's score is 216 points,

accumulated from the maximum possible 300 points, so thus granting of a the

mortgage is considered possible.

As a secondary source of repayment of the loan will serve up the property

(commercial building), ownerFilat Nicolaie, located at the address: or. Cimislia, str.

Suvenaritatii 11, according to the extract from the register of immovable property

nr.82375084358 of 05/01/2010.

Based on the above information and the set of documents submitted,

It was decided:

Granted Mr Filat Nicolaie a mortgage loan in the amount of 500000 MDL,

within 84 calendar months, with annual interest rate of 16%.

2.2. IMPROVING THE PROCESS OF TAKING THE LENDING DECISION

In fact, most banks reserve the right not to disclose client's refusal reason. Bank

is not obligated to grant credit, the decision to award comes as a result of analyzing a

series of complex factors and is at least strange to expect the Bank to respond

positively to all requests absolute credit. Although the status of "good customer"


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varies from bank to bank, take a refusal received from a bank and does not refuse all

others.

The truth is that all credit requests are satisfied only one third, which the local

banking system is a high index. Are denied both individuals and legal entities.Reasons would be endless. Below I present proposals that deserves to be made by

bank for to avoid credit risks.

Detailed analysis of the revenue problem.

1) Insufficient. Given that revenues are insufficient for the desired credit

contraction, the Bank may accept income spouse, partner, parent or other

person. Person will be liable to the credit quality of the loan contract and

must meet the same eligibility criteria.

2) Unconfirmed. Banks should not assume the risk of accepting

unconfirmed income as the primary source of repayment. Period wage

envelope increasingly gives way to official salaries.

3) False. One of the hardest cases to be diagnosed. Are frequent cases when

the employee request the employer to issue a false certificate, which

confirms that given employee receives a specific salary, in fact higher

than real or employee has received a considerable amount of money overa certain period. At first glance these seem true and accurate certified,

and can not arouse suspicion if not to limit the amounts fantastic.

Rigorous analysis of indebtedness (debt limit threshold).

Indebtedness is estimated by the following principles: Credit monthly payments

relative to net income of the applicant (PTI) - this ratio should not exceed 35-

40%;Credit monthly payments plus monthly payment obligation (OTI) (such as rent,

child support pensions, pay for other existing loans, etc..) Reported net income of theapplicant - this ratio should not exceed 45 - 50%.Depending on the size of these

indicators, the bank must detect the potential client has financial limits. In other

words, banks should not grant credit if you: salary is 1,500 lei customer and

repayment schedules monthly payment to be paid is 800 or 1000 lei.

Founding a unique system of history of outstanding credit.


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Banks need to do this. Although credit bureaus still not working in full force,

banks must go on record its "outstanding loans. Banks must to not grant credits if its

clients have any existing outstanding loans.

Accepted age of the potential client.

Per generally, banks must give credit to the age of 21 years. Those who do not

meet this age requirement, while engaged in field work, are financially independent

of parents, nothing to do but wait for the fulfillment of 21 years or give up credit.

Also another part of the problem is client's age limit retirement threshold. A woman

or a man 56 years to 61 years are most likely to succeed not borrow since they are at

retirement age limit: 57 and 62 years respectively. And banks need to attract a great

attention to this detail.

Attention to job placement .

When commercial banks launched various loan products, they determine the

estimated range of potential customers. Estimates based on data, it elaborates certain

eligibility criteria, which required banks must consider them when it comes to

granting credit. One of the prerequisites for most banks is the arrangement of a

permanent place of work in the last 6 (six) months. Not collected 4 months or 5

months and a half. Strictly 6 months.

The necessity of large enoughcollateral requirements.

Requirements in excess of pledge or simply offering to serve as a good credit

guarantee, which applies when the product cases require mortgage crediting

sometimes puts the client in bewilderment. Value of collateral may be insufficient. It

is one of the most common problems. Home mortgage offers its clients, and at a time

are satisfied that the value is not good enough. Banks must take into consideration the

value of collateral, which is approx. 70-80% of the market value of the goods offered

(for immovable property).

Detailed research of credit destination.

Bank should give loans only for lawful purposes, do not contravene the laws of

the country. This is one of the basic principles, although more often are encountered

unnominated for lending products. "Unnominated" must not be" for anything,

including weapons, drugs and trafficking in women. "Any" means any ordinary

necessity, so buying that does not infringe the moral and legal rules.

Avoiding false documents.


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There are frequent cases when clients deny or conceal about the existence of other

loans or credit cards. Bank should refuse or ask for customer set of documents if it

finds that the package of documents submitted is incomplete or some of the

provisions are outdated or have lost their validity.

