QUESTION
Question 1
You are requested by the Head of Credit of Bank CCC to spot check existing loans of one of the bank branches and to compile a brief report about the extent to which products and the needs of customers were well matched. The following information was retrieved by you. Please provide a brief reason why you regard the match as suitable or not.
Ans. There are different types of loan products. Loan products should be matched with customer requirements so as to realize maximum worth of money and keep cost of money to minimum. Websites of major banks provide sufficient detail regarding various products. As per ANZ website as on April 11, 2012 (www.anz.com)
Type of loan Type of customer Need Matching good or not? Recommended form of finance Reason why matching is good/not good
Overdraft Small business To finance holiday of owner Not good Credit cards Overdrafts should only be used for financing some urgent and uncalled liquidity requirements in business and when there is not sufficient cash or bank balance with the firm.
Term loan supported by mortgage over property Large business To purchase a residential property in which the Manager of the production plant of the business will stay. Not good Working Capital Loan Housing arrangements for staff should be mentioned in their salary break up, salaries are working capital requirements and should not be financed by term loans.
Credit cards for sales staff of company Large (corporate) businesses To use as form of payment for regular dining, travelling etc. Not Good Working Capital Loan Credit cards should be used in personal accounts. Food and travel expenses incurred during official work, should be properly supported by bills before being sanctioned. Filling up of vouchers and attachment of bills by sales staff and submission to accounts dept. These are working capital requirements and can be funded by funds used for financing working capital
Financial lease Consumers To purchase a cabin cruiser boat Not Good Personal Loans Financial lease should be used to fund long term business capital requirements
Term loan with chattel over machines and letter of credit Farmers To import machinery that will be used in the manufacturing of products Good With such loans farmers will be able to procure the needed machinery for improving their farming productivity; they can repay the loan amount in Equated monthly instalments out of their monthly earnings. After certain type when the loan gets repayed, the farmer can get ownership of the machine, whereas in hire purchase alternative the farmer will have to pay a certain monthly rent and will not get ownership. Hence if the machinery is for long term permanent use, then this form of financing is appropriate.
6 month bank acceptance of $6 million with overdraft replacing it for another 6 months Large boat manufacturing company Funds needed for 6 months to pay for material to complete the manufacturing of a commercial boat that has to be built on order. Large contract payment will be used to repay loan. Not Good Business loan supported by adequate and appropriate Collateral Contract for items to be built on order should be accompanied by advance payments, if not in whole then in part, payable periodically, so as to cover the expenses incurred in manufacturing.If the manufacturer is working without any advance,then in this case he is incurring high risk and if he still wants to take the risk,then he must provide adequate and appropriate collateral for taking a business loan.
Revolving credit Medium size business in a growing marketing environment The business provides credit to its customers and requires additional working capital Good Revolving credit can be used for financing sort term liquidity requirements of firms including their working capital requirements. The debtors can repay their monthly instalments out of the money realized by sale of its products.
Overdraft supported by industrial mortgage Manufacturing company Purchase of industrial land and putting up of a large building for operational business activities Not Good Overdraft over Mortgage are more suitable for short term mortgages, say 2-3 years,they carry higher rates of interest Long term mortgage options,say flexible mortgage,benefits include lesser interests and tax savings.
http://www.fool.co.uk/Property/guides/New-Type-Of-Mortgage.aspx
Increase in existing term loan on farm property supported by mortgage on farm Wealthy consumer Purchasing of a seaside apartment for investment purchases Good Term Mortgages are appropriate forms of financing for purchase of property. Extension of mortgage is time saving as it does not require the repetition of procedures .
Foreign currency seven year variable rate loan financed from bank’s own foreign fund pool and supported by mortgage on financed chattels Medium size business Local interest rates in this country regarded as extremely high. Foreign rates much lower for purchase of manufacturing equipment. Good Global markets should be accessed for getting best deals.
Increase in residential mortgage Consumer Buy new car. Sufficient equity on existing house mortgage Not good Car loans are priced differently than property loans ,they are for short time periods and the interest rate is much higher Car loan/Personal loan
Personal loan Farmer Interim 8 month finance required to cover costs of planting wheat on agricultural property. Loan will be repaid after harvesting. Not Good Loan supported by sufficient collateral Very high risk if not supported by collateral
Factoring of debtors Small business with good debtor book but no collateral to provide to bank Working capital to assist business with seasonal liquidity requirements Not Good Overdraft Debtors have not entered into any agreement with the banks. Hence applicant should rely on Self resources, outstanding accounts receivables, mortgage agreement.If he still has to seek loan he can seek overdraft, but repay as soon as he realizes outstanding payments.
