Leverage on Credit for Funding

Credit financing Opportunity

One very fine day, a credit agent comes up to you and promote some of the most lucrative credit financing opportunities in the current market, what would you do? It can be easily admitted that many individuals, especially common folks in town, will not hesitate to take up such irresistable deals with some bargains from the credit house. However, there must be a certain level of vigilancy when it comes to utilizing unearned cash. The individual has to assess his current lifestyle and understand hos credit limit tolerance while maintain good ratings under relevant bureaus. These credit financiers seem to be friendly at the beginning, showering you with attractive perks & incentives, but at the later stages, things started to change dramatically. Assuming the individual defaulted on the credit loans, the very same financiers will haunt like a hungry beast - Rage mode on!

Danger of Credit leverage

With respect to most credit facilities, there are certainly risks associated to using Leverage. The first reason is that Credit is not personal savings - which need not be answerable to anyone - but a type of loan being borrowed from financing institutions. This goes to show that creditors might be chasing you with heaps of lawyer letters endlessly. Another observant factor is defaults, whereby the debtor can no longer service installments at the current condition, creditors might get clearance from respective jurisdictions to seize collaterals that are pegged to the secured loans without warning. The demonstrates serious credit impairment to the borrowers and likely not to be a nice scene. Hence, it is crucial to identify the possible worse case outcomes and build a contingency plan to preserve capital.

Long v.s Short credit terms

Common individuals, who are likely not to be highly versatile in credit terminology, will tend to have invalid perceptions on loan tenors and interest payables. The aims of this topic is to help furnish more knowledge to consumers who perceived wrongly. The first issue is on the tenor, the longer the duration, the more interests are being incurred. While some experts rebutted on the lower installments being paid, comfortable for averge households, the ongoing interests can be significant over the long run and the deficit being paid at the end of term could actually help the borrower in some other aspects in a meaningful manner. That is why this blog emphasizes on the importance of weighing out pros & cons in financing.

Does it meant short term tenor is ideal? It highly depends on the credit being borrowed and purpose of leverage. If it is meant for a short home refurbishments, then no problem with shorter tenor albeit incurring a small (high) amount in interests. Car loan, on the other hand, is not recommended as the interests rates tagged are simply exorbitant, which can amount up to plenty folds in repayments - definitely a no-no to any wise individuals. Take your pick - Long or Short Credit tenor.

Financial shortfall in long run

The first point to analyze is the opportunity cost being held in the long run. Hoarding tons of credit is detrimental to one's financial health due to the interests being paid out from personal savings or monthly income. Identify your financial position first and ask on the validity of high expenses instead of lamenting on rolling credits. Is the newly upgraded private apartment draining too much expenses or the flashy cars taking serious tolls on your income? How about massive branded goods on a monthly basis eating into savings? The strength of credit can really destroy or aid you in many ways, choose your path to financial freedom wisely.

Establish a Firm Credit foundation

Solid Credit foundation

In order to be part of the privileged credit lending sector, the relevant credit financing firm has to position itself as a dominant player with beyond-words cash reserves. One of the high barriers to entry, under Michael Porter's 5 Forces model, is Intense Rivalry - unhealthy competition against lending and financing institutions. The constantly regulations & audit processes made work more complex and requires deep level of understanding in this lucrative industry. Financial institutions usually engage various aspects to aid in maintaining such credibility and prevail under dire circumstances - Professional legal advisers, Inter-bank cooperations, Credit risk analysts etc. Moreover, over the years, online lending platforms are booming out of nowhere and increasingly sophisticated which can be a major threat to offline banking corporations. What would one do?

Credit Financing schemes available

If the credit financiers want to stand out among each other, attractive credit financing schemes should be the way to increase market share but remembering not to compromise revenue and make losses for an extended period of time. In the Credit Sphere, there are two main types of financing options mainly; Corporate & Retail lending. This two types further breakdown into several other loans such as Collateral & Non-collateral, Car financing, Mortgage loan etc. The most ideal credit lending facilities is based on the consumer's needs and the sales team will suggest the most rewarding ones to them. However, there are competitions among banks hence at times, promotional rates & incentives are way to draw attention before conversions which is taken care by the Marketing segment.