Small credit sum - unprofitable for the bank.

Even if customers are positive acts are fine, stable source of income, it would be

good to not grant loans, arguing that the requested loan amount is too small and the

bank is not profitable to grant them such loans.

Exercise capacity.

Person's exercise capacity is the ability to exercise and to assume obligations,

committed legal acts. How does the bank determine the client's ability to exercise? At

the initial stage: After the way he speaks and formulate thoughts, how they react and

respond to questions. During the development of credit - depending on how that has

fulfilled its obligations to pay and how it behaves.

Criminal record.

Like exercise capacity, criminal record can have serious effects, the bank should

refuse to give these customers.

Conclusions


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In the process of credit analysis, loan officers follow the general principles of

lending activity, that all the conditions specific to each category of loans requested,

and a common procedure underlying fundament lending decision.

In the economic analysis - financial activity and the trustworthiness of theirclients, officers follow existing loan repayment capacity of borrowers for the entire

period of loan classification and the total volume of loans and interest in the

possibility of their redemption. process analysis capacity for repayment of borrowed

economic agents, loan officers use besides portfolio of contracts and orders available

to the customer and cash - flow - your forecast, calculation formula, which

extrapolates future in average daily revenues achieved last quarter and its volume

determined using credits for which the borrower will have the financial capacity

needed for reimbursement.

Report us to the said above, we can appreciate the fact that detailed knowledge

of techniques for analyzing the request for credit and making a decision on solvency,

we will always warn that the process is not complete until we will not form an

opinion and about the applicant.

In this context we can talk about the factors that would summarize the overall

picture of a potential borrower.

Character, reputation, and if the debtor can meet the requirements of integrity

and abilities.

Quality of management and if it is able to direct activities to allow the

company to repay the loan

Purpose and use of credit

Cash flow- indicates that the operation will generate sufficient cash for the

company to repay the loan in full and on time

Guarantees- The situation may be worsen: if such happens and cash flow does

not allow reimbursement of the loan, the guarantee must be sufficient, be

received without any problems and on time.

Development of the credit program is made depending of the company's financial

balance( liquidity, solvency, the debts level), managerial capacity, the company's

profitability, ensure the production selling and profitable recovery.


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The risk management of crediting banking activity implies identification and

analyze of risks and factors influence, and also statistical study of risks that affect

banking crediting activity. The statistical study offers a full and rigorous image of

probability that one of the stipulated risks may occur, and the crediting activity of the

bank may become risky.

The most important bank operation is crediting. Among bank's investments

credits hold the most important place. The welfare of the bank depends on the way

the bank manage its funds.


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Bibliography:

1.Financial Institutions Law nr. 550-XIII from 21.07.1995

2. Law on pledge nr. 838 XIII from 23.05.1996;

3.Law on Entrepreneurship and enterprise nr. 845 XII from 03.01.1992;

4.Instruction of National Bank of Moldova on loans nr. 8/1001 from 02.02.1996

5.Regulation on the banks lending activity operating in Republic of Moldova

6.Internal regulation of commercial bank Banca de Economii

7.Civil Code and Civil Procedure Code of Republic of Moldova

8.Penal Code of Republic of Moldova

9.Caragangiu An., Iliade Gh.Moneda si Credit. Chisinau: ASEM, 2004.-249 p.

10.Manolescu Gh. Moneda si Credit. Bucuresti: Fundatia Rominia de Mine,

2004.-169 p.

11.Basco C., Dardac N. Moneda,credit,banci.Bucuresti: Editura didactica si

Pedagogica,2003.-374 p.

12. Basco C., Dardac N.Operatiuni Bancare. Bucuresti: Editura didactica si


13.Dedu V.Gestiune Bancara. Bucuresti: Editura didactica si


14.Berea A. Strategie bancara. Bucuresti: Editura Expert,2001.-319 p.

15.Manolescu Gh., Diaconescu A. Bucuresti: Rominia de mine,2001.-358 p.

