Chapter.7_Long-term credit granding activities

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(1)Chapter 7 LONG-TERM CREDIT GRANDING ACTIVITIES.

(2) Content - Loan subject; - Loan term; – Loan interest; - Loan methods; - Loan examples..

(3) Lending objectives & Lending subjects Lending objectives:  Purchasing machinery, equipment;  Renewal of equipment and technology;  Constructing, repairing of technical facilities. Lending subjects:  Individuals;  Households;  Business entities..

(4) Credit line & Credit term Credit line. • Credit line = ∑Project cost – selffinancing capital – other funds. Thời hạn cho vay. • Credit term = Grace period + repayment period. Thời hạn trả nợ. • Repayment period = Loan amount/Average income • Average income = Depreciation fund + Net income.

(5) Credit profile  Loan application;  Credit contract;  Collateral;  Operational plan;  Loan repayment plan;  Financial statements;  Documents related to the loan..

(6) Loan granding & interest - Example A 300 million dong credit contract disbursed on 1/1/N, interest rate of 12%/year, term of 3 years. Determining principal and interest: Case 1: Collecting principal & interest on maturity date. Case 2: Collecting principal and interest every 6 months by normal outstanding balance method. Case 3: Collecting principal and interest every 6 months by equal amortization method..

(7) Loan granding & interest - Example A 300 million dong credit contract disbursed on 1/1/N, interest rate of 12%/year, term of 3 years. Determining principal and interest: Case 1: Collecting principal & interest on maturity date. Solution: Interest = 300 million x 12%/year x 3 (year) = A. Principal = 300 million. Total amount receivable by the bank = 300 million + A.. 7.

(8) Loan granding & interest - Example A 300 million dong credit contract disbursed on 1/1/N, interest rate of 12%/year, term of 3 years. Determining principal and interest: Case 2: Collecting principal and interest every 6 months by normal balance method.. Solution:. 8.

(9) Loan granding & interest - Example Case 3: Collecting principal and interest every 6 months by equal amortization method.. Formular to calculate the amount payment periodically : T = Vo x r x (1 + r)^n [(1 + r)^n] - 1 with: - T: Amount payment periodically. - Vo: Principle, - r: Interest rate, - n: Number of payment times.. 9.

(10) Loan granding & interest - Example.

(11) Thẩm định khả năng trả nợ của dự án  Determine the source of repayment: (1)  Cash flow from revenue;  Cash flow from depreciation of fixed assets;  Cash flow from net income.  Determine the repayment obligation (2): Repayment term and payable due amount.  Determine the repayment capacity:  If (1) > (2): Sufficient to repay..

(12) Credit line & Credit term Credit line. • Credit line = ∑Project cost – selffinancing fund – other funds. Thời hạn cho vay. • Credit term = Grace period + repayment period. Thời hạn trả nợ. • Repayment period = Loan amount/Average income • Average income = Depreciation fund + Net income.

(13) Long-term Loan Example The cost of MTV investment project is of 20 billion dong. The investor has self-financing capital of 3 billion dong; The investor imported machines & equipments which are cost of 5 billion dong in term of deferred payment within 5 years; the remaining amount, MTV Company applied for a loan from Dong A Bank. Required: 1. Determine credit line for the project, assuming that the project is feasible. 2. Suppose that the above credit line is approved & disbursed in 6 installments as follows: Period 1 2 3 4 5. Date 01/06/2018 21/07/2018 21/08/2018 30/09/2018 30/10/2018. Disbursed Amount 2,000,000,000 2,000,000,000 1,000,000,000 3,000,000,000 2,000,000,000. The project was completed on February 15, 2019. Calculating the interest incurred during the project's loan period, assuming that the loan interest rate is 1.5%/month (interest is not added into.