Credit ring healthy Practices

Once the newly formed credit financing agency has gotten approval from the relevant authorities, it will be part of the "Credit Ring" society. In this ring, the main purpose is to help one another in regulating the industry and fish out "Black Sheeps" who are trying to stir up troubles. The problem could be so bad that government interventions occurred which significantly detriment the whole lending infrastructure or even being forced to undergo reformation. It is clearly a wastage of resources and time taken to justify certain decisions. To make matter worse, it is not going to be a simple matter if the auditors chose to bring 'grey' areas to High Court. Hence, this shows the importance in formulating a healthy Credit Lending arena that is wonderful for all creditors.

Showcase creditors Key competencies

In this rapidly transforming Credit world, creditors ought to buck up by introducing new marketing strategies to remain competitive. And also, challenge others when new policies are being formed or counter attack those who tried through unlawful means. One of the most extraordinary advancements in this society is the Internet! As of current lending practices, there is even an online lending establishment namely the Lender Platform, consisting of online borrowings from various associations and this made offline lending more competitive. Instead of undergoing the hassle in paperwork, why not submit everything online with a few clicks and the agents will assess the profiles and allocate priorities accordingly. No doubt that online banking is gaining sophistication and the offline banks have to come up with solutions to go around else just join them. It is an uphill task as regulators have to think in a different mindset as the online segment is fairly new to them as well. Who knows, perhaps, traditional banking is deemed obsolete!

Being a Credit Facilitator

Regulatory system for Credit Facilitator

Under common (professional) institutions, the ones who fall under credit financiers are usually private equities fund house, retail & commercial banks, licensed moneylenders and micro-financing agencies. It is unsurprising to see audit committees and compliance team often performing quality control on clients' accounts as well as doing indepth reviews to safeguard the credit facilitation processes. Being approved by relevant authorities in credit financing, small or massive scale, the established firms need to acknowledfe the importance of observing certain regulations put in place to protect trades as well as increase efficiency in debt repayment progress. It is not new to current bulge bracket banks on the past financial crisis and no professional institutions would ever want to undergo a second insane financial struggle again.

Credit limits of an approved financier

Being an issuer of credit, regardless of financial status, it is necessary to meet the regulatory standards of having minimum reserve ratio requirements. What is it then? A reserve ratio requirement is an indicator of the solvency of the lending firm and it must have the slated amount else risk being fined severely by regulating bodies. The company has to meet the newly formed objectives, mainly Basel III requirements for banks, in order to prevent money-rush from creditors to debtors. This warrants the lenders to continue doing business while tapping on reserves to fund the business and charging interests accordingly to debtors who roll their principle amounts over the given time frame. Both parties will not get hurt in the process.

In the lending aspects, it is not easy to attain higher credit financing limits from regulatory bodies due to the previous big bank's default. The governing segment will assess the financial profiles of moneylenders, question on certain key denominations, and allocate conservative credit limits for a temporary time before allowing a review to be done. This is a safety measure to analyze the solvency of company during operational process as well as to enforce regulations to them.

Compensation package & Benefits

The remuneration package for creditors is very lucrative, so much so, that even non-finance sectors are joining in the credit race to expand their businesses. Based on the risk-adjusted returns, the firm need to explain on the interests being charged and the risks in conjuction to the credit. It is for the companies who are unable to pay up outstanding loans.

In reality, debtors are liable to payments whereby creditors can seize assets tagged under collateral loans. It is important to know that in order to avoid forced-seizure, the interest needs to be paid up before the given dateline and this is a lucrative reward for lenders. Many more businesses are being set up just to enjoy such perorgatives that financial sectors are benefitting from - Sloshing Credits.

Meet the requirements of International Standards

When it comes to meeting regulatory standards, typically international standards, it is unusual for established firms to be outright rejected from drafting out credit facilities. Under normal circumstances, there is a set of rules to follow and every licensed moneylender needs to undertake the intense scrutiny just to avoid the previous crisis. The high requirements set barriers to entry for potential banking candidates which deter churn and burn techniques from happening. Given the international standards, banks need to advocate compliancy in their respective departments so as not to jeopardize current positions in the market.

Commercial banking Credit regime

Corporate banking Credit facilities

In line with retail banking segment, commercial banking credit department, is here to provide loans to clients who are delegates of respective companies. There are two main loans being offered to established firms; Collateral & Non-collateral loans. It is crucial to understand the differences between the two groups to prevent potential conflicts should circumstances arise. The function of corporate banking is vastly different to consumer banking due to industry regulations and certain law enforcements for the benefits of both parties.

