The role of credit analyst demands a complex set of skills and attributes, but is one of the most stable and rewarding jobs in the banking industry
Credit analysis – the process of evaluating the creditworthiness of a borrower by checking its cash flow and identifying the risks of a transaction to ensure repayment of a loan on maturity date – is considered by many as half science, half art.
It is seen as one of the cornerstones of the banking industry. Banks have a primary obligation of lending prudently the money entrusted to them by depositors. Credit analysts have a duty to ensure that borrowers have the ability to repay by carrying out rigorous investigations throughout the credit process.
The credit analyst role is a stable position driven by economic growth. Professionals, many with university degrees in finance, accounting, economics or engineering, and even with MBA or CFA qualifications, stay put a long time.
Milton Leung, consultant and executive coach at Sino Star Development, a training consultancy specialising in bank credit risk management, has worked in the banking industry for over 16 years, including stints with two global banks. Seven years were spent trying to recover bad debts. He considers credit analysis a very important skill. “Banks are in the business of lending, and in fact, one of the major risks they have is credit. It is important that they get to know their clients before lending, or even making annual reviews in order to assess whether a client remains creditworthy or not.”
Directly linked to analysis is credit approval – the seeking of a green light from a financial institution depending on a transaction’s credit limit and rating.
“Often, higher limits or complex structures entail approval from a credit committee, while lower limits or plain vanilla transactions are normally approved by two credit officers, in line with the ‘Four Eyes’ principle,” says a risk officer overseeing credit, market and liquidity and operational risks at a bank based in Hong Kong.
An understanding of basic accounting principles – profit and loss statements, balance sheets – and the tenets of credit are some of the requisites for the role of credit analyst, according to another veteran credit analyst. He stresses that anyone willing to spend a day looking at the financials, understanding a borrower’s business and reading about the industry environment is cut out for the job.
It is vital analysts know the policies of various regulators, especially those relating to the bank for which they work. They must be familiar with credit structuring, identifying primary and secondary repayment sources, choosing the relevant financial ratios and corresponding threshold to propose in a transaction, and the qualitative and quantitative clauses to apply for terms and conditions.
Business Putonghua is required for China accounts as financial statements, especially of SMEs and start-up companies, are often in Chinese. Conference calls are often in Putonghua. Credit analysts must have strong communication skills and be able to speak clearly while defending their recommendations in front of a credit committee. Written proposals must be concise, as credit approvers are often too busy to read lengthy proposals.
Another key attribute is resourcefulness, particularly in researching industry or country data. Professionalism is vital too, as credit analysts work closely with relationship managers, who know the borrowers well, and product managers, who know the structure of products.
A credit analyst has to be like an investigator – inquisitive and resourceful. Leung underscores the importance of being observant, logical and thinking things through. He says analysts must stand by conclusions, but also be ready to alter them in case of sudden changes.
A junior analyst handling simple transactions moves up to senior analyst in charge of complex ones. Further opportunities include being head of an industry sector or territory sub-area, then country, regional and, finally, global head. Experienced analysts can become approvers in financial institutions where credit approval is individual-based. Other opportunities are on the business side as account officer or relationship manager.
Leung views commercial banking as the most credit-analysis-heavy sector, and considers credit analysis a skill every relationship manager should have. “It’s more cost-effective not to have a separate position for credit analysts [in commercial banking]. The relationship manager himself can be the credit analyst as the information he gets comes mostly from meetings with clients. This is not readily available public information.”
This is even more so with SMEs, Leung adds. “These are smaller companies managed on a relationship basis,” he says. “They’re so small that business information is not readily available. For the two categories – SMEs and the middle markets – credit analysis is a skill that the relationship manager has to have rather than as a separate function.”