BOI Credit Officer cheat sheet

Current ratio = current assets / current liabilities; quick ratio excludes inventory and prepayments. A quick ratio below 1.0 signals reliance on inventory conversion or refinancing.

Cash conversion cycle = days inventory outstanding + days sales outstanding − days payables outstanding; a lengthening cycle absorbs working capital and precedes liquidity stress.

EBITDA interest coverage = EBITDA / interest expense; DSCR = (net operating income or cash available for debt service) / (interest + scheduled principal). Lenders typically require DSCR above 1.20x–1.50x.

Debt-to-equity = total liabilities / tangible net worth; tangible net worth = equity − intangible assets − revaluation reserves not realized in cash.

Quality of earnings checks: operating cash flow should track EBITDA over time; persistent gaps indicate aggressive revenue recognition, capitalised costs, or receivable build-up.

Common-size analysis expresses each income statement line as a percent of revenue and each balance sheet line as a percent of total assets, enabling comparison across periods and peers.

Altman Z-score (public manufacturers): 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5, where X1 = working capital/assets, X2 = retained earnings/assets, X3 = EBIT/assets, X4 = market value equity/total liabilities, X5 = sales/assets; below 1.81 is distress zone.

Off-balance-sheet exposures (operating leases, guarantees, factored receivables with recourse, SPEs) must be added back to liabilities before computing leverage ratios.

Expected loss = PD × LGD × EAD. Pricing must cover expected loss plus operating cost plus capital charge; unexpected loss is absorbed by capital.

Probability of default is a through-the-cycle or point-in-time estimate; LGD = 1 − recovery rate, driven by collateral type, seniority, and workout costs.

Rating scale mapping: investment grade typically AAA to BBB−; sub-investment grade BB+ and below. Internal grades must map to regulatory buckets for capital and provisioning.

Five Cs of credit: character, capacity, capital, collateral, conditions. Capacity (cash flow) is the primary repayment source; collateral is secondary.

Scorecard validation uses discriminatory power metrics: Gini coefficient and AUC (accuracy index); AUC of 0.5 is random, above 0.70 is generally acceptable for retail models.

Migration analysis tracks rating transitions over a horizon; upward migration of watchlist names and clustering of downgrades indicate portfolio deterioration.

Concentration risk limits: single obligor, single group, sector, and geographic caps; large exposure rules cap exposure to a single client or connected group as a percentage of capital.

Repayment structure should match cash flow: amortising for stable cash flows, bullet or balloon for project or trade finance with defined exit refinancing.

Covenants: maintenance covenants tested periodically (e.g., DSCR ≥ 1.25x, leverage ≤ 3.0x); incurrence covenants tested only on defined actions such as new debt or dividends.

Pricing build-up: cost of funds + expected loss (PD × LGD) + operating cost + capital charge (RAROC hurdle) + margin; RAROC = risk-adjusted return / economic capital.

Security perfection: register charges in the correct registry (e.g., company charges registry, movable property registry), obtain valuations, and ensure priority ranking is documented.

Negative pledge prevents the borrower from granting security to other lenders; cross-default links default on one facility to default on others.

Loan agreement essentials: parties, facility amount and purpose, availability period, interest and fees, repayment schedule, representations, covenants, events of default, governing law.

Base rate plus margin pricing must state the benchmark (e.g., SOFR, EURIBOR, policy rate), reset frequency, and fallback provisions if the benchmark ceases.

Early warning signals: overdue payments, excesses over limits, frequent limit utilisation spikes, bounced cheques, tax arrears, auditor qualification, key management departure, sudden covenant breach.

Account behaviour monitoring: watch for reduced average balances, increased overdraft reliance, delayed financial reporting, and requests for restructuring or covenant waivers.

Watchlist and classification: loans showing well-defined weaknesses are placed on watchlist; subjective classification follows regulatory categories (e.g., standard, special mention, substandard, doubtful, loss).

Portfolio metrics: non-performing loan ratio = NPLs / gross loans; coverage ratio = loan loss provisions / NPLs; cost of risk = provisions / average loans.

Stress testing scenarios apply shocks (rate increase, GDP decline, collateral value drop) to PD, LGD, and EAD to estimate capital impact.

Concentration and correlation: correlated exposures in one sector amplify losses; sector limits and diversification targets are set at portfolio level.

Annual review triggers: scheduled reviews, plus event-driven reviews on rating downgrade, ownership change, large new facility, or adverse market news.

Recovery waterfall: interest and costs first, then principal, then unsecured claims; secured creditors rank ahead within the value of their security.

