Econometric modelling of bank activities: value-based approach to the problem loans terms’ rescheduling

The permanent state of the financial crisis has predictably brought to the forefront such traditional problem of banking as problem loans. This research aims to work out an econometric approach to the solution of the problem of loans terms’ rescheduling. For this purpose, we, firstly, treated credit as a bank’s investment project with cashflows’ chart including initial outflow (principal) and following inflows represented by loan payments. Secondly, we combined the schematic representation of loan’s cashflows with NPV formula accustomed to loan’s cashflows and it allowed to create the econometric models for three types of loan: classic, annuity, serial. Thirdly, for the case when borrower breaks a loan’s payment schedule and it leads to the reduction of loan’s NPV and loss of the wealth of bank’s shareholders, respectively, we outlined special compensative models of cashflows where default in payment is interpreted by the lender as an additional forced loan. We suggested modifying the loan terms (interest rate or effective period of the loan agreement) for the rest of payment periods. Fourthly, we laid the special compensative models of forced loans’ cashflows a top corresponded initial cashflows of loans and this has made it possible to get formulas calculating the modified interest rate and the additional number of loans’ payment periods with the aid of backward calculation. As a result, we developed the econometric models of the loan terms’ modifications based on the prolongation of the initial credit period and the increasing of the initial interest rate.

The Impact of the Extra-Costs on the Global Cost of Credit

In this note, we analyze the impact of the extra-costs payment schedule on the Effective Annual interest Rate (EAR), one of the most popular global cost measures of consumer credit loan payments. First, we prove that the EAR can be expressed by the financing credit interest rate with an extra-costs interest rate addendum, and we investigate the drivers of this latter. We show that the extra-costs interest rate decreases if extra-costs payments are postponed. Consequently, the EAR is minimum if extra-costs are charged in a lump sum at the expiry date of the contract and maximum if they are charged in a lump sum at the contract beginning time. To explain how the schedule of payments impacts on the EAR, we develop a sensitivity analysis through illustrative applications. We also highlight that EAR depends on the timing of extra-costs payments. In particular, we show that EAR decreases with the increase in the Modified Duration of the cash flow of extra-costs. The results of the paper are useful to provide decision-makers a better awareness about how to spread the extra-costs payments during the contract lifetime and, therefore, to define the structure of consumer credit loan payments to supervise the global cost of the financing.

INSTRUMENTS FOR CASH FLOW MANAGEMENT OF CONSTRUCTION ENTERPRISES

Introduction. Financial state of the construction enterprise, level of its financial stability, creditworthiness and liquidity depend on the availability of current assets, net cash flow (positive or negative), which is formed in the course of conducting payment transactions. The subject of the research is the flow of money of the construction enterprise. The research objectives: identifying the causes of current assets constraints at the construction industry enterprises; using projected cash flow budget and payment schedule as instruments of managing the enterprise cash flow. The purpose of the article is to determine the instruments for cash flow management of construction enterprises, taking into account the peculiarities of their activities. Method (methodology). The article suggests developing projected cash flow budgets and payment schedule to manage cash flows more efficiently (prevent negative net cash flow) based on estimates made by construction enterprises to determine the construction cost. The purpose of the payment schedule is to determine the flow of funds for the next day and the current week as a supplement and detailing of the projected cash flow budget. Research results. The use of the projected cash flow budget and payment schedule at the construction industry enterprises will help the management team to control the incoming and outgoing cash flows, form the data base for making decisions on the efficient use of funds. It will also promote the search for additional funding sources of the enterprise activity in the period of budget deficit as well as pre-justified investment of capital in the period of budgetary surplus Thus, the formation of projected cash flow budgets and payment schedule can be an important instrument for efficient cash flow management of construction enterprises. The method of formation of mutually agreed forecast budget of cash flow and payment calendar with definition of indicators of their efficiency in management of cash flows and a financial condition of the enterprise as a whole needs further improvement. The technique of forming mutually agreed projected cash flow budget and payment schedule along with the definition of their efficiency indicators in managing cash flows and the overall enterprise financial state requires further improvement.