Increase in credit card limit Consumer Finance of best holiday ever Good if accompanied by higher balances Increase in credit card limit has to be accompanied by higher balances and higher interest rates.
Question 2
You are provided with the following information:
Background
You are a business development officer of ANZ bank in Perth. An existing customer of yours told you about Mr Mark Angelo who is presently banking with Commonwealth bank. You were told that Mr Angelo is a very rich and influential customer who could be approached to move his business to your bank should you be able to offer him favourable rates. During your initial contact with Mr Angelo he indicated that he is not looking for another banker but that you should provide him with a proposal which he can consider.
MARK ANGELO
STATEMENT OF FINANCIAL POSITION AS AT 1 SEPTEMBER 20XX
ASSETS
Residential property – Mill Point Rd, South Perth $ 15 000 000
Holiday home – Dunsborough $ 5 160 000
Vineyard farm – Margaret River $ 7 500 000
Investments:
Mark Equipment Pty Ltd – 50% shareholding $ 1 527 600
Mark Equipment Pty Ltd – loan account $ 5 325 800
Fixed deposit $ 750 000
Vehicles:
20XX Range Rover $ 80 000
20XX Mercedes 600 SL $ 190 000
20XX Porsche $ 190 000
Household goods, Persian carpets and work of art $ 1 000 000
$ 36 723 400
LIABILITIES
Bond on Mill Point Rd, South Perth property $ 11 500 000
Bond on Dunsborough property $ 2 500 000
Bond on farm $ 4 500 000
Instalment sale agreements on vehicles $ 1 000 000
Overdraft $ 50 000
$ 19 550 000
Net asset value $ 17 173 400
Use the case study information about Mr Mark Angelo to answer the following questions:
a. What credit products supplied to Mr Angelo by Commonwealth bank can ANZ possibly take over if Mr Angelo can be convinced to change his bank?
Ans.
Given above is the financial position statement of a person and not a firm. Hence we will consider personal banking products.
Personal Credit products supplied to Mr Angelo by Commonwealth bank that can be possibly taken over by ANZ include:
Property Loans: as seen above from the financial position statement of Mr Angelo, under the liabilities heading ,is included Bonds on three personal properties, namely, South Perth property, Dunsborough property, farm property. If these properties are shown under liabilities heading, it implies that they have been procured on loan and requires periodic repayments of loan. Loans are generally sourced through banks. Banks keep as collateral, the property papers and in the event of the debtor not being able to repay the loan at any point of time; bank has the right to sell the property to recover its money. These loans have long tenure; can be 10 to even 20 years, with comparatively lower interest rates.
Personal Loans: personal loans are short term loans, generally for five years or less and can be sought for vehicle purchase, overdraft, renovation, holidays etc. These loans are for short duration and comparatively carry high interest rates. From the financial position statement of Mr. Angelo, it can be seen that the liabilities section includes instalment on vehicles and overdraft. These loans can be covered by personal loans, sourced through banks.
b. What products will you, as business development officer of ANZ bank, offer to Mr Angelo to replace the products of Commonwealth bank, and what additional products may be appropriate? Substantiate your answer by providing reasons why you regard each of the products that you will offer to him as applicable.
Ans. The products that can be offered to Mr Angelo by ANZ bank, are as follows:
Products Reason
Property Loans For South Perth, Dunsborough and farm property
Personal Loan For instalment on vehicles and overdraft
Commercial bills
Bank Account For everyday transactions, savings deposit and fixed deposits, for receiving amounts due from returns on investments in Mark Equipment Pty Ltd and carrying out other routine monetary transactions and saving money accumulated and money received in simple savings deposit or fixed deposits(term deposits).By keeping money in savings or fixed deposits interest can be earned; fixed deposits offer a higher rate of interests as compared to savings deposit.
Credit Cards, prepaid cards and debit cards To enable cashless monetary transactions on credit , debit or pre paid basis. Many types of such cards can be opted for so as to suit personal needs, for example platinum credit cards enable payment for overseas travel and are linked with medical insurance plans.