Forbearance is a concession granted due to financial difficulty; forbearance measures must be flagged and monitored, and typically exit forbearance only after a defined probation period of performance.

NPL resolution options: restructuring, refinancing, enforcement of security, sale of the loan in the secondary market, debt-to-equity swap, or write-off.

Provisioning: specific provisions for individually assessed impaired loans; collective provisions for incurred-but-not-identified losses based on historical loss experience.

Impairment under IFRS 9 uses expected credit loss: 12-month ECL in Stage 1, lifetime ECL in Stage 2 (significant increase in credit risk), and lifetime ECL with interest on gross carrying amount in Stage 3.

Recovery rate estimation should use discounted cash flows at the original effective interest rate and realistic timing assumptions for collateral realisation.

Write-off policy: write-offs do not extinguish the legal claim; recovery efforts continue and recoveries are credited to the provision account.

Basel III capital: Common Equity Tier 1 minimum plus capital conservation buffer; leverage ratio and liquidity coverage ratio and net stable funding ratio are separate constraints.

Risk-weighted assets: credit risk uses standardised or internal ratings-based approaches; credit conversion factors apply to off-balance-sheet commitments.

Large exposure rules limit a bank's exposure to a single counterparty or connected group, generally as a percentage of eligible capital.

KYC and AML: customer due diligence, beneficial ownership identification, ongoing monitoring, suspicious transaction reporting, and record retention obligations.

Consumer protection: fair treatment, transparent disclosure of effective interest rate and total cost of credit, responsible lending and affordability assessment.

Legal documentation enforceability depends on capacity, authority, licensing, stamp duty, registration, and governing law; foreign judgments may require local recognition.

Connected lending and related-party rules restrict credit to directors, shareholders, and their related interests, often requiring board approval and disclosure.

Liquidity ratios: liquidity coverage ratio = high-quality liquid assets / net cash outflows over 30 days (minimum 100%); net stable funding ratio = available stable funding / required stable funding (minimum 100%).

Asset-liability management: gap analysis measures repricing mismatches by time bucket; a positive gap benefits from rising rates, a negative gap from falling rates.

Duration gap = duration of assets − (liabilities/assets) × duration of liabilities; measures sensitivity of economic value of equity to rate changes.

Yield curve shapes: normal upward sloping, inverted, flat, and humped; inversion often precedes recession and compresses net interest margin for maturity-transforming banks.

Funding sources hierarchy: retail deposits, wholesale deposits, senior debt, covered bonds, securitisation, central bank facilities; each carries different stability and cost.

Payment and settlement operations: nostro/vostro reconciliation, intraday liquidity monitoring, and settlement risk management for FX transactions.

Interest rate risk in the banking book includes repricing risk, basis risk, yield curve risk, and option risk from prepayments and early withdrawals.

Accrual accounting matches revenue with expenses in the period earned or incurred; cash accounting records only when cash moves - credit analysis adjusts for both.

IFRS 9 classification: amortised cost if held to collect contractual cash flows that are solely payments of principal and interest; fair value through OCI if held to collect and sell; otherwise FVTPL.

Lease accounting under IFRS 16: lessees recognise a right-of-use asset and a lease liability, increasing reported debt and EBITDA; adjust ratios before comparison.

Deferred tax arises from temporary differences between accounting carrying amounts and tax bases; deferred tax assets require evidence of future taxable profits.

Revenue recognition (IFRS 15) uses the five-step model: identify contract, identify performance obligations, determine transaction price, allocate price, recognise on satisfaction.

Related-party disclosures and contingent liabilities must be reviewed because they can signal hidden obligations not captured in the balance sheet.

Tax adjustments in cash flow: add back non-cash items (depreciation, amortisation, provisions), deduct tax paid, and adjust for working capital movements.

Conflicts of interest must be identified, disclosed, and managed; personal account dealing and gifts/hospitality are subject to pre-clearance and threshold limits.

Credit decisions must be documented with the rationale, sources of repayment, risk mitigants, and any policy exceptions approved at the correct authority level.

Segregation of duties: origination, credit approval, disbursement, and monitoring should be performed by separate functions to prevent fraud and override.

Whistleblowing channels must allow confidential reporting of misconduct without retaliation; breaches of law or policy are escalated to compliance and audit.

Insider information and client confidentiality: information obtained in the credit process may not be used for personal trading or shared outside permitted purposes.

Board and committee governance: independent directors, audit committee oversight of financial reporting, risk committee oversight of risk appetite, and three lines of defence.

Ethical lending requires accurate representation of product costs, no mis-selling, and refusal of transactions linked to financial crime or sanctioned parties.