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25752 Financial Institution Lending

Warning: The information on this page is indicative. The subject outline for a particular session, location and mode of offering is the authoritative source of all information about the subject for that offering. Required texts, recommended texts and references in particular are likely to change. Students will be provided with a subject outline once they enrol in the subject.

Subject handbook information prior to 2019 is available in the Archives.

UTS: Business: Finance
Credit points: 6 cp

Subject level:

Postgraduate

Result type: Grade and marks

Requisite(s): ((25742 Financial Management OR 25746 Financial Management: Concepts and Applications) AND 25741 Capital Markets)
These requisites may not apply to students in certain courses.
There are course requisites for this subject. See access conditions.

Description

This is a specialised subject in the risk management of the loan assets of financial institutions. It provides students with knowledge of the theory of financial intermediation, and information economics and its application in achieving the maximum shareholder return while managing the level of risk associated with loan products.

Topics include: the formulation of loan policy; the managing and selection of loans; loan pricing; individual loan risk management including Basel III and IFRS 9 compliance; financial contracting; managing problem loans and specialist loan risk areas such as project and infrastructure finance; corporate loans; consumer lending; small and medium enterprise lending; and loan structuring, documentation and collateral. The subject includes a number of real case studies in major lending disciplines such as project and infrastructure financing, small and medium enterprise lending, consumer lending, corporate lending, and problem loans.

Subject learning objectives (SLOs)

Upon successful completion of this subject students should be able to:
1. explain the processes of lending to individual and corporate customers and the need to have robust credit assessment and monitoring structures in place.
2. structure the terms for a loan facility to corporate borrower, including the types of security the lender may require.
3. describe the capital requirements on credit risk under the Basel framework and the various ways capital adequacy is measured by the different ‘approaches’ approved under the Basel framework.
4. demonstrate an understanding of credit data analytics and probabilities of default models.
5. analyse meta data from real mortgage portfolios, build a risk management model.
6. analyse loan performance data for Basel III and IFRS 9 compliance.

Contribution to the development of graduate attributes

This subject provides students with knowledge of the core principles and concepts of loan management. Students are introduced to a range of loan products, loan structuring and specialized loan markets. The key focus of the course is the impact of lending and borrowing on the real economy and the effect of the risk reward trade-off in a lending context. Students are trained to critically and creatively analyse loan data, build forward looking lending models and communicate these effectively with stakeholders. Students will discuss ethical and sustainable principles underpinning lending decisions in line with the professional standards of the banking industry. The subject is designed to align with the following UTS Business School graduate attributes:

  • Business knowledge and concepts
  • Critical thinking, creativity and analytical skills
  • Communication skills
  • Attitudes and values

Teaching and learning strategies

This subject uses a broad range of teaching and learning strategies (including active strategies), such as lectures, guest speakers, case studies, and student discussions. Weekly activities include (1) in-class discussions, (2) lectures, and (3) tutorials. In order to get the most of the subject, you should engage in all four activities every week. A detailed schedule of weekly activities, as well as all subject material, is available via UTS Online. Communication and feedback are also encouraged via UTS Online.

Pre-class activity

Students are asked to watch a video available via UTS Online to prepare themselves for classes. These videos are available via UTS Online. Furthermore, students are expected to prepare for the tutorials (see below) by completing the problems independently at home applying the skills and knowledge obtained in the lecture of the previous week.

In-class discussions

Current banking news will be made available to students, and will form the basis of discussions about current bank operations and prudential regulation. Case studies will also be provided for discussion and student will receive immediate feedback on the quality of the discussions immediately in class.

Lectures

Students are expected to attend all lectures. Lectures introduce and describe the key concepts through a range of interactive and engaging learning experiences. There will be opportunities for collaborative student discussions in which students can share their insights. Occasionally, lectures will be complemented by guest lectures from industry practitioners. Prior to attending lectures, students are asked to watch a summary video available via UTS Online.

Tutorials

Tutorials provide an interactive opportunity by group-based discussions and problem solving to extend and apply the material taught in lectures. The tutorial for a given week is based on the lecture material from the previous week. Tutorials commence in Week 2, and students are expected to prepare for them by completing the problems independently at home applying the skills and knowledge obtained in the prior lecture. The students then receive feedback in the tutorials on the quality of the solutions as well as strategies on how to improve their skills.

Market relevant projects

Students will participate in two in-class projects. In the first project students will analyse meta data from real mortgage portfolios and make bank lending decisions. Furthermore, students will discuss the application of their model in the context of mortgage underwriting of commercial banks and discuss professional standards mandated by prudential regulators. Students will write a report on their findings and receive feedback during the writing phase and as an outcome of the assessment. In the second project, students will analyse loan level performance data, build probability of default models for Basel III and IFRS 9 compliance. Students will validate and critically assess the robustness and interpretation of model outputs. Students will write a report on their findings and receive feedback during the writing phase and as an outcome of the assessment.

UTS Online

UTS Online is used to disseminate learning resources, including the subject outline, lecture slides, tutorial exercises, assignment briefs, announcements, and any supplementary information. Students are responsible for checking UTS Online regularly. All announcements posted on UTS Online will also be emailed to students, to ensure that they stay informed.

Content (topics)

  • Loan contracting with between lenders and borrowers
  • Credit assessment
  • Bank capital requirement and loan pricing
  • Credit risk management

Assessment

Assessment task 1: Assignment (Group)

Objective(s):

This addresses subject learning objective(s):

1, 2 and 3

Weight: 30%
Length:

Maximum 5 pages

Criteria:

Students will write a report on their findings, which will be graded on the following criteria:

  • Quality of analysis of loan applications (SLO1)
  • Quality of discussion of the proposed loan structure/s (SLO2)
  • Quality of analysis of bank lending decisions and individual self-reflection (SLO 3)

Assessment task 2: Assignment (Individual)

Objective(s):

This addresses subject learning objective(s):

4, 5 and 6

Weight: 70%
Length:

Maximum 5 pages.

Criteria:

Students will write a report on their findings, which will be graded on the following criteria:

  • Quality of risk measurement model and appraisal of action in commercial banking situation (SLO 4)
  • Quality of data analysis (SLO 5)
  • Quality of models to meet Basel III and IFRS 9 compliance and individual self-reflection (SLO 6)

Minimum requirements

Students must achieve at least 50% of the subject’s total marks.

Required texts

Baesens, B., Roesch, D. and Scheule, H., 2016. Credit risk analytics: Measurement techniques, applications, and examples in SAS. John Wiley & Sons, ISBN-13: 978-8126567027

Hong Kong Institute of Bankers, Bank Lending, 2012, John Wiley & Sons, ISBN-13: 978-0470827451