Insurance Products
i)General Insurance
a)Home Insurance For insurance against risk associated with personal property
b)Landlord Insurance For providing cover against risks associated with realizing rentals for self owned property
c)Car(Vehicle) Insurance Includes cover for risks associated with self or other’s vehicle.
d)Travel Insurance Includes cover for risks during travel such as medical, theft,
e)Business Insurance Includes cover against risks associated with business such as property and asset damage, theft, interruption in business etc.
f)Health Insurance Includes cover for risks associated with sudden health and medical related emergencies.
Personal Insurance
Life insurance Provides cover against risks associated with death or life threatening illnesses
Income protection insurance Provides cover against risks associated with temporary inability to continue work.
Total and permanent disability insurance Provides cover against the risks associated with permanent disability.
Trauma Provides a benefit upon the occurrence of a specified disease or illness.
Living expense insurance Provides cover during illness.
Consumer Credit Insurance
Mortgage Protection insurance Provides cover against debtor’s inability to pay mortgage due to accident etc.
Loan Protection insurance Provides cover against various loans and protects mortgage.
Credit card insurance In the event of unfortunate incident, credit card amount is paid by bank if this insurance has been availed.
Investing Advice
Shares and Managed funds Provides online share trading options
Investment Loans Provides advice on various investment options.
Present Planning and advice Includes financial planning of existing wealth
Private Banking Services
Deposit and transaction products Includes at call deposits and cheque accounts, overdrafts, term deposit ,cash management, internet banking and telephone banking
International Services Includes travellers cheques and global ATM access, off shore banking services, foreign exchange execution services, foreign currency deposit accounts.
Capital market instrument access Such as Government and Corporate Bonds, bank bills, treasury deposits, commercial paper, debt equity hybrids, equity derivatives, enhanced yield deposits
Alternative and Structured Investments Includes private equity, unlisted property and mezzanine debt, infrastructure investments, bespoke investment solutions, enhanced yield investments
Managed Investments and Equities Domestic and international portfolio advice and solution, advisory or discretionary based portfolio management, access to initial public offerings.
Estate Planning and Asset Protection Includes will preparation, testamentary discretionary trusts, powers of attorney, family trust succession planning, asset protection strategies, superannuation death benefit planning, trustee services.
As per ANZ website as on April 11, 2012 (www.anz.com)
c. Identify and list the three most suitable types of collateral that ANZ bank can request from Mr Angelo for taking over his credit facilities from Commonwealth bank.
Ans. The three most suitable types of collateral that ANZ bank can request from Mr. Angelo, for taking over credit facilities from Commonwealth bank, are as follows:
Property Documents: These are with respect to mortgage or property loans which are long term loans ranging from 10 to even 20 years. In the event of debtor becoming unable to repay loan amount at any point of time, the loan money can be recovered by bank, by sale of property.
Fixed Deposit Certificates: These are for short term personal loans generally for five years or less.
Investment Papers in Mark Equipment Pty Ltd.: in the event of the debtor becoming unable to repay loans,these can be partly or wholly converted into money by bank.
d. Answer the following questions for each of the three prominent types of collateral identified in c. above:
i. Can the bank easily obtain effective control or custody over the asset?
ii. Can the bank realise the asset quickly and with little expense?
iii. What is the possibility that the collateral can become worthless?
Complete the table to answer this question. Substantiate your answers with good reasons.
Collateral Can the bank easily obtain effective control or custody over the asset?
Can the bank realise the asset quickly and with little expense?
What is the possibility that the collateral can become worthless?
Property Documents yes yes In the event of property becoming devalued, decrease in market prices of property
Fixed Deposit Certificates yes yes Very less possibility wrt principal amount, interest rates can fluctuate though
Investment Papers in Mark Equipment Pty Ltd yes yes Depends on the performance of Mark Equipment, if performance is good and the value of its shares and securities go up, then these can be readily sold in the market to realize debt amounts. On the other hand if performance is poor and prices of its shares and securities fall, then it will be difficult to sell them and realize payments in lieu of debt
Reference
“Personal”, last modified April 11, 2012, www.anz.com.
“Small Business”, last modified April11,2012,www.anz.com.