16.http :// www .bem .md /ro /physicalpersons /Credite /

17.http :// www .biblioteca .ase .ro /

18.http://www.bnm.md/md/law_fin_institutes?redirect=1

19.http://www.creditriskmgt.com/onlinemanuals.html

20.http://www.rockdalecounty.org/docs/SWManual.pdf
http://www.bem.md/ro/physicalpersons/Credite/http://www.biblioteca.ase.ro/http://www.bnm.md/md/law_fin_institutes?redirect=1http://www.creditriskmgt.com/onlinemanuals.htmlhttp://www.rockdalecounty.org/docs/SWManual.pdfhttp://www.bem.md/ro/physicalpersons/Credite/http://www.biblioteca.ase.ro/http://www.bnm.md/md/law_fin_institutes?redirect=1http://www.creditriskmgt.com/onlinemanuals.htmlhttp://www.rockdalecounty.org/docs/SWManual.pdf


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ANNEX 1

APLICATION FORM FOR A CRETID REQUEST

General Information:

Full name of the company _________________________________________________;Legal Address _________________________________________________________________;Effective Address _________________________________________________________________;

Phone, fax____________________________________________________________________;Economic activities ___________________________________________________.Legal Department:

Registration number _____________________________________________________________;

Registration date______________________________________________________________;Size of statutory capital _____________________________________________________;State share or withholding ___________________________________________________.Existing Accounts:

MDL Current Account Number. ______________________in bank _______________________USD Current Account Number _____________________in bank _______________________

EURO Current Account Number _______ _____________________in bank _______________________

Credit application:By this, I request a loan from the Banca de Economii:Amount requested _________________________________________________________________;

Requested term _______________________________________________________________;Mode of requested credit granting_________________________________________;

Purpose use _________________________________________________________________;Grace period for paying the interest _________________________________;

Grace period for payment of credit _______________________________.Proposed Guarantees:

The primary source of repayment __________________________________________________________________________________________________________________________________;

Secondary source of repayment _____________________________________________________ ____________________________________________________________________________ .

________________________ _________________

date Signature of applicant

Deposited to the bank on________________

Signature of applicant ________________

Signature of the bankresponsible person ______________


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2.3 Own contribution to purchase real estate

a)30-40% 20

b)40-50% 50

c)>50% 70

2.4 Monthly mortgage rate

a)30-40%from family's net income 70b)40-50% from family's net income 60

c)50-60% from family's net income 50

d)>60% from family's net income 10

2.5 Existence of other financial liabilities

a)the due date previously requested loan maturity 0

b)the due date after requested loan maturity 10

c)there are no other liabilities 15

2.6 Credit history

a)previously received loans repaid in full and on time 15

b)has not received loans from the bank 5Total score of the applicant 300 point maximum

Source: Regulation on the banks lending activity operating in Republic of Moldova


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ANNEX 3

Economic and technical arguments form

General Information:

Full name of the company_________________________________________________Legal address_________________________________________________________________Effective Address_________________________________________________________________

Phone, fax_____________________________________________________________________Economic activities___________________________________________________

Short description of current activity_____________________________________________Existing Accounts:

MDLCurrent Account Number. ______________________in bank _______________________USD Current Account Number_____________________in bank _______________________

EURO Current Account Number_______ _____________________in bank _______________________Legal Department:

Creation Date________________________________________________________________ ;Registration number_____________________________________________________________;

Registratin date______________________________________________________________;

Size of statutory capital_____________________________________________________;State share or withholding ___________________________________________________.

Company Founders:

Name Registration number or

ID number

Corporate or home

address

Percentage

share(%)

Owner of whose

enterprise is also

Affiliated companies:

Name Basic activity

- Company Founder:

- Ments Companies

- Associates Companies

Director:

Participation share in company capital _______________________________________;Date and place of birth ___________________________________________________________;ID number_______________________________________________________;

Residence ____________________________________________________________________ ;Actual place of residence ___________________________________________________________ ;Studies_________________________________________Chief Accountant:

Participation share in company capital _______________________________________;

Date and place of birth ___________________________________________________________;ID number _______________________________________________________;

Residence ____________________________________________________________________ ;Actual place of residence ___________________________________________________________ ;

Studies __________________________________________

Other directors:

Name Position ID number Date and

place of

birth

General

Internship

Work

General

Internship Work

in the company

Studies

Enterprise staff:

Position Number of staff Wage (MDL)

Production potential:

Adres Ownership or lease Year of production or putting

into execution

- Production Rooms

- Storage rooms

- Vehicles


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- Machinery

Fixed Assets:

Fixed

Assets

Initial

cost

Residual

cost

Physical

wear

Obsoles

cence

Date of

production or

putting into

execution

Potential Enterprise utilization

potential

Insurance policies:

Insurance must contain forms that are currently valid, including the transportation, fixed assets

Insurance Form Insurance policynumber

Name of issuer Issue date Validity Insurance cost

Credit request:

Requested loan size

Requested loan term

Mode of requested credit grantingRequested interest rate

Number of repayments per year

The number of grace periods

Reimbursement calculated rate

Grace period on interest rates

Project Timetable:

