KASNEB CCP key terms

The granting of money, goods or services now in exchange for a promise of repayment later, usually with interest or a fee. It transfers temporary purchasing power from lender to borrower.

A written set of rules guiding how a lender grants, monitors and collects credit, including eligibility criteria, limits, pricing and escalation routes. It keeps lending decisions consistent and aligned with the institution's risk appetite.

The structured assessment of a loan request before approval, covering the borrower's character, capacity, capital, collateral and conditions. It tests whether the borrower can and will repay as agreed.

A framework for judging a borrower across Character, Capacity, Capital, Collateral and Conditions. Each element probes a different repayment dimension, from willingness to pay to the borrower's financial strength and the operating environment.

The borrower's demonstrated willingness and integrity in meeting obligations, inferred from repayment history, references and reputation. It addresses intent to repay rather than sheer financial ability.

The borrower's ability to generate enough cash flow to service debt from normal operations. Lenders test it through income statements, cash-flow projections and debt-service coverage ratios.

An asset pledged by a borrower to secure a loan, which the lender may realise if the borrower defaults. It reduces loss severity but does not by itself make a weak borrower creditworthy.

The legal right or asset interest a lender holds over a borrower's property to support repayment. It may be real (land, buildings) or personal (charges over movable assets, guarantees).

The legal steps that make a lender's security interest enforceable against third parties, such as registration, filing or taking possession. Unperfected security may fail against a liquidator or later creditor.

A legal arrangement giving a lender rights over a borrower's property as security for a debt, while ownership may remain with the borrower. It may be fixed over specific assets or floating over changing assets.

Security over a class of assets that the borrower may deal with in the ordinary course of business until the charge crystallises on default or insolvency. It gives flexibility but weaker control than a fixed charge.

A promise by a third party to pay a borrower's debt if the borrower fails to do so. It gives the lender an additional source of repayment and a separate party to pursue.

The maximum amount of credit a lender is prepared to extend to a borrower at any one time. Exposures are monitored against the limit, with breaches triggering review or refusal of further drawings.

The amount a lender stands to lose if a borrower defaults, including drawn balances, undrawn commitments and accrued interest. It is the base figure for measuring and limiting credit risk.

The possibility that a borrower will fail to meet repayment obligations in full and on time. It is the principal risk in lending and is managed through appraisal, limits, monitoring and provisioning.

A failure by a borrower to meet a contractual obligation, such as missing a payment or breaching a covenant. Default may be technical (covenant breach) or actual (non-payment) and usually triggers recovery action.

Amounts that are overdue and unpaid past their due date. Persistent arrears are an early warning of deteriorating credit quality and feed into classification and provisioning decisions.

A loan on which the borrower has stopped making payments for a defined period, commonly 90 days or more. Such loans attract higher provisions and closer recovery attention.

An amount set aside in the accounts to absorb expected credit losses on loans. It reduces reported profit and builds a buffer against identified and anticipated defaults.

A statistical method that converts borrower characteristics into a numerical score predicting the likelihood of repayment. Scores support faster, consistent decisions and can be applied at application or behavioural stages.

A licensed entity that collects and shares borrowers' credit histories with lenders. It helps lenders assess character and existing obligations, and supports responsible lending across the market.

A measure of a borrower's cash flow available for debt payments divided by total debt service due. A ratio above one indicates sufficient earnings to cover repayments; below one signals strain.

The loan amount expressed as a percentage of the value of the asset securing it. Higher ratios mean less equity cushion and greater loss severity if the asset must be realised.

The movement of money into and out of a business over a period. Lenders focus on operating cash flow because debt is serviced with cash, not accounting profit.

A condition in a loan agreement requiring the borrower to do or refrain from certain things, such as maintaining ratios or limiting further borrowing. Breach typically constitutes an event of default.

The contract setting out the terms of credit, including amount, interest, repayment schedule, covenants and events of default. It defines the legal rights and duties of lender and borrower.

The process of pursuing repayment from a defaulting borrower through negotiation, restructuring, security realisation or legal action. Its aim is to maximise amounts recovered while controlling cost and time.

Changing the terms of a loan, such as extending maturity, lowering interest or rescheduling repayments, to help a distressed borrower recover. It may preserve the relationship but can mask underlying weakness.

The formal removal of a loan from the books as unrecoverable after recovery efforts are exhausted. It does not necessarily extinguish the borrower's legal obligation, which may still be pursued.

The process of identifying and verifying a borrower's identity and understanding their business before providing services. It supports anti-money-laundering compliance and sound credit decisions.

Laws and procedures requiring institutions to detect, report and prevent the use of the financial system to disguise criminal proceeds. Lenders must screen customers and report suspicious transactions.

Techniques that reduce potential credit losses, such as taking collateral, guarantees, insurance or netting arrangements. Effective mitigation lowers loss given default and may reduce capital requirements.

The danger of excessive exposure to a single borrower, sector, region or product, so that one adverse event causes large losses. It is controlled through exposure limits and diversification.

Ongoing review of a borrower's performance and circumstances after drawdown to detect deterioration early. It uses account conduct, financial updates and market signals to trigger timely action.

Indicators that a borrower's credit quality may be deteriorating, such as missed payments, excess drawings, declining sales or adverse market news. Spotting them early allows preventive intervention.

The price charged for the use of borrowed money, expressed as a percentage of principal per period. It compensates the lender for time, risk and administrative cost.

The length of time over which a credit facility is granted or a loan is scheduled to be repaid. Longer tenors generally carry more risk and often higher pricing.

A financial state in which a person or company cannot pay debts as they fall due, or whose liabilities exceed assets. It often precedes formal liquidation or administration proceedings.