SOLUTION
Ans. There are different types of loan products. Loan products should be matched with customer requirements so as to realize maximum worth of money and keep cost of money to minimum. Websites of major banks provide sufficient detail regarding various products. As per ANZ website as on April 11, 2012 (www.anz.com)
Type of loan Type of customer Need Matching good or not? Recommended form of finance Reason why matching is good/not good
Overdraft Small business To finance holiday of owner Not good Credit cards Overdrafts should only be used for financing short term working capital requirements in business.
Term loan supported by mortgage over property Large business To purchase a residential property in which the Manager of the production plant of the business will stay. Not good Residential Mortgage Loan Term loans are used for financing long term permanent working capital requirements or purchase of equipment/machinery. Property cannot be considered as working capital. It is fixed asset.
Credit cards for sales staff of company Large (corporate) businesses To use as form of payment for regular dining, travelling etc. Not Good Working Capital Loan Credit cards should be used in personal accounts. Food and travel expenses incurred during official work should be properly supported by bills before being sanctioned. Filling up of vouchers and attachment of bills by sales staff and submission to accounts dept. These are working capital requirements and can be funded by funds used for financing working capital
Financial lease Consumers To purchase a cabin cruiser boat Not Good Personal Loans Financial lease should be used to fund long term business capital requirements
Term loan with chattel over machines and letter of credit Farmers To import machinery that will be used in the manufacturing of products Good With such loans farmers will be able to procure the needed machinery for improving their farming productivity; they can repay the loan amount in Equated monthly instalments out of their monthly earnings. After certain type when the loan gets repayed, the farmer can get ownership of the machine, whereas in hire purchase alternative the farmer will have to pay a certain monthly rent and will not get ownership. Hence if the machinery is for long term permanent use, then this form of financing is appropriate.
6 month bank acceptance of $6 million with overdraft replacing it for another 6 months Large boat manufacturing company Funds needed for 6 months to pay for material to complete the manufacturing of a commercial boat that has to be built on order. Large contract payment will be used to repay loan. Not Good Term loan supported by adequate and appropriate Collateral Contract for items to be built on order should be accompanied by advance payments, if not in whole then in part, payable periodically, so as to cover the expenses incurred in manufacturing. If the manufacturer is working without any advance, then in this case he is incurring high risk and if he still wants to take the risk, then he must provide adequate and appropriate collateral for taking a Term loan.
Revolving credit Medium size business in a growing marketing environment The business provides credit to its customers and requires additional working capital Good Revolving credit can be used for financing sort term liquidity requirements of firms including their working capital requirements. The debtors can repay their monthly instalments out of the money realized by sale of its products.
Overdraft supported by industrial mortgage Manufacturing company Purchase of industrial land and putting up of a large building for operational business activities Not Good Commercial or Industrial mortgage loan Overdrafts are used for financing working capital or fluctuating short term liquidity requirements of a firm. Industrial land or property is fixed asset and not working capital.
Increase in existing term loan on farm property supported by mortgage on farm Wealthy consumer Purchasing of a seaside apartment for investment purchases Not Good Property loan Term Mortgages are appropriate forms of financing for permanent working capital requirement, purchase of machinery and equipment. Seaside apartment is a property and fixed asset.
Foreign currency seven year variable rate loan financed from bank’s own foreign fund pool and supported by mortgage on financed chattels Medium size business Local interest rates in this country regarded as extremely high. Foreign rates much lower for purchase of manufacturing equipment. Good Global markets should be accessed for getting best deals.
Increase in residential mortgage Consumer Buy new car. Sufficient equity on existing house mortgage Not good Car loans are priced differently than property loans ,they are for short time periods and the interest rate is much higher Car loan/Personal loan
Personal loan Farmer Interim 8 month finance required to cover costs of planting wheat on agricultural property. Loan will be repaid after harvesting. Not Good Overdraft, supported by sufficient balance/insurance cover/collateral Since payment will not be in monthly instalments, term loan or personal loan cannot apply. Since loan repayment is expected within a year overdraft credit instrument is most suitable
Factoring of debtors Small business with good debtor book but no collateral to provide to bank Working capital to assist business with seasonal liquidity requirements Good Factoring is a credit service provided by many banks. The firm is exempted from administration of the factors and the bank keeps track of the payments due and realizes them timely. Factoring is an expensive credit option, but since the firm has no collateral, this form of financing is suitable.
