IBSL Diploma in Corporate Banking Exam cheat sheet

Credit analysis starts from cash flow: DSCR = (EBITDA − taxes − capex) ÷ (interest + scheduled principal); a DSCR below 1.20x is generally treated as tight for senior secured term debt.

Leverage is measured two ways: Total Debt/EBITDA (stock) and Debt Service Coverage (flow); covenant packages typically set a leverage ceiling and a DSCR floor, tested quarterly on the borrower's reporting calendar.

Facility structuring matches tenor to asset life: revolving credit for working capital (seasonal, clean-down tested annually), term loan for capex, and overdraft for short liquidity gaps.

Security ranking determines recovery: first-ranking fixed charge over real estate and plant, floating charge over inventory and receivables, plus assignment of receivables and insurance proceeds.

Negative pledge prevents the borrower granting security to other lenders without consent; it is a covenant, not a security interest, and is often paired with a pari passu clause.

Events of default typically include payment default, breach of financial covenant (after cure period), cross-default above a threshold, material adverse change, and insolvency filing.

Guarantees are classified as joint and several (each guarantor liable for the whole) versus several (proportionate); the guarantee limit and release conditions must be documented.

Know-your-customer and anti-money-laundering checks (beneficial ownership, source of funds, sanctions screening) precede facility approval; sanctions hits require escalation, not silent rejection.

Pricing is built as a reference rate plus a credit spread adjusted by leverage grid; fees include arrangement, commitment (on undrawn), and agency fees.

Letters of credit: a documentary credit is an independent undertaking of the issuing bank; payment depends on compliant documents, not on the underlying goods.

UCP 600 sets the standard for documentary credits: 5 banking days for examination, and documents must be presented within 21 calendar days of shipment unless the credit states otherwise.

Incoterms allocate cost, risk and insurance: under CIF the seller arranges carriage and insurance to the named port; under FOB risk passes when goods are on board.

Supply chain finance (reverse factoring) lets a buyer's strong credit rating fund supplier receivables early; it is off-balance-sheet for the buyer only if structured as a trade payable, not debt.

Cash management: notional pooling offsets debit and credit balances across accounts without physical transfers; zero-balance accounts sweep to a master account daily.

Relationship management uses share-of-wallet metrics: products per client, fee income versus net interest income, and cross-sell ratio; a single-product client is a retention risk.

Syndicated lending: the arranger underwrites and syndicates; the agent bank administers drawdowns and covenant testing; the security trustee holds security for all lenders.

Expected loss = PD × LGD × EAD; unexpected loss is covered by economic capital, and regulatory capital under Basel III uses the standardized or internal-ratings approach.

Basel III liquidity ratios: LCR = high-quality liquid assets ÷ net cash outflows over 30 days (minimum 100%); NSFR = available stable funding ÷ required stable funding (minimum 100%).

CET1 capital ratio = common equity tier 1 capital ÷ risk-weighted assets; the leverage ratio = tier 1 capital ÷ total exposure measure (Basel minimum 3%).

Concentration risk limits cap single-borrower and single-group exposure as a percentage of the capital base; large-exposure rules require regulatory notification above thresholds.

Country and transfer risk: cross-border lending adds sovereign risk and currency convertibility risk; mitigation includes export credit agency cover and political risk insurance.

Stress testing scenarios a corporate portfolio on PD migration and collateral haircuts; reverse stress testing identifies the loss level that breaches the risk appetite.

Watchlist and early-warning signals: deteriorating DSCR, covenant headroom erosion, late filings, auditor qualification, and payment delays are escalation triggers.

Loan classification for provisioning: performing, underperforming and non-performing; NPLs are typically loans 90+ days past due, with stage-based expected credit loss under IFRS 9.

Working capital cycle = inventory days + receivable days − payable days; a lengthening cycle signals liquidity strain and drives the size of a revolver.

Term sheet components: amount, tenor, pricing, fees, security, financial covenants, information undertakings and conditions precedent - all binding only once documented.

Conditions precedent to first drawdown usually include executed security documents, insurance assignment, legal opinions and KYC completion.

Hedging: interest rate swaps convert floating to fixed; cross-currency swaps hedge principal and interest; caps provide protection with an upfront premium and no obligation below the strike.

Project finance relies on non-recourse or limited-recourse debt repaid from project cash flow; lenders require completion support, debt-service reserve accounts and a cash waterfall.

Bond versus loan decision: a bond offers longer tenor and public liquidity but requires a rating and disclosure; a loan offers flexibility and confidentiality with covenant monitoring.

Financial covenants must be defined precisely (which EBITDA, add-back limits, measurement date) because ambiguity creates dispute risk at testing.