IBSL Diploma in Corporate Banking Exam common mistakes
IBSL Diploma in Corporate Banking Exam · Understand the traps and how to avoid them.
Calculating credit ratios (debt/EBITDA, interest cover, gearing) from a case's financials without first restating the figures for off-balance-sheet items, operating leases, or one-off gains, then quoting a covenant headroom that ignores those adjustments.
Candidates learn ratio formulas in isolation and apply them mechanically to the reported income statement and balance sheet, treating the case's stated EBITDA as the true cash earnings figure. Under exam time pressure the adjustment step feels optional, so the covenant analysis looks complete but is built on unadjusted numbers.
What to do instead
Before computing any ratio, build a short adjustment schedule: add back non-recurring items, capitalise leases where the case flags them, and note contingent liabilities. Show the adjusted EBITDA line explicitly in the answer so the marker can see the restatement, and state covenant headroom against the adjusted figure with the calculation visible.
Structuring a term sheet or credit proposal that lists the facility amount, tenor, and margin but omits the covenant package, conditions precedent, security, and repayment schedule, presenting a price without a risk framework.
Candidates conflate a term sheet with a pricing quote and focus on the commercial headline because that is what they remember from deal announcements. They underestimate how much of the mark sits with structural protections, which they have not practised drafting under exam conditions.
What to do instead
Use a fixed term-sheet skeleton every time: borrower and guarantors, facility and purpose, amount and currency, tenor and availability, repayment profile, pricing and fees, security and ranking, financial and information covenants, conditions precedent, events of default. Fill every line, marking 'not applicable' where relevant, so no structural element is silently dropped.
Assessing a borrower's repayment capacity purely from historical financials and ignoring the industry cycle, competitive position, and management quality that the case narrative provides, producing a generic 'sound financials, acceptable risk' conclusion.
Quantitative data feels objective and defensible, while qualitative judgement feels like opinion, so candidates retreat to the numbers. They also lack a structured framework for business risk, so qualitative commentary becomes vague rather than analytical.
What to do instead
Adopt an explicit business-risk framework: industry structure and cycle position, competitive advantage and market share, customer and supplier concentration, management track record, and sensitivity to key drivers. For each, state the evidence in the case and the credit implication, then reconcile the qualitative view with the ratio analysis before concluding.
Treating working capital facilities as a simple overdraft limit, quoting a single committed line without distinguishing borrowing base, trade cycle, seasonal peak, and permanent versus temporary funding needs.
Candidates map 'working capital' to 'overdraft' from retail and small-business banking intuition and do not separate the financing of receivables and inventory from the financing of a structural funding gap. The exam case usually shows a seasonal pattern that the candidate reads as noise.
What to do instead
Split the requirement into a permanent core funded by term debt or a committed revolving facility and a seasonal peak funded by a temporary line. Where receivables or inventory are the collateral, construct a borrowing base with eligibility criteria and an advance rate, and match the facility tenor and reset frequency to the trade cycle shown in the case.
Pricing a corporate facility by quoting a margin over the reference rate alone, without building in the cost of capital, expected loss, capital charge, and fee income, or without comparing the risk-adjusted return to a hurdle rate.
Candidates remember 'margin plus fees' as the pricing answer and have not internalised that a corporate relationship is priced on return on risk-weighted assets. They also skip the probability-of-default and loss-given-default inputs because they seem advanced under time pressure.
What to do instead
Present pricing as a return calculation: expected loss (PD x LGD x exposure), cost of funding, capital charge at the applicable risk weight, operating cost, and target return on capital. Show the all-in yield including fees and the resulting return against a stated hurdle, and use the sensitivity to justify the recommended margin rather than asserting it.
Drafting covenant packages that copy standard levels (for example debt/EBITDA at 3.0x) without testing them against the borrower's forecast, so the covenant is either already breached at signing or so loose it provides no protection.
Candidates memorise typical covenant thresholds from study material and apply them as market convention, without running the borrower's projected figures through the test. They also fail to distinguish maintenance from incurrence covenants and apply the wrong testing frequency.
What to do instead
For each covenant, state the definition, the level, the test date, and the headroom at signing and at the forecast peak, computed from the case numbers. Calibrate the level to sit between the base case and the downside case, and specify equity cure rights, carve-outs, and the consequences of breach so the package is operational rather than decorative.
Describing security as 'taking a debenture over the company's assets' without specifying the type of charge, ranking, perfection requirements, asset coverage, or enforceability across jurisdictions, and without checking whether the collateral value supports the exposure.
Candidates treat security as a box-ticking formality and lack precision on fixed versus floating charges, registration, and cross-border recognition. The case often involves multiple entities, and the candidate does not map the security to the borrowing entity.
What to do instead
For each obligor, list the assets taken, the charge type, the ranking and any intercreditor position, the registration or filing step, and the estimated realisable value under a stressed scenario. Where assets sit in another jurisdiction, flag the local-law perfection step and any guarantee or share pledge needed to reach them, and compare total security coverage with the exposure.
Ignoring the borrower's existing debt, guarantees, and contingent liabilities when assessing total leverage, and analysing the new facility in isolation as if it were the only claim on the borrower's cash flow.
Candidates focus on the transaction in front of them and miss the capital structure context. Cases deliberately include prior facilities, pension deficits, or guarantees to test whether the candidate aggregates the full obligation.
What to do instead
Build a capital structure table listing every tranche, its amount, tenor, ranking, pricing, and covenants, including off-balance-sheet guarantees and pension or lease obligations. Compute total and senior leverage and interest cover on the aggregated basis, and identify where the new facility ranks and what structural subordination exists.
Writing a credit memo or recommendation that describes the company and the deal but never states a clear decision, the key risks with mitigants, or the conditions under which the bank would decline or exit.
Candidates equate length with thoroughness and spend their word budget on background, leaving no room for judgement. They also avoid committing to a recommendation because a hedged answer feels safer, but the marker is looking for a defensible decision.
What to do instead
Structure the answer as decision first: recommendation, amount, tenor, pricing, and conditions. Then a short business and financial risk assessment, a risk-and-mitigant table, and a section on downside triggers and exit routes. Keep background to the minimum needed to support the judgement, and make every risk statement paired with a mitigant or a condition.
Misreading the question's instruction verbatim requirement, for example answering a 'discuss the merits and drawbacks' question with a one-sided recommendation, or producing bullet fragments where the question asks for a reasoned argument, and then running out of time on the final high-weight section.
Candidates skim the command word and answer the topic rather than the task, and they allocate time evenly across questions instead of weighting by marks. The last section is often the integrative case question, which carries the most marks.
What to do instead
Underline the command word and the deliverable in each question before writing, and check the answer against both at the end. Allocate time in proportion to marks, do the highest-weight question while fresh, and keep a short planning line per question so the structure satisfies the instruction rather than drifting into description.