Increase in credit card limit Consumer Finance of best holiday ever Good if accompanied by higher balances Increase in credit card limit has to be accompanied by higher balances and higher interest rates.
Question 2
You are provided with the following information:
Background
You are a business development officer of ANZ bank in Perth. An existing customer of yours told you about Mr Mark Angelo who is presently banking with Commonwealth bank. You were told that Mr Angelo is a very rich and influential customer who could be approached to move his business to your bank should you be able to offer him favourable rates. During your initial contact with Mr Angelo he indicated that he is not looking for another banker but that you should provide him with a proposal which he can consider.
MARK ANGELO
STATEMENT OF FINANCIAL POSITION AS AT 1 SEPTEMBER 20XX
ASSETS
Residential property – Mill Point Rd, South Perth $ 15 000 000
Holiday home – Dunsborough $ 5 160 000
Vineyard farm – Margaret River $ 7 500 000
Investments:
Mark Equipment Pty Ltd – 50% shareholding $ 1 527 600
Mark Equipment Pty Ltd – loan account $ 5 325 800
Fixed deposit $ 750 000
Vehicles:
20XX Range Rover $ 80 000
20XX Mercedes 600 SL $ 190 000
20XX Porsche $ 190 000
Household goods, Persian carpets and work of art $ 1 000 000
$ 36 723 400
LIABILITIES
Bond on Mill Point Rd, South Perth property $ 11 500 000
Bond on Dunsborough property $ 2 500 000
Bond on farm $ 4 500 000
Instalment sale agreements on vehicles $ 1 000 000
Overdraft $ 50 000
$ 19 550 000
Net asset value $ 17 173 400
Use the case study information about Mr Mark Angelo to answer the following questions:
a. What credit products supplied to Mr Angelo by Commonwealth bank can ANZ possibly take over if Mr Angelo can be convinced to change his bank?
Ans.
Given above is the financial position statement of a person and not a firm. Hence we will consider personal banking products.
Personal Credit products supplied to Mr Angelo by Commonwealth bank that can be possibly taken over by ANZ include:
Property Loans: as seen above from the financial position statement of Mr Angelo, under the liabilities heading ,is included Bonds on three personal properties, namely, South Perth property, Dunsborough property, farm property. If these properties are shown under liabilities heading, it implies that they have been procured on loan and requires periodic repayments of loan. Loans are generally sourced through banks. Banks keep as collateral, the property papers and in the event of the debtor not being able to repay the loan at any point of time; bank has the right to sell the property to recover its money. These loans have long tenure; can be 10 to even 20 years, with comparatively lower interest rates.
Personal Loans: personal loans are short term loans, generally for five years or less and can be sought for vehicle purchase, overdraft, renovation, holidays etc. These loans are for short duration and comparatively carry high interest rates. From the financial position statement of Mr. Angelo, it can be seen that the liabilities section includes instalment on vehicles and overdraft. These loans can be covered by personal loans, sourced through banks.
b. What products will you, as business development officer of ANZ bank, offer to Mr Angelo to replace the products of Commonwealth bank, and what additional products may be appropriate? Substantiate your answer by providing reasons why you regard each of the products that you will offer to him as applicable.
Ans. The products that can be offered to Mr Angelo by ANZ bank, are as follows:
Products Reason
Property Loans For South Perth, Dunsborough and farm property
Personal Loans For instalment on vehicles and overdraft
Bank Account For everyday transactions, savings deposit and fixed deposits, for receiving amounts due from returns on investments in Mark Equipment Pty Ltd and carrying out other routine monetary transactions and saving money accumulated and money received in simple savings deposit or fixed deposits(term deposits).By keeping money in savings or fixed deposits interest can be earned; fixed deposits offer a higher rate of interests as compared to savings deposit.
Credit Cards, prepaid cards and debit cards To enable cashless monetary transactions on credit , debit or pre paid basis. Many types of such cards can be opted for so as to suit personal needs, for example platinum credit cards enable payment for overseas travel and are linked with medical insurance plans.
