BOI Credit Officer flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Current ratio
- Current assets divided by current liabilities. It measures short-term liquidity and the ability to meet obligations due within one year from assets convertible to cash within the same period.
- Cash conversion cycle
- Days inventory outstanding plus days sales outstanding minus days payable outstanding. It shows how long cash is tied up in operations before collection from customers.
- Debt service coverage ratio
- Cash available for debt service divided by scheduled interest and principal payments. Lenders use it to test whether operating cash flow comfortably covers repayment obligations.
- Tangible net worth
- Total equity less intangible assets and unrealised revaluation reserves. It represents the cushion available to absorb losses before creditors are impaired.
- Quality of earnings
- An assessment of whether reported profit is supported by operating cash flow and recurring business activity, excluding one-off gains, aggressive recognition, or capitalised costs.
- Expected loss formula
- Expected loss equals probability of default multiplied by loss given default multiplied by exposure at default. It estimates the long-run average credit loss on an exposure.
- Loss given default
- One minus the recovery rate. It reflects the share of exposure expected to be lost after collateral realisation and workout costs if the borrower defaults.
- Altman Z-score
- A weighted combination of five financial ratios covering liquidity, retained earnings, profitability, leverage, and asset turnover, used to screen manufacturing companies for bankruptcy risk.
- Rating migration
- The movement of obligors between rating grades over a period. Clustering of downgrades signals deteriorating credit quality across a portfolio or sector.
- Maintenance covenant
- A financial test the borrower must satisfy at each testing date throughout the loan, such as a maximum leverage ratio or minimum interest coverage.
- Negative pledge
- A covenant prohibiting the borrower from granting security over assets to other creditors without lender consent, protecting the lender's ranking on default.
- RAROC
- Risk-adjusted return on capital equals risk-adjusted income divided by economic capital. It compares profitability across transactions after charging for credit risk.
- Cross-default clause
- A provision making default on one obligation an event of default on another, allowing lenders to accelerate their facility when other creditors are triggered.
- Security perfection
- The legal steps required to make a security interest enforceable against third parties, such as registration, valuation, and notice to the relevant registry.
- Early warning signal
- An observable indicator of rising credit risk, such as payment delays, limit excesses, covenant breach, auditor qualification, or sudden management departure.
- Non-performing loan ratio
- Non-performing loans divided by gross loans. It measures the share of the portfolio on which repayment is impaired or overdue beyond the defined threshold.
- Coverage ratio
- Loan loss provisions divided by non-performing loans. It shows how much of the impaired book is already provided for against expected losses.
- Cost of risk
- Provision charge for the period divided by average loans outstanding. It expresses credit losses as an annual percentage of the lending book.
- Forbearance
- A concession granted to a borrower in financial difficulty, such as payment deferral or rate reduction, which must be flagged and monitored for exit.
- Recovery waterfall
- The order in which proceeds are applied on default: enforcement costs, then interest, then principal, then unsecured claims, with secured creditors paid first.
- IFRS 9 three stages
- Stage 1 applies twelve-month expected credit loss, Stage 2 lifetime loss after significant credit risk increase, Stage 3 lifetime loss on credit-impaired assets.
- Write-off
- The accounting removal of an uncollectible loan from the balance sheet against provisions. It does not extinguish the legal right to pursue recovery.
- Liquidity coverage ratio
- High-quality liquid assets divided by net cash outflows over thirty days. It requires banks to hold enough liquid assets to survive a short stress period.
- Net stable funding ratio
- Available stable funding divided by required stable funding. It promotes medium- and long-term funding of illiquid assets to reduce structural liquidity mismatch.
- Duration gap
- Asset duration minus the ratio of liabilities to assets multiplied by liability duration. It measures sensitivity of economic value of equity to interest rate changes.
- Repricing gap
- The difference between rate-sensitive assets and rate-sensitive liabilities in a time bucket. A positive gap benefits from rising rates.
- Connected lending limits
- Rules capping credit to directors, shareholders, and related parties, usually requiring board approval, arm's-length terms, and disclosure to the regulator.
- Customer due diligence
- The process of identifying customers, verifying beneficial ownership, understanding the purpose of the relationship, and monitoring activity for money laundering risk.
- Large exposure rule
- A regulatory cap on total exposure to a single counterparty or connected group, expressed as a percentage of the bank's eligible capital base.
- IFRS 16 leases
- Lessees recognise a right-of-use asset and lease liability for most leases, increasing reported debt and EBITDA and requiring ratio adjustment before comparison.
- Deferred tax asset
- A balance sheet item arising from temporary differences or tax losses that will reduce future tax payable, recognised only when future taxable profit is probable.
- Three lines of defence
- Business units own risk, risk and compliance functions oversee it, and internal audit provides independent assurance to the board and its committees.