What is Collateral loan? It is a form of secured loan that is being consented only if the company has assets or equities to pledge for the tender amount else risk being upfront rejected or switch to the other form of loan. This type of security ensures that should the firm been unable to repay the installments, rightful measures will be taken to seize the stated collaterals without needing to file court proceedings. It is to mitigate potential losses against the lending banks and also widely known as Hedging. As for non-secured loans, the company has to incur higher costs of borrowings and face tighter regulations in light of the risks being undertaken by corporate credit segment.

Head of corporate Regional Credit

The commercial banking arm is usually answerable to a leader - Regional Head of Corporate bank. In fact, this position has a major impact on credit lines & facilities due to the high costs behind. Based on the past financial crisis news, it is evident that many banks, big and small, cannot escape this massive catastrophe of bankruptcy due to incompetent management. The corporate lending arm has to be intact with strict survillance, proper auditing documents and adequate compliance regiment to safeguard the loan house. While it is not easy to detect some problems, only through undergoing certain experiences, the Head of banking may perform reactive measures to counter potential frauds and fish out problematic credit facilities. It takes some time to adapt to new laws as well as working to improve anti-money laundering activities which requires a great deal of resources for deployment.

Team of Credit Risk analysts

When the matter comes to analyzing risks, there is a team of specialists involved in identifying potential credit issues and suggesting to the bank on various solutions to tackle these problems & mitigation on the identified risks. Credit Risks analysts have a crucial role as banks have conflicts of interests when it comes to generating more revenue therefore neglecting certain vital risks involved. The analysts are under an independent sector, usually classified as cost centre, to segregate from revenue-generating departments and aid the respective segments in assessing risk profiles. The beauty of an analytic team is that it helps to bring out underlying risk principles that others don't have time to perform thorough researches on. It is really important for the existence of credit risks analysts. Let this group of analytic personnel department do the hard work for the bank.

Designing new Credit facilities for advancement

The role of commercial banking segment is to implement new credit products that are under pending status, in turn, bringing in more profitable channels to the core banking house. It is not alien to credit users in seeing latest credit establishments so as to increase market share by inducing awareness using various communication modes. With regards to advancement in credit facilities, there are bound to be risks involved and the relevant authorities need to ensure a sustainable competitive advantage against rivals who compete for similar products. While it is imperative to survive the ordeal, many challenges come in the way, and the banking department has to foresee possible outcomes and take precautionary measures. The financial system is indeed a lucrative one to work with, especially on Credit Terms, till the extent of non-finance competitors' entry, to gain fruitful returns on investments and increase the overall financial well-being and denote social status in the world.

Credit operations Retail Banking segment

Core Retail banking Credit segment

In the Retail segment under core banking corporations, it is evident to see that job offers are being taken up so swiftly albeit continuous creation of new departments. Though staff attrition rate is high, many come and go to find better opportunities & career prospects. This retail group is one of the main revenue-generation arms among the other lucrative core banking operations. Being in the Credit category, whereby revenue is made most here, it s pertinent for sales teams to work diligently and yearn a sense of integrity. The salesmen will be facing all sorts of clients ranging from needy to upgraders, poor to rich and even kind to nonchalant. Dealing with customer services is a challenge anyone in the sales line needs to adapt!

Head of Global Retail Banking

An infrastructure of any banking systems require a competent leader - Head of Retail Banking. The mission, provided by the management team, is usually managed by C-suite team and the Head has to fulfill it. Since 'Credit' is being so lucrative, expect some of the worst competitors out there fighting for market share. The leader has to position the bank in Retail segment as a highly established firm, meeting all regulatory demands, enhance reputation and prestige through marketing and finally promoting attractive credit financing schemes and incentivizing clients to remain loyal to the bank. It is often a challenge faced by the board of directors as customers have high switching costs and more often than not, demonstrate lack of loyalty due to intense rivalry - Whoever gives me the best deal entinces me.

Team of Credit analysts

One of the most common questions being asked is who draft out "Credit Financing" schemes and what's the contents in them. Before sales department begins dashing out to promote credit facilities and products, there is a team of professional credit analysts, usually phd-certified or doctorate, to create campaigns, policies and regulations. The team will comprehend with audit functions & quality control team by ensuring full compliancy with regulatory bodies and competitive marketing strategies to help the Retail credit segment generate revenue with little resources. In fact, the team is highly skilled in this aspect; mathematician coming up with complex formulas, fiduciary advisers evaluating sophisticated platforms, financial analysts crunching numbers and investment bankers identifying profitability channels. When all departments come together as one, a beautiful road for newly furnish credit products is ready for advancement.

