the Credit analysis is the examination used by a bank to assess a borrower’s creditworthiness (credit rating) before granting a loan. The terms “creditworthiness assessment” and “credit rating assessment” are equivalent.
Quantitative and qualitative factors
The bank starts by focusing on financial regulations and key performance indicators: equity ratio, liquidity ratios and profitability. The overall capital profitability shows the bank, for example, how successfully the company as a whole operates. Equally important are qualitative factors: corporate strategy, management quality, competitive conditions (industry development, strength of competition, supplier and customer structure), strategy and process organization, controlling and risk management, and the potential of employees.
Personal and economic creditworthiness
Personal creditworthiness assesses the reliability of the borrower. Criteria include their professional and technical qualifications and their previous dealings with money. Economic creditworthiness asks whether the borrower can service the loan with interest. To do this, the bank, for example, evaluates income statements and balance sheets. Banks often conduct the creditworthiness assessment as a scoring method.
Rating
Credit assessment is also known as a rating. In credit assessment, the assessment of payment ability takes center stage. In internal credit assessment, the bank itself assesses the creditworthiness. To do this, it uses knowledge from previous business relationships and needs the cooperation of the company, especially regarding qualitative factors. In addition, there is external credit assessment. Both forms calculate the probability of default for a company’s payment obligations using mathematical and statistical methods. The better the credit assessment, the more favorable the terms and conditions are for the company.
Reference to the sum and balance list
As part of a credit analysis, a bank wants to see the sum and balance list (SuSa) as a financial reporting document for the operational business evaluation (BWA). The bank thus checks whether the values in the lines of the BWA are consistent with the lines in the SuSa. In addition, the SuSa serves to calculate liquidity and evaluate cash flow.
Demarcation
A bank's credit analysis is not the same as the credit check in SAP Business One. The credit check in the system checks the customer's credit limit.
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