(14) Long-term Loan Example 3. Determine the total loan amount of the project (assuming that both Parties agree to add interest into principle). 4. Make a debt payment schedule, assuming that the repayment period is of 5 years, the debt is paid once a year at the end of the period, the principal is paid equality, the interest is calculated by outstanding balance method. 5. When the project is in active, the EBIT from year 1 to year 5 is 2.5 billion, 2.7 billion, 2.8 billion, 2.6 billion, and 2.4 billion respectively. The corporate income tax rate is 28% . Net income using for funds is of 30%, the remaining 70% is used to repay the loan. The depreciation of fixed assets is estimated for 6 years using the straight-line method, the Company must use the depreciation fund to repay loan. Please, make a table of repayment capacity & comment? 6. Determine the credit term? Assuming that the grace period is 2 months, the disbursement period is 5 months..

(15) Solution - Long-term Loan Example 1. Credit line = ∑cost – Self-capital – Other capital = 20 - 3 - 5 = 12KKK 2. Calculate the interest incurred during the loan period of the project? Date 01/06/2018 21/07/2018 21/08/2018 30/09/2018 30/10/2018 30/11/2018 15/02/2019. Balance 2,000,000,000 4,000,000,000 5,000,000,000 8,000,000,000 10,000,000,000 12,000,000,000 Total. Number of days 50 30 40 30 30 75. Total 100,000,000,000 120,000,000,000 200,000,000,000 240,000,000,000 300,000,000,000 900,000,000,000 1,860,000,000,000. So, total interest of the whole project = 1,860 x 1.5% / 30 days = 0.93KKK VND. 3. Total loan amount of the project = 12 + 0.93 = 12.93KKKVND..

(16) Solution - Long-term Loan Example 4. Debt payment schedule: ~ The principal is paid equality each year= 12.930 / 5 = 2,586,000,000 VND. ~ Principle & interest payable for each year: Year. Principle (1). Interest (2) = (3) x 18%. Outstanding balance Principle & interes (3) = (3) - (1) (1) + (2). 1. 2,586,000,000. 2,327,400,000. 12,930,000,000. 4,913,400,000. 2. 2,586,000,000. 1,861,920,000. 10,344,000,000. 4,447,920,000. 3. 2,586,000,000. 1,396,440,000. 7,758,000,000. 3,982,440,000. 4. 2,586,000,000. 930,960,000. 5,172,000,000. 3,516,960,000. 5. 2,586,000,000. 465,480,000. 2,586,000,000. 3,051,480,000.

(17) Solution - Long-term Loan Example 5. Make a table of repayment capacity & comment? Sources of debt repayment include: ~ Annual depreciation fund = 12.93 / 6 = 2,155,000,000 VND. ~ Annual net income used to repay loan = {(EBIT - Interest) x (1 - 28%)} x 70% = Year. EBIT. Interest (from prior table). Net income to repay loan. 1. 2,500,000,000. 2,327,400,000. 86,990,400. 2. 2,700,000,000. 1,861,920,000. 422,392,320. 3. 2,800,000,000. 1,396,440,000. 707,394,240. 4. 2,600,000,000. 930,960,000. 841,196,160. 5. 2,400,000,000. 465,480,000. 974,998,080.

(18) Solution - Long-term Loan Example Table of repayment capacity & comment: Sources of debt repayment Year. Depreciation funds. Net income. Debt payable (*). Surplus (+) / Deficit (-). 1 2. 2,155,000,000 2,155,000,000. 86,990,400 422,392,320. 2,586,000,000 2,586,000,000. (344,009,600) (8,607,680). 3. 2,155,000,000. 707,394,240. 2,586,000,000. 276,394,240. 4 5. 2,155,000,000 2,155,000,000. 841,196,160 974,998,080. 2,586,000,000 2,586,000,000. 410,196,160 543,998,080. Comment: In year 1 & year 2, the source to repay the debt are deficit, but MTV can use its self-finacing-capital of 3 billion to compensate..

(19) Solution - Long-term Loan Example. 6. Determine the credit term? Assuming that the grace period is 2 months, the disbursement period is 5 months..  Loan repayment period = Total debt payable / (Depreciation fund + Net income to repay loan) = 12.930 / (2.115 + average net income) = 4.68 years = 56 months..  Loan term = grace period + disbursement period + repayment period = = 2 months + 5 months + 56 months = 63 months = 5 years..

(20) Thanh you!!!.

(21)

Chapter.7_Long-term credit granding activities

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