Development of new Credit products & facilities

While the development team gains most credit in identifying new products & facilities, it is not mutually exclusive from other core banking arms as each team helps one another to meet requirements and identify potential leads. It is an arduous process in creating new policies as there are certainly many considerations to be in place. Unsurprisingly, competitors will be at the other corner of the pie, churning out new developmental credit products, in retaliation to the current dominating bank. To make matter worst, we're looking at non-financial corporations joining in this money-making industry as outsource credit financiers and draining away much market share. Being an unregulated segment for non-finance sectors, it is easy to gain access to attract clients to seek credit financing due to lower costs of borrowings and less stricter lending policies. So much of an intense compeition, who is to say "My bank will seat out without fail?".

World of Financial Credit System

Role of Credit financing Agents

Welcome to the realm of credit system! In this context, almost anyone can indulge in credits knowingly or unknowingly. Before plunging into this powerful leverage tool, you'll have to understand the relevant authorities to go as well as the implications behind using unearned cash. First of all, credit agents faciliate the mobility of credit hence it is vital to learn who are the ones who provide such functions to borrowers. Under each segment, it is crucial to acquire knowledge in the respective fields to maximize deployment of resources without the need of undergoing troublesome processes. Credit financiers are available 24 hours a day, 7 days a week, and across the globe to appeal to those who are working abroad. Certainly, there are some risks associated when leveraging on such tools and this will be explained here within the knowledge of competence.

Scope of Credit bureaus

The first place to visit when faced with financial crisis is the Credit Bureau. Why is it so? This agency, approved by the govenment officials, helps to analyze your current financial status such as outstanding loans, income assessment profiles and ability to perform repayments. Upon completion of analysis, the attended agent may ask several questions pertaining to comfort level in repayments and select the best option. Under critical cases, there might be negotiations with the respective creditors and chances are, the agreement goes through to stop interests from increasing as well as lowering the costs of borrowings. It is not a pleasant matter when credit bureaus are involved due to the fact that credit scores and rating will be downgraded for the first few years. Securing loans is going to be difficult while trying to finance remaining loans.

Private Micro-financing agents

The existence of private licensed moneylenders is due to the retail borrowers being unable to secure loans from retail banking segments or institutions. It may be in the form of mortgage needs, personal individual loans or even financing of vehicles. While it is relatively easy to gain access to alternative credit schemes, the cost of borrowings is going to shot up without hesitation. The main reason behind incurring higher expenses is on the higher risks being associated to the targeted audience. The retail borowers are unable to secure loans as they failed to pass through the strict regulatory system from professional banks hence turning to private micro-financing agents. In this manner, the risks in conjunction to potential defaults are much higher than expected. Hence, this gives a reason why credit agents charged higher fees to moderate the risks associated.

Investment banking & Retail lenders

This group of lenders is one of the first areas to visit if there is a need to borrow some money. Being one of the competing industries for market share, both corporate and retail banking institutions offer competitive interest rates to draw clients. An intense rivalry within these corporations had led to a great deal of market noises as well as higher bargaining powers for lendees. It is not surprising that retail banking segment is booming due to low inflationary environment which stimulates credit financing for upgrading of lifestyle. As for investment banking corporations, most firms leverage on credit financing schemes to expand further and increasing productivity in the long run. The newly revamped financial regulatory system, namely Bastel III requirements, needs to be adapted by all professional institutions else risk losing out to competitors - other Banks and Lenders.

Shadow banking Corporations

When it comes to redit financing, there are non-finance companies who want to gain market share too. This resulted in a fierce battle between the two worlds and pressuring rates to even go lower in order to incentivized clients. These (extremely) cash-rich firms, undergone a process known as Shadow Banking, disbursed huge sums of loans to corporations who failed to secure collateral loans from investment banks and offer lucrative credit schemes to borrowers. In return, the cost of borrowings increase due to the risk-to-reward model but it won't stop startups and expanding firms to borrow from anyone who are willing to take on more risks. While banks are struggling to meet financial requirements, these corporations weren't affected and proceed to drain market share out of the pie. Indeed, the world of credit, grey or white areas, is saturated with established firms and denoted high barriers of entry. The stampede is really massive once a credit bubble bursts!

Credit Test post

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