Showing papers on "Collateral published in 1979"
TL;DR: In this article, the authors present a model of the credit evaluation phase of the commercial loan decision, which includes three major sources of information relating to credit worthiness: financial statement data, management evaluation, and outside credit ratings.
Abstract: When evaluating a prospective customer, the commercial banker's main task is to judge the prospect's ability to pay the obligation as stated in the loan agreement.' Judging ability to pay or "credit risk" requires the loan officer to estimate the probability distribution of the customer's future cash flows available to service the debt. Cash flows from operations and collateral provide the sources of repayment. Financial statement information plays a major role in the credit evaluation phase of the commercial loan decision. Cohen, Gilmore, and Singer [1966] present a descriptive model of this decision component. The generality of the basic elements of this model is supported by its concurrence with descriptions of the credit analysis process presented in many articles written by banking practitioners and academics (e.g., Jilk [1972], Smith [1974], Houget [1975], Reed et al. [1976]) and with my discussions with bankers. Three major sources of information relating to credit worthiness are specified in the model: financial statement data, management evaluation, and outside credit ratings. The first two sources are of primary importance for most new customers. In general, the financial statements indicate the nature of assets available to serve as collateral and the sources and amounts of prior years' cash flows from operations.
112 citations