Analisis Strategi 5c Dalam Penyelesaian Kredit Bermasalah Bank Perkreditan Rakyat Md Di Lamongan Jawa Timur

This study aims to find out the 5Cs strategy adopted in the process of settlement of non-performing loans. Research data were analyzed with descriptive qualitative approach, and collected by studying documents, observation and interviews. These results indicated that the strategy had been implemented effectively in resolving loan problem showed by the decrease of loan problem number from year 2012 to 2014. Data obtained from the Peoples Credit Bank (PCB) MD in the provision of credit could not be separated from non-performing loans. The factors are the failure of the debtor's business, bad characters, house transfering and death of the borrower. Credit settlement strategy undertaken by PCB MD were rescheduling, reconditioning and restructuring. Rescheduling was a change in credit terms concerning the payment schedule and time period, the amount of installment, and the grace period. Reconditioning (back requirements) was a partial or total changes in credit terms which was not limited to, changes in payment schedules, duration, and or other requirements, as long as no change plafon credit. And restructuring (or realignment) was including changes in conditions before credit terms: the addition of bank funds, conversion of all or part of the areas of interest into a new loan principal.

Types of Swaps

A swap is a bilateral over-the-counter derivatives contract in which two parties agree to exchange cash flows on a “notional amount” over a period of time. The notional amount is a reference amount upon which the payment formula is based. The parties exchange cash flows pursuant to an agreed-upon payment schedule, made up of one or more payment dates throughout the life of the contract. Cash flows are computed by applying the agreed-upon formula relating to each party's respective set of payments of the swap to a notional amount, that is, a hypothetical underlying value that does not necessarily itself change hands. This chapter discusses “plain vanilla” interest rate swaps, currency swaps, credit-default swaps, and the move toward regulatory reform.

A Comparative Analysis on Efficiency of the Student Loan Repayment Policy in Ghana, Kenya, Tanzania, Rwanda and Nigeria

The Ghanaian student loan has been touted as an innovative policy to enhance human development yet the policy is contending with inherent inefficiencies. With the general objective of this study, to critically analyze the success and sustainability of the SLTF loan in Ghana through the repayment and recovery rate using the relative efficiency index (REI=Repayment Ratio / Recovery Ratio) as compare to other Africa countries. This research analyzed the repayment mechanism used in the Ghanaian SLTF and the other countries under study, focusing on a payment schedule, time-frame and the interest rate applied. From the research, although the repayment ratio is high mean, the value of loan amount is also high this suggests that there are gaps to be filled in terms of repayment. Loan repayment is also affected by the interest rate and the salary as shown in the data. The researcher recommends that the loan amount should be reviewed upwards while the repayment period of the student loan remains 10years. With trending issues based on others literature on student loans, the researcher can predict that the loan efficiency would be positive if a high percentage of the loans are paid by student borrowers within the repayment period.

VARYING CONTRACTS

MWB Business Exchange Centres Ltd. v Rock Advertising Ltd. [2016] EWCA Civ 553 deals with a number of important issues concerning variation of contracts. Rock occupied as licensee premises managed by MWB. In August 2011, Rock decided to expand its business, and entered into a written agreement with MWB for larger premises for 12 months beginning 1 November 2011. The licence fee was agreed to be £3,500 per month for the first three months, and then £4,433.34 from 1 February 2012. Unfortunately, Rock's business was not as successful as hoped and, by late February 2012, it had incurred arrears of over £12,000. MWB gave notice purporting to terminate the agreement, but the parties then orally agreed to reschedule the licence fee payments due from February to October 2012: Rock would pay less than the originally agreed amount for the first few months, but after that would pay more, with the result that the arrears would be cleared by the end of the year. Pursuant to this agreement, Rock paid £3,500 to MWB, which was the first instalment due in accordance with the revised payment schedule. However, MWB subsequently changed its mind and sued for the arrears. MWB presented two arguments why Rock could not rely upon the oral variation. First, MWB pointed to an anti-oral variation clause in the written contract. Second, MWB relied upon Foakes v Beer (1884) 9 App. Cas. 605 for the proposition that the variation was not supported by consideration. Both arguments failed before a unanimous Court of Appeal (Arden, Kitchin and McCombe L.JJ.).