Seoul National Bank: The Chief Credit Officers’ Tough Decisions Case Solution
The quantitative analysis is performed to analyze the loan portfolio of the company along with its expected results and the potential risk in the near future. The table of loan request is constructed with the help of the various formulae such as VLOOKUP, RAND BETWEEN and CONCATENATE. The VLOOKUP formula tend to provide the desired outcomes with the logical reference. Taking under consideration that the company is contemplating assess the impact of the portfolio worth $70 million, the number of request are assumed to be 150 and the requested loan amount is calculated using the RAND BETWEEN formula. The financing risk, default rate, approximate bond rating, default standard deviation and interest is calculated using the VLOOKUP formula. Using the financial risk scores, the financial risk rating is identified accordingly. Additionally, the bond ratings is used to calculate the interest rates and default rates.
Referring to the information provided in the case, there are various strategies discussed for the collection of the invested amount such as; partial settlement strategy, collateral liquidation strategy and wait and see strategy. The chosen strategy is the wait and see strategy because of the reason that if the company would go bankrupt & becomes unable to make payment of the loan with the interest payments, SNB would tend to use wait and see strategy that would be resulting in the recovery of the amount over the period of time. Additionally, under the wait and see strategy, the company would be able to collect more amount as compared to the partial settlement strategy. In case of choosing the collateral liquidation strategy, it would not be beneficial for the default organization and would lead to significant gaps in relation to the organization and would adversely affect the CSR policies of the company. On the other hand, the partial settlement strategy would provide more equity to company as compared to the revenues by assuring that half of the invested amount could be collected, thus providing the risk of losing 50 percent amount.
In addition to this, the wait and see strategy would lead to increased amount of revenues and involves lower risk as compared to other strategies. Furthermore, the wait and see strategy would help company building strong customer relationship. The analysis of different strategies shows that the company would be able to get greater amount of money under the wait and see strategy and it would cut down the expected potential risks with respect to the nature of the debt. Moreover, the wait and see strategy is mainly related with the financial risk rather than the business oriented risks.
Hence, the Mr. Change is recommended to pursue the wait and see strategy because it has medium risk profile and primarily focused on the financial risks. Since the benefits of wait and see strategy are greater than other types of strategies, the company must use this strategy for the default payment collection.
The loan request 12 is supposed to be granted. The amount of loan is assumed to be $831 million along with the industry code is J. This request of loan involve medium business risk and medium financial risk, depicting 2.91 percent rate of default along with the interest spread of 474.3. The information provides the total amount of loan of $831000474 which includes the interest earned with the interest spread of 474.3. Thus, it is analyzed that the total profit is minimum due to the minimum rate of interest, but the loan amount also provides the minimum rate of default. According to the concept, the higher return is related with the high risk. In this case, the risk is low but the results are also low………………
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.