Chartered Banker Institute Qualifications Credit, Lending and Risk Management Syllabus

Credit, Lending and Risk Management syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Credit, Lending and Risk Management in Chartered Banker Institute Qualifications, not a summary of it.

1. 1

   Principles of Lending and Credit Assessment

   5 topics

   • Canons of lending frameworks
     • CAMPARI (Character, Ability, Means, Purpose, Amount, Repayment, Insurance)
     • The 5 Cs of credit
   • Assessing affordability and creditworthiness
     • Income verification and debt-to-income ratios
     • Credit reference agency data and credit scoring
     • Responsible lending under CONC
   • Personal versus business lending propositions
   • Security and collateral
     • Types of security: charges, guarantees, debentures
     • Valuation, margin and perfection of security
   • Pricing of loans and risk-based pricing
2. 2

   Business and Corporate Lending

   5 topics

   • Interpreting business financial statements
     • Profit and loss, balance sheet and cash flow analysis
     • Key ratios: liquidity, gearing, profitability, coverage
   • Working capital and trade finance
     • The working capital cycle
     • Invoice finance and asset-based lending
   • Term lending and capital expenditure finance
   • Syndicated and structured lending
   • Covenants, monitoring and early warning indicators
3. 3

   Credit Risk Management

   5 topics

   • Components of credit risk
     • Probability of default, loss given default, exposure at default
     • Expected and unexpected loss
   • Credit risk measurement and rating systems
   • Portfolio management and concentration risk
   • Provisioning and IFRS 9 expected credit loss
   • Credit risk mitigation techniques
     • Netting, collateralisation and guarantees
     • Credit derivatives and securitisation
4. 4

   Problem Debt and Recoveries

   4 topics

   • Identifying financial difficulty
     • Behavioural and account-level warning signs
     • Forbearance options and breathing space
   • Collections strategies and customer treatment
   • Insolvency and personal debt solutions
     • Bankruptcy, IVAs and Debt Relief Orders
     • Company administration and liquidation
   • Enforcement of security and recovery action
5. 5

   Enterprise Risk Management Framework

   4 topics

   • Categories of banking risk
     • Credit, market, liquidity, operational risk
     • Conduct, reputational and strategic risk
   • The three lines of defence model
   • Risk appetite and risk culture
   • Operational resilience and business continuity

Credit, Lending and Risk Management flashcards for Chartered Banker Institute Qualifications

20 of 53 cards from the Credit, Lending and Risk Management deck — real questions with worked answers.

1. What are the traditional "canons of lending" captured by the CAMPARI framework?

   Character, Ability, Margin, Purpose, Amount, Repayment, and Insurance (security). It is a structured checklist a lender uses to assess a credit proposition.

2. What do the mnemonics CCC PARTS and CAMPARI have in common in lending?

   Both are canons-of-lending frameworks. PARTS = Purpose, Amount, Repayment, Term, Security. CCC = Character, Capacity, Capital. They standardise qualitative credit assessment.

3. In affordability assessment, define the Loan-to-Value (LTV) ratio and its formula.

   LTV measures the loan against the value of the asset securing it: $$LTV = \frac{\text{Loan amount}}{\text{Value of security}} \times 100\%$$ A lower LTV means more borrower equity and lower lender risk.

4. What is the Debt-to-Income (DTI) ratio used in personal lending affordability?

   It expresses total debt repayments as a proportion of gross income: $$DTI = \frac{\text{Total monthly debt repayments}}{\text{Gross monthly income}} \times 100\%$$ Higher DTI indicates reduced affordability.

5. How does creditworthiness differ from affordability in lending decisions?

   Creditworthiness assesses willingness and historic ability to repay (credit history, behaviour, character). Affordability assesses whether current and future income/expenditure leaves enough surplus to service the debt. Both must be satisfied.

6. What is a key distinction between personal and business lending propositions?

   Personal lending relies on income/credit scoring and is regulated by consumer protection (e.g. FCA Consumer Credit). Business lending assesses financial statements, business viability, sector risk and cash flow, and is largely outside consumer credit protections.

7. Distinguish a fixed charge from a floating charge as forms of security.

   A fixed charge attaches to a specific identifiable asset (e.g. property), restricting the borrower's dealings with it. A floating charge hovers over a class of changing assets (e.g. stock, debtors) and "crystallises" into a fixed charge on default or insolvency.

8. What three qualities make an asset good security for a loan (the security checklist)?

   It should be readily Valued, easily Realisable (sellable), and have good Title with clear legal charge (sometimes summarised as MAST: Marketability, Ascertainable value, Simplicity/cost of taking, Title/transferability).

9. What is a guarantee as a form of security, and how does it differ from an indemnity?

   A guarantee is a secondary obligation: the guarantor pays only if the principal debtor defaults. An indemnity is a primary, independent obligation to make good a loss regardless of the principal debtor's liability.

10. State the basic components that make up the price (interest rate) of a loan.

    Cost of funds + expected loss (credit risk premium) + operating costs + cost of capital + target profit margin. Together these build a risk-based price.

11. What is risk-based pricing in lending?

    Setting the interest rate/margin according to the borrower's assessed credit risk: higher-risk borrowers pay a higher margin to compensate for greater expected loss, while lower-risk borrowers obtain finer pricing.

12. Define RAROC (Risk-Adjusted Return on Capital) used in loan pricing.

    $$RAROC = \frac{\text{Revenue} - \text{Costs} - \text{Expected Loss}}{\text{Economic (Risk) Capital}}$$ It measures return relative to the capital at risk, ensuring loans are priced to cover risk and meet hurdle returns.

13. What are the three main financial statements used to assess a business borrower?

    The income statement (profit and loss), the statement of financial position (balance sheet), and the cash flow statement. Together they show profitability, financial position and liquidity.

14. Define the current ratio and what it measures.

    $$\text{Current ratio} = \frac{\text{Current assets}}{\text{Current liabilities}}$$ It measures short-term liquidity — the ability to meet liabilities due within a year. Around 1.5–2:1 is often viewed as healthy.

15. Define the quick (acid-test) ratio.

    $$\text{Quick ratio} = \frac{\text{Current assets} - \text{Inventory}}{\text{Current liabilities}}$$ It is a stricter liquidity test that excludes stock, which may be hard to convert quickly to cash.

16. Define the gearing (leverage) ratio for a business borrower.

    $$\text{Gearing} = \frac{\text{Debt}}{\text{Equity}} \times 100\% \quad\text{or}\quad \frac{\text{Debt}}{\text{Debt}+\text{Equity}}$$ High gearing means heavy reliance on borrowed funds and greater financial risk.

17. Define the interest cover ratio and its significance.

    $$\text{Interest cover} = \frac{\text{Operating profit (EBIT)}}{\text{Interest expense}}$$ It shows how many times profit covers interest payments; a low figure signals vulnerability to servicing debt.

18. What is the working capital cycle (cash conversion cycle)?

    The time between paying for inputs and receiving cash from sales: $$\text{CCC} = \text{Inventory days} + \text{Receivables days} - \text{Payables days}$$ A longer cycle ties up more cash and increases working capital need.

19. Name three common forms of trade finance used to support working capital.

    Documentary letters of credit, documentary collections, and invoice finance (factoring/invoice discounting). Bank guarantees, bonds and supply-chain finance are also used.

20. How does factoring differ from invoice discounting?

    In factoring the lender manages the sales ledger and collects debts (often disclosed to customers). In invoice discounting the borrower retains ledger control and collection, and the arrangement is usually confidential.

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