Project launch date ________________________________________________________ ;

Project finish date ________________________________________________________ ;

The primary source of payment:

Revenue Source Sum Term Destination

The secondary source of payment:

The guarantie

name

Quantity Measurement

Unit

Price per unit The total

amount ot theapplicant prices

Debtor pledger

Production schedule:

Name

Production/goods/services

Volume Share(%)

- Product range

- Assortment planning

Suppliers:Suppliers name Country Percentage of total

volume

Subject

providing

Number, time

and date ofcontract

performance

Period of

collaboration

- current

- potential

Clients:

Clients Name Country Percentage of totalvolume

Subjectproviding

Number, time anddate of contractperformance

Period ofcollaboration

- current

- potential

Competitors:


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Companyname

anditslocation

ProductName

Productpriorities

Product

shortcomings

Wholesaleprice

andretail

Methodsofproduct

releaseandad

Production

Methods

Marketshare

Salesvolume

Expected Quarterly Reports:

1. Calculation of working capital requirements:

Position name I Quarter II Quarter III Quarter IV Quarter Total annual

1.Current assetsExpenditure on goods and materials

Debtor receivables

Reserves of money

2.CURRENT LIABILETIES

Debtor liabileties

3.NEEDS IN CURRENT ASSETS

2. Revenue and expenditure forecasting:Indicators 1

Month

2

Month

3

Month

4

Month

5

Month

6

Month

7

Month

8

Month

9

Month

10

Month

11

Month

12

Month

1 year

total

Revenue from sales

Production

expenditures

Gross profit

Expentirues on

interest

Income tax

Net profit

Loan repaid

Available profit

Cumulative profits

3. Cash Flow Forecast:

Indicators 1

Month

2

Month

3

Month

4

Month

5

Month

6

Month

7

Month

8

Month

9

Month

10

Month

11

Month

12

Month

1

yeartot

al

Initial financial resources

Loans

Sales (income)

TOTAL INPUT

Investments

Current expendituresExpenditures on interst

Income tax

Interest rate

TOTAL OUTPUT

Surplus / deficit

4. Forecasted balance sheet:

Indicators 1Mon

th

2Mon

th

3Mon

th

4Mon

th

5Mon

th

6Mon

th

7Mon

th

8Mon

th

9Mon

th

10Mon

th

11Mon

th

12Mon

th

1year

total

TOTAL ASSETS

Long term assets

Fixed Assets

Reserves andExpenses

Currents Assets

Financial resourse


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Stocks

eceivabels

Ather currents assets

TOTALLIABILETIES

Owner equity

Statutory Fund

Reserve and funds

Undistributed profit

Long term debts

Short term debts

Curent liabileties

___________________________ _________________________

Date ofsubmitted argumentation Signature of applicant

CALCULATED CREDIT SCORING Tabel2.1.1.


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Assessment of applicants' eligibility factors in

mortgage lending

Values Estimated

Score

1 General infirmation 50 points

maximum

1.1 Agea)21-26 years old 3

b)27-45 years old 4 4

c)45-54 years old 1

1.2 Familiar situation

a)married, both working 8 8b)unmarried, divorced 6c)married, only one family member works 4

1.3 Number of people in maintenance

a)no more than 2 people 8 8b)no more than 3 people 6

c)4 and more peolpe 3

1.4 Residence status

a)private property 7 7

b)rent property 1

c)first degree relatives' property 4

1.5 Education and professional training

a)no studies 0

b)secondary education 2c)specialized secondary education 3d)incomplete higher 4 4

e)higher 8

1.6 Work

a)own business 6b)employee 8c)division chief 10 10d)student 1

e)unemployed 01.7 Duration of work at present

a)>5 years 5 5

b)1-5 years 4

c)


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a)coincidence of declared income with documents 40 40b) income gap between the declared and confirmeddocumentary

20

2.2 Existence of other tangible assets

a)yes 40 40b)no 10

2.3 Own contribution to purchase real estate

a)30-40% 20 20

b)40-50% 50

c)>50% 70

2.4 Monthly mortgage rate

a)30-40%from family's net income 70

b)40-50% from family's net income 60

c)50-60% from family's net income 50 50d)>60% from family's net income 10

2.5 Existence of other financial liabilities

a)the due date previously requested loan maturity 0b)the due date after requested loan maturity 10c)there are no other liabilities 15 15

2.6 Credit history

a) previously received loans repaid in full and on time 15b)has not received loans from the bank 5 5

Total score of the applicant 300 pointsmaximum

216 points

Documents

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