Insurance Products
i)General Insurance
a)Home Insurance For insurance against risk associated with personal property
b)Landlord Insurance For providing cover against risks associated with realizing rentals for self owned property
c)Car(Vehicle) Insurance Includes cover for risks associated with self or other’s vehicle.
d)Travel Insurance Includes cover for risks during travel such as medical, theft,
e)Business Insurance Includes cover against risks associated with business such as property and asset damage, theft, interruption in business etc.
f)Health Insurance Includes cover for risks associated with sudden health and medical related emergencies.
Personal Insurance
Life insurance Provides cover against risks associated with death or life threatening illnesses
Income protection insurance Provides cover against risks associated with temporary inability to continue work.
Total and permanent disability insurance Provides cover against the risks associated with permanent disability.
Trauma Provides a benefit upon the occurrence of a specified disease or illness.
Living expense insurance Provides cover during illness.
Consumer Credit Insurance
Mortgage Protection insurance Provides cover against debtor’s inability to pay mortgage due to accident etc.
Loan Protection insurance Provides cover against various loans and protects mortgage.
Credit card insurance In the event of unfortunate incident, credit card amount is paid by bank if this insurance has been availed.
Investing Advice
Shares and Managed funds Provides online share trading options
Investment Loans Provides advice on various investment options.
Present Planning and advice Includes financial planning of existing wealth
Private Banking Services
Deposit and transaction products Includes at call deposits and cheque accounts, overdrafts, term deposit ,cash management, internet banking and telephone banking
International Services Includes travellers cheques and global ATM access, off shore banking services, foreign exchange execution services, foreign currency deposit accounts.
Capital market instrument access Such as Government and Corporate Bonds, bank bills, treasury deposits, commercial paper, debt equity hybrids, equity derivatives, enhanced yield deposits
Alternative and Structured Investments Includes private equity, unlisted property and mezzanine debt, infrastructure investments, bespoke investment solutions, enhanced yield investments
Managed Investments and Equities Domestic and international portfolio advice and solution, advisory or discretionary based portfolio management, access to initial public offerings.
Estate Planning and Asset Protection Includes will preparation, testamentary discretionary trusts, powers of attorney, family trust succession planning, asset protection strategies, superannuation death benefit planning, trustee services.
As per ANZ website as on April 11, 2012 (www.anz.com)
c. Identify and list the three most suitable types of collateral that ANZ bank can request from Mr Angelo for taking over his credit facilities from Commonwealth bank.
Ans. The three most suitable types of collateral that ANZ bank can request from Mr. Angelo, for taking over credit facilities from Commonwealth bank, are as follows:
Property Documents: These are with respect to mortgage or property loans which are long term loans ranging from 10 to even 20 years. In the event of debtor becoming unable to repay loan amount at any point of time, the loan money can be recovered by bank, by sale of property.
Fixed Deposit Certificates: These are for short term personal loans generally for five years or less.
Investment Papers in Mark Equipment Pty Ltd.: in the event of the debtor becoming unable to repay loans,these can be partly or wholly converted into money by bank.
d. Answer the following questions for each of the three prominent types of collateral identified in c. above:
i. Can the bank easily obtain effective control or custody over the asset?
ii. Can the bank realise the asset quickly and with little expense?
iii. What is the possibility that the collateral can become worthless?
Complete the table to answer this question. Substantiate your answers with good reasons.
Collateral Can the bank easily obtain effective control or custody over the asset?
Can the bank realise the asset quickly and with little expense?
What is the possibility that the collateral can become worthless?
Property Documents No No In the event of property becoming devalued, decrease in market prices of property
Fixed Deposit Certificates yes yes Very less possibility wrt principal amount, interest rates can fluctuate though
Investment Papers in Mark Equipment Pty Ltd yes yes Depends on the performance of Mark Equipment, if performance is good and the value of its shares and securities go up, then these can be readily sold in the market to realize debt amounts. On the other hand if performance is poor and prices of its shares and securities fall, then it will be difficult to sell them and realize payments in lieu of debt
Reference
“Personal”, last modified April 11, 2012, www.anz.com.
“Small Business”, last modified April11,2012,www.anz.com.
JH22
But you can order it from our service and receive complete high-quality custom paper. Our service offers “Accounting” essay sample that was written by professional writer. If you like one, you have an opportunity to buy a similar paper. Any of the academic papers will be written from scratch, according to all customers’ specifications, expectations and highest standards.”
